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Can Japan’s new form of capitalism boost hope for a greener future?

Through his flagship policy, Japanese Prime Minister Kishida Fumio expresses strong determination to achieve ambitious environmental goals. How can public and private sectors work together to overcome the obstacles?

In January 2022, Japan’s Prime Minister Kishida Fumio set out plans at the World Economic Forum to establish a “new form of capitalism”, pledging to pursue sustainable economic and social developments by prioritising people and the planet in his government’s policies.

His speech criticised state capitalism without checks and balances for bringing challenges like climate change, widening income gaps, rural-urban disparities and social tensions. “That is why I want to transform the economy and society towards a new era of protecting the universal value of democracy,” he added.

Transforming Japan’s decades-long growth model centred around neoliberalism has been Kishida’s flagship programme since he took office in October 2021. The proposed replacement is a “virtuous cycle of growth and distribution” created by promoting digitisation, increasing wages and curtailing climate change, all of which will require large-scale structural reforms.

Reaching ambitious environmental goals

Combating climate change is a key element in Kishida’s agenda to achieve sustainable growth. In 2021, Japan renewed its environmental goals by drastically raising its carbon emissions reduction target by 2030 from 26% to 46% and advancing the year of attaining carbon neutrality to 2050. He has put forward several policy proposals to reshape the energy sector, including doubling investment in green technology, building next-generation grids, promoting research into new nuclear technology and introducing a carbon pricing system.

The initiatives are deemed by stakeholders in the energy sectors as an encouraging signal to speed up the renewable energy transition in Japan, which is the world’s sixth largest greenhouse gas emitter and highly dependent on fossil fuels for power generation compared with other developed economies. Its carbon intensity notably increased after 2011 when most of Japan’s nuclear facilities idled after the Fukushima accident. According to the International Energy Agency, 88% of Japan’s primary energy supply was produced by fossil fuels in 2019, in contrast to 75% in Germany and 60.8% in the US.

Increasing investment in green technology and building next-generation grids will accelerate the expansion of renewable energy and the development of future fuel technology.

Nicolas Leong, Energy Business Director, North & Southeast Asia at Wärtsilä

Due to geographical restrictions, renewable energy facilities in Japan are mostly located far from the big cities that consume most of the electricity. According to Leong, the construction of more advanced grids can facilitate the distribution of renewable power and scale up the share of clean energy. However, Japan’s renewables capacity is rather low because its deep coastal waters and mountainous terrain limit the feasibility of building wind turbines and solar farms.

In a 2021 report, consulting firm McKinsey advised that after Japan reached its renewables capacity, its power sector would need to start using alternative fuels such as hydrogen and ammonia to provide sufficient green electricity while cutting carbon emissions in the long run.

Overcoming obstacles through public-private collaboration

Besides those renewables limitations, Japan faces challenges to reach its climate targets. The country is frequently hit by natural disasters that disrupt its power networks, has a low energy self-sufficiency rate, and needs to be careful about potential price spikes resulting from introducing renewables too quickly. On top of that, the Japanese public still has a negative attitude towards nuclear power following the Fukushima disaster.

When laying out his climate agenda, Kishida admitted that it would be “extraordinarily challenging” to reach Japan’s environmental goals. To overcome the vulnerabilities on the power supply side, he urged the public and private sectors to work together to transform and innovate toward a carbon neutral society. 

Energy technology providers already have ideal solutions in place to help Japan tackle the obstacles on its decarbonisation journey, such as hydrogen and ammonia engines, as well as internal combustion engine technology that can greatly enhance the flexibility of the power supply.

“A flexible power supply is essential to Japan moving forwards because power generation by renewables is relatively unstable compared to fossil fuels. As more renewable energy sources are introduced, Japan’s power producers need flexible assets to ensure a stable and sufficient power supply,” explains Leong.

Progress on the way

Despite optimism, it remains to be seen if Kishida’s plans will become a reality. Hiroshi Ohta, a professor at Waseda University in Japan who has long been following Japan’s energy policy, points out that the influential cabinet positions are dominated by politicians closely connected with energy-intensive industries. They are concerned about the higher costs of renewable energy and have shown their stance of favouring nuclear power over renewables.

The Japanese government has been encouraging regional decarbonisation by building ecocities and supporting green start-ups.

Hiroshi Ohta, professor at Waseda University, Japan

“In practice, Kishida’s government has not yet put a lot of effort into pushing forward the clean energy policies that will bring fundamental changes,” says Ohta. Since taking office, Kishida has held a special meeting to coordinate decarbonisation policies across relevant ministries only twice.

While Kishida’s “new capitalism” pledge waits to be proven, experts in Japan’s energy development are noticing gradual changes towards a greener future. “More and more power producers are recognising the need to introduce new technologies to realise the Japanese government’s climate targets,” says Leong. 

“The Japanese government has been encouraging regional decarbonisation by building ecocities and supporting green start-ups. Despite the reservations about Kishida’s promises, the introduction of more green energy is already happening in Japan, and it’s an irreversible trend,” echoes Ohta.

Written by

Letitia Lin