Japan Had Better Find Some Clean Energy or Risk Losing Its Biggest Businesses

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Japan’s major businesses are making moves to clean up their operations and their portfolios. More than 40 major Japanese companies have pledged to source 100% renewable electricity for their operations. More financial institutions in Japan than in any other country now support the framework developed by the Taskforce on Climate-Related Financial Disclosures for disclosing climate risks.

Bishkek, KyrgyzstanMost polluted air today, in sensor range 0 6 5 4 3 2 0 3 2 1 0 9 0 6 5 4 3 2 .0 4 3 2 1 0 0 1 0 9 8 7 0 2 1 0 9 8 0 9 8 7 6 5 0 8 7 6 5 4 0 1 0 9 8 7 Parts per million CO2 in the atmosphere

$69.​9B Renewable power investment worldwide in Q2 2020

50,​820 Million metric tons of greenhouse emissions, most recent annual data 31% Carbon-free net power in the U.K., most recent data -15.​37% Today’s arctic ice area vs. historic average 0 3 2 1 0 9 ,0 9 8 7 6 5 0 0 9 8 7 6 0 4 3 2 1 0 Soccer pitches of forest lost this hour, most recent data

Japan Inc.’s pledges to source renewable energy, though, are running up against the country’s physical and political energy landscape.

Japan imports nearly all of its fuel; it has relatively scarce empty space to host large-scale solar projects; and it has a lengthy and expensive permitting process for wind energy. The country’s regulatory framework, which favors its big power utilities, makes it very difficult for corporations to buy clean energy directly from generators. The combination of all these factors has created unbearable tension between the country and its leading companies. And the strain is beginning to show—Sony Corp, for instance, told Japan’s minister for administrative reform that it will need torelocate factories from Japan if it’s not able to source clean electrons locally.

Putting numbers to Japan’s emissions helps illustrate just what a challenge it will be to get the country to a point where Sony and its peers can source domestic clean electricity.

Power generation is responsible for more emissions than any other sector of the country’s economy. That in and of itself is not unusual—the U.S. was in the same position until only a few years ago. But unlike the U.S., Japan’s power emissions are rising thanks to the shutdown of its nuclear fleet, while emissions from industry, transport, and the commercial and residential sectors have been falling for nearly 20 years.

The emissions intensity of Japan’s power generation sector—the amount of carbon dioxide emitted for every unit of power generation—is also greater than that of other industrial, high-wage countries. Its power fleet’s emissions intensity is more than double that of the U.K., and more than eight times higher than that of France. In fact, it’s greater than the average across the entire European Union, with its 27 member countries, some of which are dependent on fossil fuels for power generation.

Companies are making serious efforts to obtain as much clean electricity as possible. But even these efforts run into fundamental challenges.

The first is that, try as they might, Japanese companies can’t host that much power generation close to home. Companies can build on-site solar generation on factory roofs, but given their often-significant power demands and the finite nature of the space available, major companies are unlikely to be able to meet their own power demands in this way. (Companies could buy clean energy certificates from existing renewable energy projects, a way to get credit for using zero-carbon energy without directly consuming it, but doing so doesn’t create any additional new power.) Analysis by BloombergNEF indicates that companies will be able to generate less than 20% of their power demand from projects on-site.

The second challenge is even bigger in scope. Japan has ambitious plans to reach net-zero emissions across the entire economy in three decades. That will mean electrifying sectors such as transport and industry that today use hydrocarbon fuels for most of their energy needs.  Those sectors will be competing with pure electricity consumers for clean power in a system where clean power demand already significantly exceeds supply.

The only way to solve Japan Inc’s existential electricity challenge is to provide much more clean power—not three decades from now, right now. Sony’s warning that it may have to move its factories in search of clean power may provide Japan’s government with its own imperatives. Either it can reform its electricity sector and its land use, or it will risk losing its prized global companies.

Nathaniel Bullard is a BloombergNEF analyst who writes the Sparklines newsletter about the global transition to renewable energy.

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