Shulman Advisory

Reducing Carbon Footprint in Japan: The Basics

Recently, headlines covering Japan’s commitment to becoming carbon neutral by 2050 and major corporations pledging to power their businesses with renewable energy have become increasingly common in Japan. Most of the latter have been businesses consuming large amounts of power and so, for businesses using relatively modest amounts of power, some of the concepts behind these efforts might be new. Yet, it will be inevitable that they too, eventually, work on cutting their emissions and start procuring clean energy.

In this series of articles, we will look at the topic in detail. Today, we will talk about what the overall trends are in Japan, what areas a company can optimize in terms of reducing greenhouse gas emissions, and what it means to procure low-carbon energy. In the next part, we will dive deeper into the specific options available to companies that want to procure green power in Japan.

If you are faced with the challenge of making your company more environmentally friendly, keep on reading.

Japan’s Increasing Commitment to Fighting Climate Change

Since 2006, the Japanese government has been requiring companies that emit large amounts of greenhouse gases (CO2, CH4, N2O, HFC, PFC, SF6, and NF3) to periodically calculate and report their emission levels. The Energy Efficiency Act requires companies emitting over 1,500 kL of crude oil equivalent per year to submit an annual report on their total energy consumption as well as their mid- to long-term energy efficiency improvement plans.

Subsequently, in 2012, Japan introduced the Global Warming Countermeasure Tax, which is levied on the use of fossil fuels (760 yen/kL of oil, 670 yen/ton of coal) and paid by the public as part of their utility bills. The Japanese government is currently considering introducing additional schemes to incentivize the use of environmentally friendly energy sources including a carbon pricing system and an emissions trading system.

At a higher level, the turning point in the country’s shift toward a more sustainable future came in October 2020, when the then-recently appointed Prime Minister Suga announced that Japan would aim to become carbon neutral by 2050. With that, Japan joined a list of 123 countries comprising 23.2% of the world’s total carbon emissions that have declared the same intention.

Partially as a result of that announcement, the number of Japanese municipalities that have pledged to become carbon neutral by 2050 increased from just four in September 2019 to as many as 191 in December 2020. This represents an increase from 19.5 million people, or about 15% of Japan’s population, to 89.1 million people, or about 70% of the country’s population, being covered by the carbon-neutral-by-2050 municipalities.

An increasing number of major Japanese companies have been making similar pledges as well. Among the 72 that announced their aim to become carbon neutral by 2050, the latest are:

  • Aeon (retailer), which aims to reduce carbon emissions from stores to zero by 2050 by installing solar panels and procuring renewable energy, among other things
  • JAL (airline), which aims to become carbon neutral by 2050 by replacing current aircraft with energy-efficient aircraft, utilizing biofuel, and purchasing carbon credits
  • JERA (power plant operator), which aims to become carbon neutral by 2050 by utilizing renewable energy, and co-firing ammonia and hydrogen in its coal and LNG- fired power plants
  • NEC (electronics manufacturer), which aims to reduce carbon emissions from energy use at factories and offices to zero by 2050

Some companies, including Nishimatsu Construction and Eneos, have set even more aggressive targets and aim to achieve carbon neutrality by 2030 and 2040, respectively.

The Three Types of Emissions Companies Can Cut

Taking a step back and looking at companies’ sources of greenhouse gas emissions, and by extension, at the levers that companies can pull to reduce their overall emissions, the GHG Protocol provides a globally-accepted three-pronged framework consisting of:

  • Scope 1: Direct emissions from company-owned and controlled resources; for example those produced by company vehicles or by direct burning of fuel at the company’s factories.
  • Scope 2: Indirect emissions that are generated during the production of the electricity, heat, or steam that a company purchases.
  • Scope 3: All of the other emissions generated by a company’s activities that are not included in Scopes 1 and 2. Among others, this can include emissions produced by the company’s vendors and customers during the production and delivery of goods.

To reduce their overall environmental footprint, companies can reduce their Scope 1 emissions by optimizing their processes and introducing more energy-efficient machinery, for example. They can also attempt to reduce their Scope 3 emissions by requiring their suppliers to adhere to certain environmental standards, among other things.

For most companies, however, reducing Scope 2 emissions by sourcing low-carbon or carbon-free energy is the main lever to pull. This is what the rest of this series will focus on.

Carbon-Free and Low-Carbon Energy Sources

For many, installing rooftop PV panels is what comes to mind as the first solution when thinking about reducing their carbon footprint. While that is certainly an option, there are other solutions as well.

As far as practical arrangements are concerned, we will cover those in the next instalment of this series. Here, however, we will look at the two big categories of clean(er) energy and at some of the concepts one needs to be aware of before going out to procure renewable power.

The most desirable way to procure clean energy is through the use of renewable power sources including solar, wind, hydro, geothermal, and, to an extent, biomass. These sources are generally considered to be carbon neutral and accounted for 18% of Japan’s total power production in FY2019 (up from just 9.4% in FY2010). Their growth in Japan has primarily been driven by the government’s feed-in-tariff incentive scheme.

Another category that plays a role in Japan’s decarbonization is low-carbon energy sources including nuclear and, to an extent, hydrogen. While nuclear power is truly not carbon neutral due to a considerable amount of greenhouse gases emitted during uranium mining, reactor construction, fuel reprocessing, and other stages in the lifetime of a nuclear power plant, the overall emissions are still considerably lower than those produced by fossil fuel-burning power plants. With hydrogen, there are still technological issues preventing scalability.

Key Concepts to Understand When Procuring Renewable Energy

The first key concept to understand is the difference between being carbon neutral “on paper” and actually only consuming clean power. While in the first case, a company can use “dirty” power and offset it by purchasing renewable energy credits, in the latter case, a company needs to ensure that it is physically only consuming clean power, by installing onsite PV panels like Aeon plans, for example. (There are other methods that we’ll get into in future installments of this series.)  The latter example, however, is complicated by the fact that PV panels only generate power during the day, and so, for a company to truly use only renewable power 24/7, the use of batteries or other arrangements may be required.

Another concept to understand is additionality. In other words, whether a company that is “going green” is also putting new renewable capacity in the overall system (by installing PV panels at its factory, for example) or simply purchasing power generated using existing capacity. While the former is more desirable in terms of environmental friendliness, it also tends to be a more complex solution.

Finally, it is also important to understand where the power that is being physically consumed is coming from geographically. Consumption of locally produced energy is preferred due to smaller transmission losses and thus reduced environmental impact. In Japan, the overall transmission loss is estimated to be as much as 5% of total power production.

Final Thoughts

While Japan has been slower in adopting renewable energy than some European countries, for example, interest in the issue has been increasing. The Japanese government has been introducing initiatives aimed at promoting renewable energy, including the feed-in-tariff scheme and the setting of goals to drive the shift towards reduction of the country’s environmental footprint. Japanese municipalities and companies have been following the trend as well.

As such, going forward, it is expected that pressures on companies large and small to use clean energy and reduce their emissions will be mounting. That is why, in the next installment of this series, we will be looking at some of the actual ways in which your company can take steps toward procuring clean energy and reducing its Scope 2 emissions.

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