SpecialArticle 1

Japan’s Green Growth
Strategy

By International Affairs Office, Industrial Science and Technology Policy and Environment
Bureau, Ministry of Economy, Trade and Industry (METI)

Background
In October 2020, Prime Minister Yoshihide Suga announced theaim of carbon neutrality in 2050. The international community hasentered a new era in which the response to climate change is seen
not as a constraint or a cost imposed on the economy but as anopportunity for further growth. The Green Growth Strategy is a set ofindustrial policies to create a “virtuous circle between the economyand the environment”. Catchphrases such as “a new mindset” and“reforms” come easily to mind, but “carbon neutral” will not be easy
to achieve. The role of the government is to provide full support toprivate companies which see this as a chance to be the leaders of
this new era by investing boldly to generate innovation.

CO2 Emissions from the Power Sector
Decarbonizing the power sector is important, since it accounted
for 37% of all CO2 emissions in 2020. Renewable energy sources will
be introduced to the maximum possible for this purpose. Electricpower systems will be developed to reduce costs and storage
batteries will be utilized to accommodate output fluctuations, whileharmonizing with the surroundings. Accordingly, it is necessary tocultivate offshore wind power industries and storage battery
industries as part of this growth strategy.
Thermal power generation in combination with the recovery of theCO2 will be pursued as an option. Specifically, a minimal use ofthermal power generation will be unavoidable worldwide, mainly in
Asia. Therefore, the government will pursue decarbonization ofthermal power generation as an option by developing technologies ofhydrogen/ammonia thermal power generation. In order to prepare
for such a future, it is necessary to create a hydrogen industry tomeet an increase in its supply and demand, develop infrastructure,and reduce costs. Similarly, it is necessary to develop carbon
recycling, which recovers carbon emitted from thermal power
generation and uses it as a resource, as a technology and establish it
as an industry. It is also necessary to create an industry capable ofsupplying fuel ammonia.
Nuclear power is an established decarbonization technology. While
making efforts to improve its safety and reducing reliance on it asmuch as possible, the Japanese government will continue to seek
making the most of nuclear power. It is necessary to proceed with34 Japan SPOTLIGHT • May / June 2021

restarting of reactors by placing utmost priority on safety, as well as
to develop safer next-generation reactors.

CO2 Emissions Beyond the Power Sector
Beyond the power sector, the electrification of the energy source
will be the core of the response. To meet heat demands, it will benecessary to incorporate the use of decarbonized fuels, e.g.
hydrogen, as well as of fossil fuels combined with CO2 recovery andreutilization. As this electrification will lead to increased electricity
demand, it will be necessary to help businesses engaged in
improving energy efficiency.
Specifically, the industrial sector will require innovations in the
manufacturing process, e.g. hydrogen reduction steelmaking. The
transportation sector has to use decarbonized fuels, for example
biofuel and hydrogen fuel, while promoting electrification. The
business and household sectors anticipate net-zero energy houses/buildings, electrification, hydrogen-powered systems, and use ofstorage batteries. All this means that it will be necessary to nurture
the hydrogen industry, electric vehicle and storage battery industries,
transportation-related industries, and housing- and building-relatedindustries as growth sectors.

Establishing Digital Infrastructure
To achieve the 2050 carbon neutral goal, it will be necessary todeal with issues regarding the digital control of electric power
networks, in addition to responding to these challenges in achieving
a desirable energy supply/demand structure. A resilient digital
infrastructure is the foundation of the Green Growth Strategy; green
and digital are an inseparable and indispensable pair. Thus, it isnecessary to nurture the semiconductor and information andcommunication industries as growth sectors, to strengthen thedigital infrastructure.
For example, the electricity sector requires digital technology forsmart grids; supply/demand adjustment for solar power and wind
power generation whose outputs vary with weather conditions;maintenance and inspections of infrastructures. In the transportation
sector, automatic driving of cars, drones, aircraft, and railways
through the use of digital technology not only enhances convenience
for the public but also efficiency in energy use. In factories, factory
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automation, robots, and other digital technology automate themanufacturing process. In office and household sectors, comfortable
life as well as energy efficiency will be realized with the introductionof smart houses which optimize reusable energy sources andstorage batteries, and service robots.

Green Growth Strategy Basedon Existing Initiatives
The technological seeds for achieving these goals are alreadybeing discovered through ongoing research and development. InJanuary 2020, the Japanese government released the Environment
Innovation Strategy, which aims to establish innovative technologies
for achieving the notion of “beyond zero” to reduce the CO2emissions that have accumulated in our atmosphere since theIndustrial Revolution. The issues laid out there are being studied infurther depth by the government. When these innovativetechnologies are established, the challenge of deployment andimplementation is the next issue to be solved and reducing costs bylarge-scale production is considered a key to resolving it.
Under the Green Growth Strategy, the government will mobilize
every policy tool, including budgetary expenditures, tax incentives,
finance, regulatory reform and standardization, and international
collaboration, to channel the cash equivalent of 240 trillion yen in thehands of business sectors towards active investment.
According to an automatic preliminary calculations, it is expected
to generate a positive yearly economic impact of around 90 trillion
yen in 2030 and of 190 trillion yen in 2050 by this strategy,respectively.

Framework of Green Growth Strategy
It is important to make significant economic growth through thereform of industrial structure and economic systems, in the courseof tackling the challenges of the 2050 carbon neutral goals. TheGreen Growth Strategy is expected to produce employment andgrowth by encouraging private investment to mobilize 240 trillion
yen in cash and deposits domestically and attract the 3,000 trillion
yen in funds available abroad for environment-related investment.
The government will take all policy tools to realize that.
The relevant ministries and agencies are working together and thegovernment is developing “action plans” in each of the priority
sectors critical to achieving the 2050 carbon neutral goals, which
includes (1) goals with specific time frames, (2) research anddevelopment and demonstration, (3) establishment of theinstitutional framework including regulatory reform andstandardization, and (4) international collaboration.
These action plans for the priority sectors provide concrete
processes until 2050, referring to current circumstances andchallenges, and the policy direction, clearly. The focus is on demand
creation through regulatory reform, standardization and the financial
markets, and price reduction through private-sector investment.
Each process chart sets forth specific measures for priority
technologies crucial to achieving growth in that sector to enhance
the international competitivity of Japan and generate self-sustaining
market growth, and will in principle consist of the following fourphases.
(1) The “research and development” phase, driven by funds createdby the government and by R&D investment from the privatesector.
(2) The “demonstration” phase, driven by public-private cooperative
investment aimed at inducing private-sector investment.
(3) The “introduction and expansion” phase, in which the aim will be
to increase demand through public procurement and theestablishment of the institutional framework including regulatory
reform and standardization and reduce costs through the largescale production.
(4) The “self-sustaining commercial” phase, in which commercial
use grows without public support on the basis of an institutionalframework consisting of regulation, standards, and otherelements.
Note that the duration of each phase will differ from sector to sector.
Some sectors may even jump directly from the “research anddevelopment” phase to the “broadening adoption” phase, skipping
the “demonstration” phase altogether.

Japan SPOTLIGHT • May / June 2021

35

Cross-Cutting Measures to Support the 2050
Carbon Neutral Goal
The budget : The government will take a major step forward inenvironmental investment, establishing a 2 trillion-yen fund toprovide consistent support over the next 10 years to businesses that
undertake ambitious innovations.
Tax system : Private-sector investment will be encouraged with theaim of carbon neutrality through an investment promotion tax
system, expansion of the R&D tax systems, and creating a special
elevation of the carryover loss deduction limit for businesses that
undertake business restructuring, business reorganization, and thelike.
Financing : The government will attract financing to innovativetechnologies aimed at carbon reduction and decarbonization throughrulemaking for financial markets including information disclosureand valuation standards.
Regulatory reform and standardization : Regulatory reformregarding hydrogen stations, review of power system operation rules
to prioritize the use of renewable energy sources, utilization of fuelefficiency regulation to promote electrification of passenger cars,
public procurement of concrete which absorbs CO2, and others will
be considered with a view to creating demand and reducing costs.
Inducing private-sector funding : Rulemaking on e.g. information
disclosure and valuation standards for financial markets will bepromoted in cooperation with the international community.
International collaboration : The domestic and international are twosides of the same coin for the industrial policy promoting thedevelopment of innovative technologies and their social adoption
aimed at achieving the 2050 carbon neutral goals. The international
competitivity of Japanese industries will be enhanced through cost
reduction achieved through economies of scale by securing markets
not only at home but also in emerging economies and elsewhere
abroad. Through inbound direct investment, international
collaboration and M&A, overseas technologies, sales networks, andmanagement will be taken in and learned. To this end, collaborations
with other countries in innovation and technology development in thepriority sectors will be sought and overseas demonstration projects
aimed at social adoption and overseas markets, support for theformation of overseas infrastructure projects and reinforcement of
the functions of the export credit system will be conducted as well.
36 Japan SPOTLIGHT • May / June 2021

In addition, active participation in the international rulemaking
process including the market mechanism under the Paris Agreement
and information disclosure and valuation standards in financial
markets and the development of standards will be implemented.

Cooperation with Major Countries
The government will work with the United States, Europe, andother major countries on collaboration on innovation policies;
promotion of individual projects in critical areas including support
for decarbonization efforts in emerging countries and other thirdparty countries; standardization of elemental technologies in priority
critical industrial fields; and rulemaking (e.g., removal of tradebarriers).
In working with emerging countries in Asia and elsewhere, which
are of particular importance from the viewpoint of promoting
decarbonization globally, it is necessary to collaborate withinternational organizations such as the International Energy Agency(IEA) and the Economic Research Institute for ASEAN and East Asia(ERIA) and to take a realistic approach in encouraging theircommitment to decarbonization, since emerging countries in Asia
face greater social and economic restrictions than developedcountries. The government will present a wide range of solutions fordecarbonization, from the perspective of the IEA concept “all-fuels,all-technologies”, starting from renewable energy sources, CO2
recovery, nuclear power, hydrogen/biofuels, and ammonia/hydrogenmixed fuel or single fuel firing that uses existing infrastructure,including financial aspects. In addition, from the viewpoint of market
acquisition, the government will promote bilateral and multilateral
cooperation.

Action Plans in Key Sectors
To respond to the challenges of the 2050 carbon neutral goals witha growth strategy, Action Plans were established for priority sectorsthat have potential for growth as industries in the future and areessential to the reduction of greenhouse gas emissions. Fourteensectors were taken up with different development schedules. Someare forecast for markets to emerge from now through 2030, whileother will show markets emerging later around 2050.
There is a great variety among these sectors, such as energy-related industries, manufacturing and transportation-relatedindustries, and housing and office-related industries. Some sectors
urgently require measures in the immediate “introduction andexpansion” phase while others do so in the future-oriented “researchand development” phase. We will take up specific measures thatmatch the characteristics of the respective sectors to enhance
Japan’s competitiveness and generate self-sustaining market
expansion.
The government will further consider the steady implementation ofthe Action Plans in these sectors as well as the further elaboration ofgoals and measures with a view to revising the Green Growth
Strategy in the future.

Exhibit 1: The Hydrogen Industry
Hydrogen is a key carbon-neutral technology that will be featured
in a wide variety of areas including power generation, transportation,and industry. Japan was the first country in the world to establish abasic plan for hydrogen and holds the technological lead in multiple
areas. However, European nations, South Korea, and others havealso adopted basic strategies and are stepping up their efforts. Goingforward, dealing in hydrogen as a new resource, not limited tovehicle use, a wide range of players will be involved. In order topromote decarbonization as well as industrial competitiveness, thegovernment will take measures under a certain premise, in suchareas as transportation and manufacturing.
Regarding the price, we will aim at levels that make hydrogen fullycompetitive with fossil fuels by reducing the cost of supplying it to
30 yen/Nm3 (less than one-third of current level) by 2030 andreducing the cost of hydrogen power generation below gas-fired
power generation (20 yen/ Nm3) by 2050. As for volume, while weare aware that the potential for renewable energy sources, market
size, and other factors vary among countries and regions, intending
to make a jumpstart, the domestic hydrogen market with the goal ofreaching a maximum supply of 3 million tons by 2030 and 20 million
tons by 2050 will be set as goals.

hydrogen society. 20% co-firing of ammonia (on a calorie basis)translates to a 20% reduction in CO2 emissions for a thermal power
plant – 20% co-firing at all coal-fired power plants of main power
generation companies in Japan would reduce CO2 emissions fromJapan’s electric power sector by 1/10th.
In terms of usage, since technology to stabilize combustion so as
not to emit NOx has already been completed for 20% co-firing, thedemonstration with actual equipment of 20% co-firing will beconducted from around FY 2021 to FY 2023. Practical application
will start in the late 2020s, and its introduction will be expanded in
the 2030s. In the future, 1) improvement of co-firing ratio and 2)
realization of single fuel firing of ammonia as well as 3) expansion ofpower generating burners (for co-firing and ammonia single fuel) to
the world including mainly Southeast Asia, and 4) expansion ofapplications, are aimed for. On the supply side, we intend to take thelead in the global ammonia fuel market through the rapid buildup of
an international supply chain through the construction of newammonia plants in natural gas producing countries including the US.
We will also look into other decarbonization fuels with the aim ofusing them. Through these measures, annual domestic demand forammonia is expected to reach 3 million tons (500,000-ton hydrogenequivalent) in 2030 and 30 million tons (5 million-ton hydrogenequivalent) in 2050. The global market is expected to reach 1.7
trillion yen annually by 2050. We intend to build a globalprocurement supply chain of 100 million tons of fuel ammonia byJapanese companies in 2050.

Conclusion
While we start implementing what we can already do, revision ofthe Action Plans is on-going. Looking at other cross-sectoral
discussions in our government, e.g. a review of the Strategic Energy
Plan, we will move forward toward the 2050 carbon neutral goals.
Exhibit 2: The Fuel Ammonia Industry
We consider ammonia, which emits no CO2 when burned, to be
the mainstay decarbonization fuel in the transition phase to aJapan SPOTLIGHT • May / June 202137