Japan should set ambitious energy transition targets through the 7th Strategic Energy Plan – AIGCC position paper

Japan has made various commitments relating to energy transition. For example, pledging to decarbonise its electricity sector by 2035, and committing to tripling its renewable energy while transitioning away from fossil fuels. The achievement of these commitments relies on Japan’s central energy policy objectives leading up to 2050, which are currently being formulated by the government.

The Strategic Energy Plan is a foundational policy document that will provide clarity on mechanisms to achieve these targets, and investors are keen to provide their feedback and perspectives on the development of the Plan that would help Japan unlock capital flows to support its decarbonisation targets and energy security needs.

AIGCC recently submitted a position paper on Japan’s Strategic Energy Plan to Japan’s Basic Policy Subcommittee of the Advisory Committee for Natural Resources and Energy.

Read the Position Paper

Investor Engagement on Climate through AIGCC

Through AIGCC, investors have increased their understanding of the risks and opportunities associated with the impacts of climate change and are prepared to allocate capital in line with net zero investing principles.

Investors are engaging with high-emission companies and industries in Japan through initiatives like Climate Action 100+ and AIGCC’s Asian Utilities Engagement Program. Investors are also asking policymakers for clear oversight and integration of climate-related factors in key policies to ensure that global climate goals are achieved and to maintain companies’ global competitiveness.

Meanwhile, companies in Japan are also voluntarily committing to climate action (249 JCLP member companies; 58 RE100-affiliated companies), and investors are keen to support them in facilitating a faster transition through more capital deployment.

AIGCC, representing more than 70+ members, including institutional investors that manage over USD 28 trillion in assets under management, has provided the following recommendations in our response:

1. More diversity of stakeholder views, including those of investors, in the policy formulation process for the 7^th Strategic Energy Plan would be valuable in ensuring that the targets and plans are ambitious and realistic. Investors are dedicated stakeholders, committed to help protect and grow the wealth of their beneficiaries and clients, and intrinsically, the future of the public. Their expertise in corporate engagement and their long-term perspective would be invaluable for the consultative bodies involved in developing the 7^th Strategic Energy Plan.
2. Investors support the inclusion of multiple scenarios, including a “high ambition” scenario that is aligned with a 1.5 degree pathway. National targets and economic strategies that are aligned to a 1.5 degree pathway will deliver the best long-term returns to investors and to the retirement savings of millions of beneficiaries.
3. Swift expansion and integration of renewable energy in the short to medium-term would be crucial for companies in Japan to maintain competitiveness in terms of emission reductions. It would enhance Japan’s position in being a global supplier of green/sustainable products while also ensuring effective reduction of national-level emissions. Japan has the potential to benefit from the enhanced deployment of offshore wind, rooftop PV and microgrid projects.
4. To realise this potential of renewable energy deployment, the grid will need to be strengthened through harmonious, comprehensive development. Policy can help promote the simultaneous improvement of clean power generation, transmission, distribution and growth of domestic supply chains to support such development. Japanese companies are equipped to strengthen grids for the integration of renewables. Policy should provide clear guidance to unlock capital for the enhancement of the grid.
5. Clear targets for the phaseout of fossil fuels are important to better inform company transition plans and investment decisions. Companies need to factor in these considerations into their transition plans and therefore provide investors with certainty as to the long-term value of the company.
6. Investors are seeking investment opportunities in a broad range of emission reduction technologies and options. For all transition fuels/technologies that Japan is considering, such as hydrogen, ammonia, carbon capture and others, factors of emission reductions, competitive advantage for Japan, and technical and commercial feasibility must be considered to avoid the risks of stranded assets and increased cost of transition for Japan.
7. An expedited rollout of carbon pricing, at an effective price level, would boost the development of decarbonisation technologies and better position the country to reach its net zero target. This should be clearly prioritised in the 7^th Strategic Energy Plan as it will affect industry transition pathways.
8. Clear linkages between GX-related investment, Japan’s Energy Plan and sectoral transition pathways are essential. Increased transparency on how GX Economic Transition Bond proceeds will enable Japan to achieve its decarbonisation targets will increase market confidence in the instrument. Furthermore, public funds and policy mechanisms can create opportunities for the private sector to deliver the bulk of required capital.

Looking Ahead

Japan has an opportunity to be bold in its emission reduction ambitions and attract immense capital flows that would otherwise be directed to alternative markets with well-established national economic policies and strategies for transition.

AIGCC urges Japan to set ambitious energy transition targets through the 7^th Strategic Energy Plan. Having a clear national policy on climate, energy and finance plays a crucial role in helping companies achieve climate transition objectives. The Strategic Energy Plan has the potential to not only set targets, but drive innovation and engender global confidence in Japan’s energy security and decarbonisation aspirations.

National targets should extend beyond marginal decreases in carbon emissions from established industries, and instead consider new approaches for innovation and disruption, to promote economic opportunities for future clean and sustainable industries. These commitments need to be supplemented by clear and credible short-, medium- and long-term plans and domestic policies to enable required economic and market shifts.

By addressing these recommendations and including a high ambition transition scenario in the 7^th Strategic Energy Plan, Japan has immense opportunity to attract substantial capital for its energy transition goals.

Read the Position Paper