Japan is on track to achieve its ambitious net zero emissions target by 2050 while bolstering energy security without the need to heavily depend on costly technologies, according to a new report published today by BloombergNEF (BNEF). The report, titled ‘New Energy Outlook: Japan,’ outlines two scenarios for Japan’s energy system transition and explores the opportunities and challenges associated with them. The Economic Transition Scenario (ETS) represents an economic-led transition, consistent with a global temperature rise of 2.6°C by 2100. The second scenario, the Net Zero Scenario (NZS), aligns with net zero emissions by 2050, avoiding reliance on unproven technologies and any overshoot in emissions.
Key findings from the report emphasize that successful decarbonization of the power sector is pivotal to unlocking Japan’s transition to a net zero economy. Power generation is currently the largest source of emissions in Japan. To tackle this, the BNEF report recommends maximizing the deployment of mature clean technologies such as solar, wind, and electric vehicles, supplemented by energy storage and carbon capture and storage (CCS) for thermal power plants. Additionally, the restart of existing nuclear power plants and tapping into abundant geothermal potential can further contribute to the decarbonization effort.
Under the BNEF’s Net Zero Scenario, the total installed capacity of wind and solar power is projected to reach 689 gigawatts by 2050, more than eight times the capacity in 2021. Wind and solar combined would account for a significant 79% of the electricity supply by 2050, with nuclear providing 11%, and the remainder met by hydro, geothermal, and thermal power plants equipped with CCS. Even under the BNEF’s Economic Transition Scenario, the least-cost power system modeling still places solar and wind as the dominant sources of electricity supply, accounting for 62% of electricity generated in 2050.
The report highlights the need for increased investments to support Japan’s energy transition. According to BNEF’s analysis, under the Economic Transition Scenario (ETS), Japan is set to invest $3.2 trillion in energy supply and demand between 2022 and 2050, averaging $115 billion annually. However, to achieve net zero emissions as per the Net Zero Scenario (NZS), Japan would need to more than double its investment rate to an annual average of $239 billion, about 3.8% of the expected gross domestic product. Notably, total investment in fossil-fuel power drops significantly from $609 billion in the ETS to $359 billion in the NZS. To address emissions from the remaining fossil fuel use in the NZS, Japan would require a $315 billion investment in carbon capture and storage (CCS) technologies. Furthermore, electric vehicle sales would dominate energy demand investment in both scenarios, with $3.8 trillion spent on EV deployment in the NZS.
David Kang, Head of Japan and Korea Research at BNEF, emphasized the economic opportunities that Japan could gain as he commented, “Japan spent $1.8 trillion on fossil fuel imports over 2010-2022, equivalent to an annual average spending of more than 3% of GDP. If Japan can redirect some of this expenditure toward deployment of mature clean technologies such as solar, wind, and electric vehicles, it would create more domestic economic opportunities while reducing emissions and strengthening its energy security.”
Addressing hydrogen usage, the report suggests that Japan can minimize its reliance on clean hydrogen and avoid costly imports or domestic production. Instead, the focus should be on the accelerated deployment of mature renewable technologies like geothermal, solar, and wind. The report also urges reforming generous yet inefficient hydrogen subsidies to facilitate a more effective transition. Japan’s hydrogen policies offered subsidies for fuel cell vehicles and residential co-generation systems, but cheaper and more effective alternatives for decarbonization exist. While the government targets 20 million tons of hydrogen demand by 2050, BNEF’s NZS plan requires just over 7 million tons.
To expedite the energy transition, the report recommends reducing the hurdles that renewable developers currently face by streamlining grid connection processes and permitting. Furthermore, local government-led reverse auctions with guaranteed access to land and grid connections can accelerate the deployment of renewables.
Isshu Kikuma, Japan Senior Associate at BNEF, stated, “Fossil-fuel power generation accounts for more than 70% of Japan’s electricity generation today. Instead of pursuing costly unproven approaches such as retrofitting existing coal power plants for co-firing with ammonia, Japan would be better served accelerating the deployment of geothermal, solar, and wind.”
Toshiya Shinagawa, Japan Associate at BNEF, said, “As Japan’s supply of clean hydrogen will be limited due to its geography, the government should prioritize sectors where clean hydrogen will be the most effective decarbonization pathway. Japan will likely need to rely more on CCS compared to hydrogen for heavy-industry decarbonization, but its current carbon tax on fossil fuels – ¥289 ($2) per ton of CO2 – is too low to attract investment in CCS.”
