ESG

Responding to the decarbonization ‘transitional period’, Government, process chart for 8 industries

THE NIKKEI via scoutAsia

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August 2, 2022 4 min read
Responding to the decarbonization ‘transitional period’, Government, process chart for 8 industries

Efforts to achieve a decarbonized society while avoiding energy price spikes and other economic disruptions have begun. It directs money to transitional technologies and projects, called "transitions," that phase out emissions. The Japanese government will compile and disseminate information on process charts for eight industries by the end of fiscal year 2022. It broadens the destination of money that used to be zero emissions "green"-centric.

The world has been focusing on what are called "green" areas, such as renewable energy, electric vehicles, and other zero-emission projects, as part of its decarbonization efforts. Funds are being raised to boost technology development and capital spending.

The invasion of Ukraine by Russia has changed the situation in Europe and elsewhere, making energy procurement unstable. Soaring energy prices could cause economic turmoil. The introduction of technologies and equipment that will reduce emissions, but not eliminate them, from current levels is called a transition. There is a growing recognition that policies to facilitate the transition to decarbonization are also needed.
METI will enhance information disclosure for financial institutions and investors. For eight industries with high emissions, such as steel and chemicals, the process chart will be expanded to include the outlook for technological development and emission reduction rates for each industry. It demonstrates the effectiveness of reduction with the help of outside agencies. For example, steelmakers can reduce emissions by using hydrogen and other resources to reduce the amount of coke (coal) used in the manufacturing process. It directs money to the highest emitting industries.

Emphasis will be placed on handling transitions overseas as well. The UK Treasury will bring uniformity to corporate disclosures. A specialized organization will be set up in April to hasten the development of guidelines for the disclosure of information on transition plans by companies and others. The framework proposed by "Task Force on Climate-related Financial Disclosures (TCFD)" would have left the content of the disclosures to the companies.

Green areas are easy for financial institutions and investors to understand and make investments and loans. On the other hand, the area of transition was hampered by the lack of a technological path and measurable reduction benefits.

The European Union has guided investment money by categorizing green projects as including electric vehicles and excluding hybrids. It will consider extending this to transitions as well.
Japan, with its emissions-intensive manufacturing industry, has been communicating the importance of the transition internationally before anyone else. The Group of Twenty (G20) nations and regions are attempting to formulate basic principles, and Japan's efforts will be actively promoted.

A total of $125 trillion (about 16 quadrillion yen) is needed to achieve virtually zero emissions in 2050. Investments and loans are skewed toward green technologies and projects, and in terms of bond issuance, "transition bonds" are less than 1% of the size of "environmental bonds."

It is estimated that approximately 150 trillion yen is needed over 10 years in Japan, and the government will support a 20 trillion yen scale over 10 years. Funds are intended to be raised through "Green Transformation (GX) Economic Transition Bonds (tentative name)."
(ESG Editors Hiroko Matsumoto and Takashi Fujioka)

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The English translations provided through this service are the result of automatic and mechanical translation of contents written in Japanese and created by Nikkei or licensed by a third party, by an automatic translation system provided by a third party after certain processing of the contents by Nikkei. Nikkei disclaims all warranties, express or implied, related to the English translations, including any warranty of accuracy, reliability, validity and fitness for a particular purpose. Users shall use this service with the full understanding that it employs an automatic translation system that automatically and mechanically recognizes and analyzes information and outputs the results.