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A German lesson for Japan’s climate chiefs

by Jochen Legewie

The Copenhagen Climate Summit in December 2009 produced few tangible results and was widely regarded a failure. No consensus was reached on multilateral agreements, returning unilateral and national initiatives to the spotlight once again.

Prime Minister Yukio Hatoyama made international headlines before the conference by announcing a national target of 25 percent for slashing greenhousegas emissions by 2020, based on 1990 levels. Only Germany announced a more ambitious target — 40 percent — for the same time frame.

Both governments face immense internal pressure from their business sectors, which are strongly lobbying to have these targets reviewed and cut. It comes as no surprise to find that the leading industrial associations in both Japan (Nippon Keidanren) and Germany (BDI) are on the same page in this regard.

Putting aside all arguments for saving the environment, most of the economic discussion is revolving around two obvious questions: Will strict emissions policies undermine the global competitiveness of their industries and precipitate economic decline? Or will they propel technological progress and ensure leadership positions for German and Japanese firms, promoting their national economic welfare?

While nobody has perfect answers to these questions, consulting firm Deloitte has calculated for Germany the amount of investment it will need to achieve its 40 percent target, and whether it will pay off after 2020 and how. With German and Japanese firms competing directly in so many sectors, the results of this study should intrigue the Japanese as well.

The study is based on so-called Agenda 450, which postulates that global warming can be limited to two degrees if the concentration of greenhouse gases in the atmosphere doesn’t exceed 450 ppm. This assumption served as the basis for the German government’s position in Copenhagen.

To achieve this target, Germany will have to cut its carbon dioxide emissions by 180 megatons by 2020. This translates into an immense investment in the field of climate protection — finding new technologies and production methods, new structures and innovative business models — that would cost a stunning 310 billion euro over the next 10 years.

The energy and transport/logistics sectors face investments of 67 billion euro each, while manufacturing will have to chip in about 19 billion euro and trade and services “only” 9 billion euro. The biggest investment — 150 billion euro — is reserved for the real estate industry.

Whether these investments will pay off for specific industries and firms, however, is a completely different story.

According to the Deloitte study, two sectors — transport/logistics and trade and services — would benefit the most from such investments, generating additional annual revenues of 3 billion euro each after 2020. Manufacturing also will see net gains, but only of about 700 million euro annually.

The energy sector, by contrast, would have to continue making net investments beyond 2020 to the tune of 2.4 billion euro per year.

The real estate industry is meanwhile projected to produce the highest net gain after 2020 — some 3.8 billion euro a year. However, the main beneficiaries will not be the operators of buildings (i.e. the investors), but those renting them.

The lessons of this study are clear. Any full-fledged national push toward a low-carbon economy will be tough and expensive. It will require immense short-term costs and create winners and losers. The opposition from some business circles in Japan is only natural and will not go away any time soon.

However, most business leaders clearly acknowledge the need to forge ahead. Among German business leaders, 71 percent rate Germany’s pioneer status in carbon dioxide emission reductions as positive, and 81 percent declare the achievement of global technological leadership as the most important component of its conversion to a low-carbon economy. The head of Siemens, Peter Loscher, stresses that “clean tech” has the potential to be the growth driver of the 21st century.

These views dovetail with the stance of another influential business organization — the Japan Association of Corporate Executives (Keizai Doyukai). The group clearly stated its support for Japan’s 25 percent emissions goal back in October.

Keizai Doyukai’s stance conflicts with Nippon Keidanren, which is continuing to fight Hatoyama’s climate policy. Based on individual rather than corporate membership, Keizai Doyukai repeatedly adopts forward-looking stances because it does not depend on consensus-building among industries and firms and can thus embrace change much easier.

And change is what Japan needs. The country is poised to lose its status as the world’s second-largest economy to China as soon as this year. We can only hope it will not lose its position as a global technology leader, because that is where the future of its economy and many Japanese firms lies.

Jochen Legewie is president of German communications consultancy CNC Japan K.K.