Japan has a coal problem.
The country’s dependence on fossil fuels has been growing since the March 2011 Great East Japan Earthquake and consequential Fukushima No. 1 nuclear power plant disaster, which led to understandable widespread public opposition to nuclear energy. However, rather than taking the opportunity to set the course for a swift transition to renewable energy, the government and regional power companies have bet on fossil fuels. Coal, in particular, has played an outsized and dangerous role in the country’s energy mix since then.
Japan’s coal addiction goes beyond its own borders, too. In “Power Shift: Shifting G20 International Pubic Finance from Coal to Renewables,” a December 2017 report co-published by the Natural Resources Defense Council and others, Japan is shown to be the largest public source of overseas coal project funding in dollar terms among the Group of Seven nations, second only to China on a global scale. The most recent giant coal plant funded by Japan, Nghi Son 2, located in Vietnam, was revealed to be so polluting that commercial bank Standard Chartered chose to walk away. Yet Vietnam and other South East Asia countries have huge potential for clean renewables such as solar and wind.
The Japanese government’s pro-coal stance has encouraged the country’s financial services sector to think that coal financing is a safe investment. In the context of the broader trend toward decarbonization, nothing could be further from the truth.
Research by Climate Analytics finds that to be able to meet Paris agreement objectives, Japan needs to shift its focus to phasing out all coal plants by 2030. The agreement also places decarbonization at the heart of its road map to avoiding climate disaster, committing governments to make “financial flows consistent with a pathway toward low-carbon, climate-resilient development.”
In the long term, these commitments together with rapid technological innovation in the renewable energy sector suggest tighter carbon emissions regulations and falling renewable energy prices are on the horizon. This means that coal and other carbon-intensive resources are likely to become stranded assets fairly soon.
To their credit, Japanese financial institutions are beginning to catch on to the risks inherent to Japan’s coal addiction. In May this year, Dai-ichi Life Insurance Co. announced that it would adopt a policy to end new project financing for overseas coal power plants. Following suit, Japan’s three mega-banks, Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group and Sumitomo Mitsui Banking Corporation (SMBC), all announced they would revise lending to coal-power plants (though they left the door open for highly efficient coal power).
While far from what is required to align with the Paris agreement, this is a welcome trend if it leads to further restrictive policies and action given that Mizuho Financial Group, MUFG and SMBC are, respectively, the first, second and fifth-largest global lenders to 120 of the world’s largest companies currently involved in the development of new coal-fired power plants.
On July 20, Sumitomo Mitsui Trust Bank, Japan’s largest trust company and fifth-largest bank by assets, announced in its annual report that it intends to restrict financing for new coal plant projects regardless of their location. This new policy is potentially the strongest coal finance restriction policy of any bank headquartered in Asia, though project finance covers only a small proportion of its assets.
Earlier this month, Nippon Life, the country’s largest life insurer by revenue, announced a restriction on finance to new coal power projects similar to Sumitomo Mitsui Trust Bank’s newly announced policy. This is only the tip of the iceberg, however, as coal finance restrictions need to go beyond project finance and extend to restrictions on corporate finance and divestment of shareholdings in companies involved in coal expansion, following leading insurers and financial institutions in Europe.
Part of the Japanese private sector is also starting to commit to bold climate action. In July, a group of more than 100 Japanese companies and municipalities launched the Japan Climate Initiative, which is meant to be the Japanese equivalent of the U.S. “We Are Still In” initiative. The group will be participating in the September Global Climate Action Summit to be hosted in San Francisco.
Leadership from Japanese financial institutions and private sector firms in phasing out coal could be influential in ending the region’s dependence on the dirty energy source and accelerating its rapid transition to renewables. The Japanese government is in sore need of such leadership. In its recently approved fifth basic energy plan, the government maintained an emphasis on coal within Japan’s domestic energy mix.
So, too, would the region benefit from the withdrawal of Japanese finance from coal. Thirteen of the leading 20 countries for coal capacity expansion are in Asia, where short-term demand for the energy source stands in contrast to the increasingly apparent impacts of climate change such as torrential rain, heat waves and flooding.
The bottom line is that Japan seems to be slowly awakening to the risks that come with the country’s shortsighted dependence on coal. Japanese financial institutions are starting to shift their money away from the problem. Civil society’s voice has played a substantial role in the recent policy changes among the country’s major financial institutions, but the changes do not go far enough. Banks, insurance companies and, yes, the government need to adopt more sustainable financing policies immediately.
In September, people around the globe will lift their voices to call for climate action worldwide in advance of the San Francisco climate summit. Events will be planned in Japan to apply additional pressure on commercial banks to align their policies with the Paris agreement’s objectives. As the recent streak of extreme climate events in Japan and East Asia confirms, mobilizations and engagement such as this will be critical to the planet’s future stability and livability.
Marie Tanao is Japan communications coordinator for 350.org, an international climate campaigning organization. © 2018, The Diplomat; Distributed by Tribune Content Agency, LLC