Since the start of the COVID-19 pandemic, the Japanese government has provided massive fiscal support, hoping that economic activities would return to normal levels soon. Through providing cash transfers, cheap loans, credit guarantees and tax payment deferrals, public debt is expected to rise by 30 percentage points of GDP to around 270 percent this year. Despite the largest size of public debt globally, long-term yields remain low thanks to the Bank of Japan’s policy to stabilize the 10-year yield at around zero percent and its April announcement of unlimited purchases of government bonds from the secondary market.
While these policy measures are necessary to help to keep the rate of unemployment and the number of bankruptcies well below the levels of the 2008 global financial crisis, the policy discussions lack a long-term vision of transforming Japan to an environmentally sustainable, resilient economy. The lack of green recovery strategies is surprising given that Japan’s total losses and insured losses caused by a series of natural catastrophes, such as typhoons and floods, reached a world record high in 2019.
A lack of a sense of urgency about the related global warming issue is clear from the government’s inability to raise its nationally determined contribution (NDC) target this March despite growing pleas from the United Nations and environmental activists to make it in line with the 2015 Paris climate accord, which calls for keeping the increase in global average temperature to well below 2 degrees Celsius or closer to 1.5 C above pre-industrial levels by the end of this century.
As a result, not only did the NDC target of cutting greenhouse gas emissions by 26 percent by 2030 relative to the 2013 levels, as committed in 2015, remain intact, but also the 2050 emission target stayed ambiguous without detailed plans and a specific timetable to achieve carbon neutrality.
In early July, Japan’s government made announcements on energy policy in the face of growing international pressure. Those included front-loading the plan to phase out inefficient or emissions-intensive coal-fired power plants to from around 2050 to around 2030, imposing tougher criteria on exports of coal-fueled power plants to developing countries and initiating offshore wind farms.
Nonetheless, such a piecemeal approach lacks a strong determination to promote carbon neutrality. Hiroshi Kajiyama, the minister of economy, trade and Industry, did not signal a drastic shift from the current energy policy — which will continue to depend on fossil fuels for more than half the total electric power supply over the next decade — by dismissing growing calls for closing all coal plants and leaving a plan to increase the number of high efficiency coal plants in the future.
The most contentious issue for the government is the growing likelihood that the NDC goal might fail to be met due to an inability to increase the nuclear power ratio in total electricity supply to over 20 percent by 2030 due to tougher safety inspections for reopening nuclear reactors and the need to obtain approvals from local residents in the wake of the 2011 Fukushima No. 1 nuclear power plant disaster. To fill the gap caused by this shortage, the 2030 target on the renewable energy ratio must be raised from the planned ratio of 22-24 percent to near 40 percent (from 17 percent currently).
This is feasible with a drastic change in energy policy by expanding facilities to transmit electricity generated from renewable energy, developing battery-storage technology for renewable energy generation, increasing the number of firms with self-generated renewable energy and adopting carbon taxes to discourage the use of coal fuel energy.
This must accompany a comprehensive budgetary review to prioritize financing renewable energy infrastructure and research and development projects over other infrastructure, as well as some social spending. Monetary policy also requires a drastic change from the policy of keeping a substantially low interest rate and actively purchasing funds traded on the stock exchange, both of which benefit energy efficient and inefficient firms equally, until the 2 percent inflation target is achieved.
The central bank should support green finance markets by fostering and investing in green bonds and stock ETFs that support firms contributing to renewable energy supply. Japan should not miss the opportunity to restructure its economic and energy-consumption structure for future generations.
Sayuri Shirai is a professor at Keio University and a former Policy Board member of the Bank of Japan.