Japan, LNG import king, blasted over greenwashing

Tokyo claims its continued use of fossil fuel-based power generation can still help the country, the world’s top LNG buyer and fifth largest oil buyer, reach net zero 2050 if it utilizes modern technology and less carbon intensive fuels, but critics take a very different view.

Japan’s latest gas move came on July 18 when it said it was establishing an LNG reserve system to face what Yasutoshi Nishimura, the country’s energy minister, called “unexpected situations.” This includes ongoing talks with the International Energy Agency (IEA), of which Japan is a long-time member, to help coordinate gas storage capacity.

The IEA, comprising some 31 countries, holds more than 60% of underground gas and LNG storage facilities globally.

Japan’s reserve announcement comes in spite of calls for it to pull back on hydrocarbon usage in its power sector. Japan has the world’s fifth-highest CO2 emissions rate, accounting for over 2.5% of global emissions per year – in spite of a population of only 125 million people.

Moreover, pushback against Japan’s LNG development appears to be an uphill battle since the country’s energy planners still view the fuel as an environmentally-friendly fuel choice as long as it can reduce methane emissions in the LNG value chain.

Japan LNG expansion

Japan’s continued LNG expansion also recently put it on a collision course with the U.S. and several other fellow G7 members during the group’s meeting in Hiroshima in May. While other G7 nations pledged to decarbonize their respective electricity sectors by 2035, Japan waffled.

Instead, it called for supporting new gas investment along with carbon capture utilization and storage (CCUS) technology to help rein in emissions. G7 members include the U.S., Germany, UK, France, Italy, Japan and Canada.

Japan had already been lobbying members at the energy ministers’ meeting days prior to the official start of the G7 summit. By the end of the summit on May 21, a compromise was finally reached after what media described as “hot debates” over continued gas investment. The group decided on what it called “clearly defined national circumstances.”

That opaque designation, however, means that Japan can continue its LNG development at both home and abroad without further G7 intrusion – at least until next year’s meeting.

Japan also convinced the G7 to back its CCUS development. However, only conditional support was given to its push for ammonia co-fired coal plants and hydrogen energy in the power sector.

A Tokyo Times report said that the G7 embrace of LNG was a “setback for climate goals.” Activist groups simply labelled it as more “greenwashing.”

CCUS, for its part, has become a hot topic in energy circles. Proponents claim CCUS can reduce emissions at the source then store it in geological formations. It’s also been estimated to reduce as much as 20% of total CO₂ emissions from industrial and energy production facilities.

However, there’s a growing segment in the energy industry that’s becoming skeptical of the technology, including in Japan.

“CCUS strikes me as kicking the can down the road while also creating a rationale to invest Japanese taxpayer money in unproven technologies that Japanese companies can make a lot of money trying to develop,” Dan Shulman, CEO at Tokyo-based Shulman Advisory, told Gas Outlook.

He also questioned Japan’s other sustainability tactics.

“In a similar vein, all the Japanese investment in hydrogen has long struck me more as an opportunity for Japanese companies to sell hardware to the global market than for Japan to become a consumer of significant volumes of green hydrogen,” he said.  “Also, I haven’t been hearing anything promising about the likelihood of Japan’s efforts to co-fire ammonia in coal plants actually leading to any net emission reductions.”

Japan’s Green Energy Transformation

Japan’s G7 maneuverings supported its Green Energy Transformation (GX) set forth in February that Tokyo claims will set it on a trajectory to reach net zero by 2050. Yet, that plan also isn’t so green according to environmentalists.

Similar to its G7 agenda, it calls for continued Japanese LNG usage, and CCUS build-out, along with a carbon pricing scheme and a fully-fledged emissions trading system in FY 2026-27.

Japan also announced plans in March to mobilise over US$1.1 trillion in public and private capital over the next ten years to overhaul 22 industrial sectors at home.

This includes providing partner countries, including Association of Southeast Asian Nations (ASEAN) members, with Japanese energy technology and finance. Part of the drive also includes developing LNG infrastructure to help the region pivot away from coal-fired power generation. Southeast Asia remains largely over-dependent on coal, even as much of the rest of the world is shutting down financing for the fuel and cancelling further development.

Monica Nagashima, Japan Country Manager at InfluenceMap | Japan Energy Transition Initiative (JETI), told Gas Outlook that major Japanese gas players and their industry associations are lobbying the Japanese government to leverage its public support and to maintain the fossil fuel diplomacy in the region. This is particularly true in Southeast Asia and Vietnam, she said.

In a global pushback, more than 140 groups from 18 countries issued an open letter in March calling on Japanese Prime Minister Fumio Kishida to stop promoting and expanding the use of fossil fuels and derailing the transition to renewable energy across the Asia-Pacific region.

Banking giants implicated

Several of Japan’s mega-banks are also being implicated since they’re some of the world’s largest oil and gas investors. As such, they carry considerable clout and can sway government energy and policy makers, including other G7 members. Their influence from the G7 summit could carry over to the COP28 meeting to be held in the UAE at the end of the year.

A coalition of climate and advocacy groups ramped up pressure on Japan’s top three banks to cut financing linked to fossil fuels in April, Reuters reported. Targeted banks include Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group.

“In Japan, all asset managers score B- or lower on stewardship,” Nagashima said. “Equity portfolios in Japan remain among the most misaligned with net zero globally.”

She said that asset managers based in the region largely employ a passive investment approach in their equity fund portfolios. “The misalignment of these managers’ portfolios thus reflects the wider misalignment of Japanese equity markets,” she added.