Japan’s green transition bond includes controversial tech like carbon capture

November 24, 2023|Written by

Japan plans to include controversial technologies, such as carbon capture and storage, nuclear energy, and green hydrogen, as eligible projects in its transition green bond issuance.

Japanese prime minister Kishida Fumio also announced that the country would invest ¥2tn in green projects over the next three years as part of its broader green transformation, or GX, initiative, which aims to transition the country from fossil fuels to clean energy.

The projects were confirmed in Japan’s transition bond framework [pdf in Japanese], which was released earlier this month and included other initiatives such as subsidies for high-efficiency appliances and residential solar power systems. Other eligible investments include renewable energy, battery storage, and developments in hydrogen and ammonia as fuel sources. It excludes investments in carbon-intensive projects like coal mining and transportation.

To qualify for investment, the projects must be difficult for the private sector to achieve on its own and must contribute to economic growth, competitiveness, and the reduction of emissions.

While the projects are initially aimed at domestic investors, Japan hopes to open investments to international markets. However, the use of controversial technologies like carbon capture could be off-putting for some international players. Carbon capture has long been criticised by many for being energy intensive and not actually solving the issue at hand.

Japan has been leading the way in sustainable finance policy in the region, with plans to create a regional alignment on transition finance in Asia. But some critics of the programme say the country is not investing enough in clean and renewable energy and that investing in hydrogen and ammonia is simply a “false solution”.

Sean Kidney, CEO of the Climate Bonds Initiative (CBI), said Japan’s transition plan could set a global example “if it maintains strict adherence to net-zero standards, facilitating a shift from fossil fuels to clean energy-driven structures”.

In a report analysing Japan’s GX initiative, the CBI recommended that Japan set a phase-out year for unabated coal, ensure that hydrogen and ammonia are low carbon, expand transition plan requirements for the private sector, and make sure the GX sovereign bond is strictly aligned to the 1.5°C trajectory.

The Bank of Japan has also taken measures to address climate change, with a green loans scheme to provide zero-interest financing to lenders supporting the transition to a greener economy. Japan received a D+ in the Green Central Banking scorecard, largely due to low scores in monetary policy and leading by example.

This page was last updated November 24, 2023

Share this article