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Can Japan innovate its way out of a climate and energy crisis?

When international delegates gathered in Kyoto in late 1997 to hammer out the final details of a hard-fought climate deal, they were greeted with a note of encouragement by the city’s kindergarteners. “Kyoto people are praying for the success of this conference,’’ they wrote. ‘’The future of all people, especially the children, depends largely on the outcome.’’

The children who cheered on the Kyoto protocol are almost 30 years old today, but Japan, like most of the developed nations who signed up to it, is still struggling to cut its emissions of greenhouse gases. In fact, Japan’s reliance on fossil fuels is even greater now than it was before the Fukushima nuclear disaster a decade ago.

Japan’s failure to reduce its dependence on coal by pushing harder into clean solar, hydro and wind power in the post-Fukushima era has prompted a defensive, if accurate, response: solar panels, dams and wind turbines can be difficult to install, given Japan’s geography and terrain.

But in December the tone shifted dramatically when Prime Minister Yoshihide Suga set out a “green growth strategy” that would lead to Japan’s net emissions dropping to zero by 2050.

The mooted plans extend even beyond Japan’s borders. Suga’s administration may finally announce in April that it will end Japan’s financial support for building new coal-fired power plants in south-east Asia and other countries, according to a Nikkei report last week.

Even environmentalists who have been critical of the government’s policies are encouraged. “I’m very cautiously optimistic,” said Mika Ohbayashi, director of the Renewable Energy Institute. “I have to say that Suga-san is more serious about climate change [than Shinzo Abe, his predecessor].”

Some of Japan’s most important companies were more alarmed than impressed, however.

One aspect of the green strategy immediately seized the attention of Japan’s powerful car industry: new gasoline-powered vehicles are to be completely replaced by “electrified” cars by the mid-2030s.

A rare public criticism of the government came from none other than Akio Toyoda, Toyota Motor’s president. “There is a risk that the automotive industry’s business model could collapse,” he warned.

Among Toyoda’s main arguments is that Japan will not be able to produce enough clean electricity to power all cars unless the country gets busy building new plants, and quickly. Nuclear power could generate much of this electricity without producing greenhouse gases, but it remained unpopular in the wake of the Fukushima disaster.

Yet for all the obstacles, some observers see the clean energy push as an opportunity for Japan to regain its reputation as an innovator.

Japan has been a laggard in the digital economy, prompting years of soul-searching about whether the country has lost its edge. But the nascent green energy technology industry that requires the kind of advanced engineering skills and long-term investment that the country is known for provides fresh hope. The optimists believe that green energy could give Japan Inc a new narrative — and a powerful new source of exports.

“The internet, digitisation and the app economy have pushed innovation for the last 20 years, but they haven’t solved dire issues like global warming,” said Sota Nagano, a partner at Tokyo-based venture capital firm Abies Ventures. “These solutions require something coming out of a lab — engineering or actual science.”

Nagano noted that Japan had been supporting basic research in new materials, robotics and other “deep tech” for decades through Nedo (New Energy and Industrial Technology Development Organization), a government body that subsidises work on new energy and cutting-edge industrial technology.

“Now the government is pushing national universities to monetise patents and research in materials, quantum computing, mechanical engineering,” said Nagano. “It all adds up to contributing to this green energy plan. Many of the valuable assets in Japan haven’t been monetised yet.”

Japan has made two bold long-term bets on green technology. One is its push to turn hydrogen into a mainstream fuel for cars, trucks and electricity generation. The other is on a new type of electric car battery that promises to be far more efficient than the lithium-ion models that power Teslas and other electric vehicles on the road today.

“Hydrogen and solid state batteries are the areas that Japanese companies have been focusing on as a competitive advantage,” said Kota Yuzawa, a Goldman Sachs analyst in Tokyo who follows the auto industry.

He believes the recent green push by Japan, in addition to efforts by China and the Biden administration, will rapidly accelerate the move to electric vehicles globally. Toyota has been working on the battery technology known as advanced solid state for more than a decade, and it plans to roll out a prototype this year.

Fact box: Solid-state battery

Solid-state batteries have been the focus of start-ups over the past decade but are not yet able to be produced at scale. The cells use a solid electrolyte rather than a liquid one, as in most conventional lithium-ion batteries. They also contain a lithium metal anode rather than a graphite one, which allows the battery to store more energy. Challenges to wide production include stability and material costs.

Toyota claims its battery can power a trip of 500km on one charge, or about twice the distance for typical electric cars today. The batteries are smaller and do not require any cooling system, allowing more legroom in the car, and are not prone to catching fire as can happen with lithium batteries. Solid-state batteries would also be able to fully recharge in 10 minutes.

“It’s more like the time it takes a gas engine at the filling station,” Yuzawa said.

There are concerns, however. Chief among them is the possibility of leaks of sulphide gas, which is poisonous. And the cost of making solid-state batteries will be higher than lithium ones until they can be mass produced.

Although Japan has a big presence in the electric vehicle battery market — Panasonic makes batteries for Tesla — it is far behind China, which has spared no expense pursuing an ambition to dominate it.

Japan has sought to counter this by encouraging the development of the solid-state batteries, which it hopes will eventually become the standard. But the timeframes are long: a viable product is not expected until the second half of this decade.

Much nearer is the prospect of cars running on hydrogen, the fuel source that is a cornerstone of Japan’s plan for a carbon-neutral future but has major automotive industry detractors. Toyota introduced the first commercial hydrogen vehicle, the Mirai (“future” in Japanese), in 2014. The second model of the Mirai came out in December 2020. The Mirai runs on a hydrogen-powered “fuel cell” that doesn’t emit CO2 and can be quickly refilled at a roadside station.

But hydrogen has the drawbacks of storage and distribution, requiring high pressure, as well as currently being expensive to produce through electrolysis using green energy sources. Tesla founder Elon Musk calls them “fool cells” and has said hydrogen-powered cars are a “mindbogglingly stupid” idea, while VW has roundly dismissed its prospects for passenger cars.

Even if rival car industry leaders are right about hydrogen cars, Goldman Sachs’ Yuzawa believes it is still worth investing in the technology. “When you think of a heavy-duty [cargo] truck, it would have to carry a heavy lithium battery all the way. So, hydrogen is a more efficient way to move large cargo across long distances.”

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Ohbayashi believes that hydrogen will have a role to play in reaching the zero net emissions goal, but that it is more important that the government focus on renewable energy such as wind, solar and geothermal. At the time of the Fukushima disaster, she notes, renewables accounted for 10 per cent of Japan’s electricity mix. Now it is about 20 per cent.

“The trend of increasing renewables is very rapid,” she said. “If we have the right policies in place, I think renewables can even reach 50 per cent of the country’s electricity needs by 2030 and 100 per cent by 2050. But we need the government to set these high targets and encourage the market.”

Her view that Japan could be powered entirely by renewables is not widely shared in government or industry, where many are hoping for a revival of the nuclear industry, including its energy minister Hiroshi Kajiyama, who told the Financial Times this year that nuclear was key to meeting its energy goals.

But it does capture a renewed sense that Japan, with few energy resources of its own, is capable of ending its dependence on imported fossil fuels.

Along with a government and industry commitment to innovative engineering, it reflects also a hope that the Kyoto kindergarteners of the late 1990s will see the world they envisioned by the time they are 60.

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