Japan’s pathway to carbon-neutral by 2050 will cost $10 trillion

23 August 2021 Consultancy.asia 3 min. read

If Japan wants to achieve its target of being climate-neutral by 2050, then the country will need to invest around $10 trillion in the coming three decades, which equates to some $330 billion annually, according to a new report by consultancy firm McKinsey & Company.

As a part of the UN’s global coalition for net-zero emissions, Japan set a target already in October 2020 to be fully carbon-neutral by 2050. Part of this plan is to reduce the country’s emissions by 46% already by 2030. The world’s third largest economy is currently among the top 10 biggest greenhouse gas emitters, which together contribute more than two-thirds of global emissions.

In a new report by McKinsey & Company, the strategic consultancy looked into what the cost would be for Japan to realise its target, finding that the most cost-effective pathway for Japan to decarbonise its major sectors (i.e. the most viable solution from a technological and financial standpoint) would require the country to invest $10 trillion between 2021 and 2050.

In Japan’s decarbonization pathway, buildings and power have started first

The country’s emissions predominantly originate from four sectors with power and industry being the main culprits, followed by transportation and buildings. Out of the four, “the buildings sector would be the fastest to decarbonise, reducing emissions 55% by 2030”, according to Tasuku Kuwabara and Detlev Mohr, senior partners at McKinsey, “because the required technologies are already mature.”

“The transportation sector would see the smallest drop in emissions by 2030, at just 32%,” the report indicates, mainly because battery electric vehicle manufacturing and charging infrastructure need to be scaled up – a development that will take a considerable amount of time, and whose spatial requirements are difficult to meet in a country as populous as Japan.

Once the already mature and affordable decarbonisation technologies have been implemented, more expensive and so far, less well-developed technologies would be needed across all four sectors to reduce Japan’s remaining emissions. This would include investing in carbon capture, utilisation and storage (CCUS) technologies, as well as establishing a hydrogen supply chain.

Achieving the 2030 target requires challenging acceleration of technology and infrastructure deployment

In its cost-optimal pathway of $10 trillion, $8 trillion of investments could be existing investments that will be reallocated from current carbon-intensive technologies to green ones. The remaining $2 trillion would have to come from subsidies, carbon taxes, special investments or private-sector funding to cover the more expensive technologies and infrastructures.

Some of that funding will likely flow come from abroad, with Japan among one of Asia’s top renewable energy markets and the most attractive countries in the region for foreign direct investment.

“Achieving carbon neutrality by 2050 will require a joint effort from Japan’s policy makers, regulators, companies, and individuals,” Kuwabara and Mohr stated. From a government perspective, “aggressive targets and incentives” would need to be introduced already within the next few years, while from a private sector perspective, commitments will need to be made to accelerate innovation and deployment of clean energies.