Projects cancelled, funding to be restricted – is Japan finally changing its course on coal?

While most of the world is busy making plans on how to divest their investments from coal and replace it in their energy mixes, for a long time Japan remained an exception to the rule among developed countries. However, signs of change are now surfacing rapidly.

But first, let’s see where we are at now:

Besides already producing 30% of its electricity by burning coal (1) in about 100 power plants across the country, until recently Japanese utilities had plans to build a staggering amount of around 40 new coal power plants (2). This is significantly more than in any other developed country, leaving behind countries like Poland and South Korea by a large margin. Of course, the plan is also in stark contrast with the recommendations of climate experts. To avoid catastrophic climate change, leading scientists have found that there is no room for new or expanding coal power (3), and all existing coal-fired power plants must be phased out as soon as possible (4).

Graph by Greenpeace (Reference: Global Coal Plant Tracker Jan 2018)
Besides the majority of the Japanese government and utilities being wedded to coal, another point for concern has been Japan’s private financial institutions’ huge financing in coal projects overseas. According to Banktrack’s data from 2014 to 2017, three of Japan’s largest banks – Mizuho, Mitsubishi UFJ and Mitsui Sumitomo – where the world’s 1st, 2nd and 5th biggest investors in coal globally.

Graph by Bloomberg (5)
These financial institutions are also tied up in the domestic coal projects. Recent Greenpeace Japan research (6) looked into domestic coal investments by the three biggest banks, and found that close to 30 billion USD is being put into the 13 most high-risk coal plants in Japan. By doing that, the banks are taking staggering environmental, economic and social risks.

However, during this spring, this depressing picture has started to quickly change.

The first signs of trouble in the coal sector came when an investor decided to pull out of a planned coal plant in Sendai, citing economical unviability (7). As it happens, Sendai is also a place where an active citizen movement has been protesting the coal expansion, even going to the courtrooms for their case. While the project has still not been fully cancelled due to another investor so far staying on board, it looks like coal is turning out to be a worse business than the industry had thought.

After Sendai, more good news followed. Two planned coal plants in Takasago were fully cancelled, resulting in prevented emissions of 7 million tons per year (8). Here as well, a citizen movement had opposed the project – a good sign of environmental movement’s impact.

In the last couple of weeks, good news have emerged on the finance front as well. First, it was reported that Nippon Life Insurance Company, one of Japan’s biggest life insurance companies, was considering to implement restrictions around lending to new coal fired power plants (9). Soon after, even better news came: Dai-ichi Life Insurance, another one of Japan’s big life insurance providers, decided to adopt a policy to end new project financing for overseas coal power plants (10).

And sure enough, the next news were quick to follow, this time in the banking sector: speaking to reporters, the president of Sumitomo Mitsui Takeshi Kunibe was recorded saying the bank is planning restrictions to its financing of coal, citing its major impact on climate (11).

Unlike numerous European and US banks (12), so far none of the Japanese megabanks have published their coal policies, so this move by Sumitomo is likely to be a game-changer. The next questions will be: what is the actual content of the policy they are planning, and when will the other megabanks Mitsubishi UFJ and Mizuho follow suit.

There’s no question that the changes we are now seeing in Japan are only the beginning. A lot of work remains ahead to replace the sizeable coal fleet, as well as shifting the billions from coal to renewables and energy efficiency. But once the change has started, there’s no way it will turn back, and that gives the climate some hope.

(1) https://www.isep.or.jp/archives/library/9570
(2) http://sekitan.jp/plant-map/en/v2
(3) https://europeanclimate.org/documents/nocoal2c.pdf
(4) http://climateanalytics.org/briefings/coal-phase-out.html
(5) https://www.bloomberg.com/news/articles/2018-05-11/cracks-emerge-in-coal-stronghold-as-insurers-mull-funding-curbs
(6) http://www.greenpeace.org/japan/ja/library/publication/20180425e/
(7) http://sekitan.jp/en/info/yonden-sendai_20180410/
(8) http://sekitan.jp/en/info/takasago-cancel_20180427/
(9) https://www.nikkei.com/article/DGXMZO29873510W8A420C1EE9000/
(10) https://www.bloomberg.com/news/articles/2018-05-11/cracks-emerge-in-coal-stronghold-as-insurers-mull-funding-curbs
(11) https://www.bloomberg.com/news/articles/2018-05-16/sumitomo-mitsui-signals-it-may-curb-coal-fired-power-financing
(12) https://www.banktrack.org/campaign/coal_projectfree_banks#inform=1