Will Japan Stand in the Way of Action by G7 to Decarbonize Steel?

This year’s G7 could accelerate the global transition to low-emissions steelmaking but host country Japan remains stubbornly focused on prolonging the use of fossil-based infrastructure.

With the G7 Summit approaching this May in Hiroshima, there is a window of opportunity to push progress on low-emissions and cost-competitive steel. G7 members are market shapers, and include three of the five largest steel producers globally. If they announced their commitment to a clear phase-out of polluting coal-based steel production facilities, alongside deployment of proven lower-emissions technologies and scaling of renewable energy, it could unleash a wave of green investment for this industry. The main thing standing in their way is host country Japan, which remains a backwards-looking laggard wedded to the coal-heavy status quo.

Recent news reports revealed that Japan tried — with some successes —  to undermine G7 plans to decarbonize electricity production by 2035, set specific timelines to exit coal and end government support for new fossil fuel infrastructure. All eyes are now on the G7 leaders and what they will announce in their joint communique at the G7 summit.

A Government that can’t say ‘no’ to industry interests

There’s a reason Japan is an outlier — years of opposition by Japan’s heavy industry. Influence Map assessed how the world’s 4^th largest steelmaker, Nippon Steel, has blocked climate policy, ranking it 8th in the world for most negatively influential on climate change. Nippon Steel is still heavily reliant on its coal-based blast furnaces that are powered by a fossil-fuel heavy electrical grid. In recent months it’s doubled down on its stake in coal mining and secured funding from Japanese banks to expand coal-based steelmaking abroad.

It was not long ago that Japan was a global innovator and leader on climate change. The home of the Kyoto Protocol, in the 1990s and early 2000s Japan invested its engineering might in developing clean technologies from solar panels to hybrid-electric vehicles to efficient heat pumps. Unfortunately, Japan has since fallen behind with a government that “can’t say no” to vested interests who are more motivated by fear of change rather than potential for growth. 

‘Green Transformation’ in name only

Earlier this year the Cabinet approved an ironically-named “Green Transformation” or “GX” policy, and reports indicate Japan is seeking endorsement of it by the G7.  But it is not a coherent strategy to reduce emissions while bolstering economic competitiveness. It is a buffet of public largesse benefiting well-connected industries, with “green” in the title so it can be marketed to uncritical investors as green. 

It endorses emissions reduction technologies that are speculative, ineffective or unaffordable, because the real goal is extending the life of dirty fossil fuel infrastructure. These technologies range from cofiring ammonia or hydrogen in coal and gas power plants to someday capturing and storing carbon. There may not even be any emissions reductions to be had– the first shipment of hydrogen from Australia was produced from brown coal and with energy losses from conversion it was dirtier than just using the coal directly.

Truly transformational reforms, like putting a price on carbon pollution, are put off until the next decade. GX lacks urgency around the scale-up of renewable electricity which is off-track to even reach the current modest 36-38% by 2030 target. Japan’s business community is increasingly divided with an unprecedented outcry from hundreds of Japanese businesses and local governments to move faster in these two areas. 

Real competition unleashing Japan’s immense industrial and innovative power could make clean and secure electricity abundant and affordable. The main obstacle is central government policies that help incumbent utilities to stifle competition to protect their legacy assets.     

Amory Lovins, REVision Conference, March 2023

Missed opportunities

Unfortunately, Japan’s steelmakers are not only holding back the Japanese economy, they are also putting their own future competitiveness at risk. They need to deploy solutions that exist today while advocating for policies that can unlock Japan’s technical potential. Japan can turn the tremendous mine of scrap steel that is shipped abroad as waste into good quality, low cost, and low-emissions steel to be used in electric furnaces. Low-cost renewable electricity is needed for steelmaking and the government needs new policies to make renewable energy the major energy source in the next decade while driving down costs. 

These two steps would lay the groundwork to move ironmaking from coal to renewable hydrogen. It would also replace the coal that powers the electric furnaces. Instead, the government and industry are squandering the time they have to deploy proven low-emissions technologies while betting on expensive solutions to be implemented in the distant future such as adding hydrogen to blast furnaces for nominal reductions while waiting for carbon capture to be viable.

Japan has a small window to make investments to preserve competitiveness and reduce emissions in the steel sector. Meanwhile, European steelmakers are developing and commercializing new technologies to produce iron with hydrogen as governments steadily increase renewable energy targets. The United States incentivizes decarbonization of heavy industry with the Inflation Reduction Act while competitors in Korea move ahead to certify their steel mills under ResponsibleSteel. Japan’s steel industry is sitting on the sidelines but the G7 shouldn’t let Japan’s malaise hold back ambition. This year’s meeting is an opportunity to build upon the Breakthrough Agenda begun at COP26 and set a clear direction to accelerate the rate of change using proven lower-emissions technologies and affordable renewable energy. As with coal power generation we need to see G7 make a commitment and set an end date to phase out high-emitting coal-based steel production. Now is time for ambitious action to put heavy industry on track.