Feature

1. Background

(1) International efforts and decarbonisation requirements under the Paris Agreement

The Paris Agreement was adopted at COP21 in December 2015. The Agreement stipulates its objective to strengthen global responses to the threat of climate change by holding the increase in the global average temperature to below 2°C above pre-industrial levels and pursuing efforts to limit the increase to 1.5°C. It also stipulates that efforts are to be made to make swift reductions in greenhouse gases to achieve a balance between anthropogenic emissions and removals by sinks of greenhouse gases (carbon neutrality throughout the world) in the second half of this century. All countries are obligated to implement domestic measures toward this purpose. Additionally, towards achieving the 2°C target, due to the significant gap between the global reduction amount estimated to be required in the future and the reduction targets currently set by countries, the Agreement invites countries to formulate and communicate a long-term strategy for low greenhouse gas emission development (hereinafter, long-term strategy).

(2) Changes in responses to the climate change issue in finance and business sectors

Significant changes that have not been experienced before are now taking place with regards to climate change measures. An energy transition based on lowering the cost of renewable energy and the trend for companies and financial sectors to aim at zero GHG emissions are characteristic changes. Namely, there is a growing possibility that the evaluation and assessment of a company will depend on whether or not it can promptly make the transition to decarbonisation. This is indicated in Prime Minister Abe's remarks that, "responding to climate change is no longer an additional cost for the economy, but a growth strategy for the future."

The scale of the market in the event of global initiatives under the Paris Agreement has been examined. For instance, the International Renewable Energy Agency (IRENA) has estimated the additional investment needed for decarbonisation of the energy industry. This figure could reach more than 29 trillion USD by 2050, as these investments drive new economic growth and increase GDP worldwide by 0.8% in 2050, revealing the magnitude of potential. Additionally, in the financial sector, there is a growing movement to regard non-financial information, such as corporate environmental efforts, as criteria for investment decisions, such as ESG investing. Global ESG investment in 2018 increased by approximately two quadrillion yen compared to 2012, and ESG investment in Japan grew more than four times from 2016 to 2018. Moreover, there is a movement that may lead to restraints on the use of fossil fuels that emit large amounts of CO2, including coal, such as examples of engagement and divestments.

(3) Viewpoint on addressing the issue of climate change within the Sustainable Development Goals

The “2030 Agenda for Sustainable Development” was adopted by the United Nations General Assembly in September 2015. Within the 2030 Agenda, which clearly states that “no one is left behind” on the earth, 17 goals and 169 targets were set as “Sustainable Development Goals (SDGs)". The SDGs, along with the Paris Agreement, are universal international targets for global sustainable growth. Responses to climate change that involve major transitions in socioeconomic systems, could be factors that influence the achievement of other SDGs. Further, in order to achieve the SDGs, it is necessary to promote climate change measures in an integrated manner in line with elements of SDGs not related to climate change. In the context of the Paris Agreement and the SDGs in the business world, there is increasing awareness that addressing environmental issues within corporate strategies and core business, not only as corporate social responsibility (CSR), makes corporate structures more resilient and brings new growth.

2. Formulation process of the longterm strategy

In June 2018, Prime Minister Abe instructed that meeting is established toward the formulation of the Long-Term Strategy under the Paris Agreement and relevant ministries and agencies expedite deliberations under this meeting.

In August 2018, the Meeting on a Long-term Strategy under the Paris Agreement (chaired by the President of the Japan International Cooperation Agency (JICA), Shinichi Kitaoka) was launched to engage in discussions on the basic concepts of the long-term strategy, held on five occasions. Consequently, a recommendation for the government was compiled in April 2019.

Following the recommendation, the government developed a draft of the long-term strategy. Following public comment, the “Long-Term Strategy under the Paris Agreement” was approved by the cabinet on 11 June 2019. Subsequently, it was submitted to the United Nations on 26 June.

3. Contents and direction of policies indicated in the long-term strategy

The long-term strategy is comprised of five chapters. The strategy incorporates the direction of policy countermeasures in detail, but due to the large volume, not all can be introduced here. The following points give a shortened explanation. Please refer to the original strategy for details (*1).

Chapter 1 sets forth the basic concepts of the long-term strategy. Three points concerning the characteristics of the strategy have been selected and introduced below.

(1) Decarbonised society: a shared goal and long-term vision

Japan aims for a “decarbonised society”, namely a society in which there are virtually no emissions of greenhouse gases such as CO2 (*2), to be the ultimate goal and aims to accomplish it as early as possible in the second half of this century.

This goal is "ambitious" in the international context on the following two points. First, it does not adopt a conventional approach to goal setting based on accumulation (*3), rather presents an "ideal image" of the future as a "goal". Second, it is the first declaration of an aim to realise a "decarbonised society" as soon as possible by a developed nation in the context of contributing to achieving the long-term goals of the Paris Agreement, including pursuing efforts to limit the temperature increase to 1.5°C above pre-industrilal levels.

By specifically declaring the direction of long-term goals and policy, the long-term strategy enhances investment foreseeability, points out areas that require disruptive innovation, and provides a foundation to promote research and development and investment in companies that do business consistent with this direction. Additionally, by presenting this type of vision, Japan will lead international debate on the creation of future frameworks and standards in the area of climate change.

(2) A virtuous cycle of environment and growth: basic principles in policy towards achieving the vision

Toward achieving the abovementioned long-term vision, the long-term strategy aims at realising a "virtuous cycle of environment and growth" through disruptive innovation on a scale that has never been seen before. Likewise, it aims to significantly reduce domestic GHG emissions and make maximum contributions to global emissions reduction. As the chair country of this year's G20 meetings, Japan communicated and shared these concepts with the world.

In order to achieve these aims, it will become important to make maximum use of the power of the business sector which has significant finance and world-class technologies. In bringing together wisdom from around the world to promote innovation, it is necessary not only to reform the supply side, but also to advance the development and diffusion of technologies to create new demand consistent with the trend of decarbonisation. Meanwhile, by building a system in which financing for decarbonisation (green finance) circulates through companies engaged in addressing climate change, and rethinking the market, infrastructure and institutions in light of the products and technologies born out of this system, exhaustive domestic diffusion can be achieved. Moreover, as it becomes more certain that responses to climate change will be increasingly required over the mid- and long-term, superior products and technologies can be expanded internationally. A framework to drive the transition to this type of decarbonisation is to be devised (see Chapter 3).

(3) A bright society with hope for the future: approaches to creating a decarbonised society

One perspective revealed in the recommendations of the Meeting on a Long-term Strategy was the need to show the way to transition to an ideal society. The long-term strategy states that, "a decarbonised society for which this strategy aims should also be a bright society with hope for the future," and asserts that, "it is important to create an environment to work voluntarily and actively by sharing the model of such a society with as many stakeholders as possible." Meanwhile, this society may differ depending on generation, position and location, and thus takes into account five factors (1. Achievement of SDGs, 2. "Cocreation" as the basis of continued innovation, 3. Working with Society 5.0, 4. A "circulating and ecological economy" that realises the SDGs locally, and 5. Becoming a "leading country in solving problems" through sharing and applying best practices from communities). The longterm strategy also stipulates that the government will "support each stakeholder in sharing awareness for a decarbonised society, forming a future vision of the society and taking proactive action". This will involve attaching importance to the problems and needs of citizens, local communities and companies, as well as to their preferred changes, to create a vision of society in which people have a "shared understanding" on solving these problems. Thus, it can be called an approach to applying the technologies, socioeconomic systems and lifestyles linked to decarbonisation to this vision of society. From the perspective of realising a virtuous cycle of environment and growth, it is a topic that is expected to be materialised and applied in the future.

Chapter 2 presents visions in the respective sectors of "Energy", "Industries", "Transport", "Community and Living" and the direction of policies and measures.

In the area of "Energy", the vision entails that the government will continue to explore all options to promote energy transformation and decarbonisation. Specifically, the government will work steadily to make renewable energy a stable main power source and to overcome systematic constraints and ensure coordination, including cost reduction, innovative research and development, examination of institutions to facilitate self-reliance from Feed-in Tariffs (FIT), and overcoming limitations to large scale introduction.

In the area of "Community and Living", the vision entails the creation of a "Circulating and Ecological Economy" to advance local decarbonisation and achieve the SDGs with integrated improvements on the environment, economy and society, and the achievement of carbon neutrality on the part of communities and companies where it is possible, before 2050. The long-term strategy incorporates the promotion of decarbonising actions on the part of each member of society from the perspectives of technological development targeting housing and offices, promotion of diffusion, and lifestyle shift.

Chapter 3 presents three key policies for achieving a "virtuous cycle of environment and growth".

In "Promotion of Innovation", it is deemed essential to promote “innovation for practical application and wide use” for technologies to be adopted in the society, together with innovations to create cuttingedge technologies. A "Progressive Environment Innovation Strategy" will be formulated this year based on various elements, including setting clear targets such as cost, long-term commitments including the size of investment, and setting challenges based on needs. Likewise, innnovaion in Economic and Social Systems and Lifestyle innovation will be promoted toward the practical application and wide use of technologies.

In "Promotion of Green Finance", a framework in which financing for decarbonisation (green finance) circulates through companies engaged in addressing climate change will be created, and initiatives will be supported and promoted, not only in the financial sector, but also in the industrial sector, focused on TCFD, an international initiative discussed at the G20. Expansion of ESG investing will also be promoted, including support for issuance of green bonds and local financial institutions.

In "Business-led Promotion of International Application and International Cooperation", policies are indicated on improving business environments, such as working to connect business to institutional and policy development in partner countries, and additionally on the public and private sectors coming together to create frameworks to compare and assess energy efficiency, and institutions for energy efficiency labeling and international standardisation.

Chapter 4 compiles policies on human resource development; an integrated approach in building a resilient society to adapt to climate change; just transition; government's efforts to lead the society; and carbon pricing. Of these, carbon pricing is a concept that includes emissions trading schemes and carbon tax, and a variety of opinions were voiced on this point at the Meeting on a Long-term Strategy. The direction of policy presented in the long-term strategy conforms to the contents of recommendations.

Chapter 5 discusses a future way forward. Concerning review of the long-term strategy, a review cycle of about six years is presented considering the cycle of related plans. However, reviews of the content of measures and policies will be carried out periodically and flexibly based on various conditions.

Further, the long-term strategy differs from concrete action plans for which PDCA management is appropriate. The strategy presents the ideal direction of policies and promotes the active engagement of various stakeholders. Thus, it places emphasis on scientific analysis dependent on future changes in conditions, provision of this information, and cooperation and dialogue with various stakeholders including younger generations.

4. Conclusion

Amidst uncertainties about the year 2050, and later into the future, it is not possible to make accurate predictions. However, if we continue as is without taking any actions, it is not hard to imagine the challenges that Japan will face related to our environment, economy and society, including not only climate change, but involving ways of business, ways of working, maintenance of our communities and relations between cities, as well as our ways of living. The aim of the long-term strategy is to create an environment in which we can voluntarily and actively engage from our respective standpoints to move in the certain direction of a "decarbonised society" to achieve a "bright society with hope for the future" in line with the SDGs, rather than passively await the changes that may come. While this approach itself is challenging, thankfully, we have the potential of a variety of decarbonising technologies, such as renewable energies, hydrogen and carbon recycling. Additionally, advanced digital technologies such as AI and IoT, as well as trends in consumption shifting from "things" to "services" and transformation in our sense of values, are suited to decarbonising technologies and have the potential to make disruptive changes in our societies and ways of living, making them carbon neutral, resilient to disasters and enjoyable.

We must achieve a "virtuous cycle of environment and growth" to realise a decarbonised society. We will continue to be engaged under consistent policy, focused on a vision for society linked to co-creation and shared understanding, scientific analysis, partnerships and dialogue.

Notes

*1 See the following URL for the full text and outline of the long-term strategy.

Full text: https://www.env.go.jp/ press/111913.pdf

Outline: https://www.env.go.jp/ press/111914.pdf

*2 Achieving a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century (carbon neutrality throughout the world).

*3 For instance, the 2030 reduction targets (NDC) set by Japan in anticipation of the mid-term future a few decades ahead, and are feasible reduction targets based on the compilation of measures, policies and technologies backed by ample consideration of technological constraints and issues of cost, etc.