Statement Regarding the Basic Plan for the Realization of GX and the Bill Promoting a Smooth Transition to the Decarbonized Growth-Oriented Economic Structure

• 日本語版 (Japanese)

On February 10, 2023, the Government made a Cabinet decision approving the Basic Plan for the Realization of GX (Green Transformation) (the “Basic Plan”) and the Bill Promoting a Smooth Transition to the Decarbonized Growth-Oriented Economic Structure (the “GX Bill”). The Basic Plan aims to fulfill Japan’s international commitment to achieve carbon neutrality by 2050 while enhancing Japan’s industrial competitiveness and achieving economic growth at the same time. The GX Bill sets forth measures including developing a strategy to promote the transition to the decarbonized growth-oriented economic structure (the “Transition Promotion Strategy”), issuing bonds to promote the transition to the decarbonized growth-oriented economic structure (the “GX Transition Bonds”) for the next 10 years and introducing growth-oriented carbon pricing, thereby introducing fees and dues to be imposed on specific business operators. The details of these measures will be set forth by the Transition Promotion Strategy developed by the Minister of Economy, Trade and Industry.

Avoiding dangerous climate change and maintaining the safety of energy and the long-term stability of the energy supply and demand is of particular importance to Japanese citizens, especially young generations. Solving these issues requires the involvement and understanding of citizens based on scientific knowledge informed by international bodies such as the Intergovernmental Panel on Climate Change (the “IPCC”). However, members of a council organized by the Ministry of Economy, Trade and Industry and other related committees were mostly industrial stakeholders, and the meetings of the GX Implementation Council were held behind closed doors, which leads to the conclusion that the policy making process involved in compiling opinions for the GX Bill was not necessarily carried out based on the involvement and understanding of citizens.

Furthermore, the Basic Plan and the GX Bill contain the following issues which the Japan Federation of Bar Associations (the “JFBA”) believes cannot be overlooked in order to avoid dangerous climate change and build a sustainable economy and society in a national and global context.

1. Direction

The JFBA has called for decommissioning the existing coal-fired power plants in stages by 2030 and drastically expanding the introduction of renewable energy, while pointing to the necessity of averting climate crisis by limiting a global average temperature rise to 1.5°C above pre-industrial levels as set forth in the Paris Agreement and the importance of not only achieving carbon neutrality by 2050, but also reducing CO2 emissions by almost 50% by 2030 in compliance with international agreements based on scientific knowledge informed by international bodies such as the IPCC in order to avert climate crisis. However, the Basic Plan and the GX Bill have the major premise of a stable energy supply and do not aim to achieve economic development while also aiming to achieve the 1.5°C goal or contribute to achieving the urgent goal of reducing emissions by 2030.

2. Issuance of the GX Transition Bonds and the use of funds raised through the Bonds

The Basic Plan sets forth the issuance of the GX Transition Bonds in the scale of twenty trillion yen over the period of 10 years between FY2023 and FY2032. According to the supplementary provisions to the GX Bill, approximately 1,103.4 billion yen are budgeted in FY 2023 to be allocated towards the redemption of the Bonds. Related materials show the scope of projects supported by the Bonds includes one project testing the co-firing of ammonia derived from fossil fuels in coal-fired power generation, one project socially implementing the CCS (capture and storage of CO2), and one project researching and developing the next generation innovative reactors in nuclear power generation. However, coal-fired power plants should be decommissioned in stages, and the ammonia co-firing is a technology that is still in development and its effect on reducing CO2 emissions is limited. In addition, the JFBA has called for not expanding or newly building nuclear power plants. These projects should not be included in the scope of projects supported by the Bonds. Instead, the use of the public funds should be focused on promoting energy saving and renewable energy. For reference, the Basic Plan sets forth a plan to build new natural gas-fired power plants. However, Japan already has such power plants with a combined capacity of 80 million kW and their utilization rate is low. Thus, there is no need for building additional natural gas-fired power plants.

3. Carbon pricing (pricing CO2)
The Basic Plan sets forth the introduction of carbon pricing through measures such as introducing a voluntary emissions trading system from FY2026, introducing dues to be imposed on electric power companies according to their emission allowances from FY2033, and introducing low fees to be imposed on fossil fuels from FY2028. In addition, the GX Bill sets forth the collection of such fees and dues and leaves their details up to the Transition Promotion Strategy developed by the Minister of Economy, Trade and Industry while stating that the government will take legislative measures within two years of enforcement after the Bill becomes law. The JFBA has called for introducing emission trading by a cap-and-trade system and an effective carbon tax for business operators who are large emitters, which is essential for the early transition to a decarbonized economy. However, the emissions trading included in the GX Bill is voluntary and does not set emission limits. The proceeds from the emissions trading are positioned as funds for the redemption of GX Transition Bonds along with carbon fees. As a result, the timeline for introducing carbon fees and the emissions trading each has been pushed back and, according to related materials, the dues to be imposed on fossil fuels and carbon fees will be set low. This cannot be described as the carbon pricing in compliance with international standards which the JFBA calls for or a measure to promote the transition to the decarbonized growth-oriented economic structure. Effective carbon pricing which will be implemented at a sufficient level to be an economic incentive to reduce emissions should be legislated and introduced immediately.

As explained above, the Basic Plan and the GX Bill contain serious issues. For this reason, the JFBA calls for fundamentally reviewing them.