Coal Projects Face Increasing Risk as Japan Eyes Climate Goals

Coal Burning and Power Generation in Japan

With countries from China to Brazil lining up to showcase efforts to rein in pollution that causes global warming, developers of coal power plants in Japan may find themselves increasingly under pressure.

Japan formalized Friday a target to cut climate-warming gases 26 percent by 2030 from 2013 levels. The plan is built on the assumption coal will provide about a quarter of the country’s electricity generation by that time.

The country’s declining population and an oversupply of coal power plants risk undermining investments in new coal-fired capacity. Pressure to sell out of stakes in fossil fuel may also play a role in making coal investments less appealing, environmentalists and analysts say.

“There is the possibility of oversupply relative to demand, given that Japan’s electricity demand is likely to continue to decrease as a result of population decline,” said Miho Kurosaki, a Tokyo-based analyst for Bloomberg New Energy Finance. “If significant nuclear capacity is restarted, the need for new coal plants will be further diminished.”

Japan, the world’s fifth-largest emitter of carbon dioxide by country, issued its new commitment Friday as other nations lay the groundwork for a global climate deal in Paris later this year.

The target was set after months of deliberation by experts who debated the country’s energy needs and how to control emissions while securing stable power supplies. Japan first proposed the 26 percent emissions reduction in April.

Environmentalist Ire

Japan’s plan has sparked the ire of environmentalists who say it’s not ambitious enough and gives coal too much prominence at a time when other countries are trying to use less of the fuel.

Coal may come under more scrutiny once Japan’s target becomes official and the government sets out to compile an action plan with specific measures -- like the one set under the Kyoto Protocol, according to Yasushi Ninomiya, senior researcher at the Institute of Energy Economics, Japan.

“I anticipate some sort of measure to be included or coal may get out of control,” he said. “Regardless of Japan’s stance, the world will transit to low carbon and that’s an irreversible move.”

Japan’s target is based on a power generation mix that anticipates coal will provide 26 percent of its electricity in 2030, slightly below the 27 percent from gas and above nuclear, which is expected to provide as much as 22 percent, according to a report the Ministry of Economy, Trade and Industry released Thursday. Renewable is seen contributing as much as 24 percent.

Coal Power

Coal accounted for 24 percent on average in the 10 years before the Fukushima nuclear disaster in 2011, according to the government. Since the accident, fossil fuel use has increased to provide electricity generation.

The ratio of coal power in Japan was 28 percent in 2012, below some of the developed countries like Australia’s 70 percent and Germany’s 47 percent, according to the World Bank.

Still, additional emissions from more than 21 gigawatts of coal projects being planned or considered in Japan will threaten the country’s emissions cut target in the mid- to long-term, Akihisa Kuriyama, a researcher with the Institute for Global Environmental Strategies, wrote in June.

“Developers planning new coal projects will face business risks,” Kuriyama wrote. “They may have to decide between calling off the project for the reduction targets or buying credits from overseas” to offset emissions at home.

Should Japan choose to offset excess carbon emissions from coal plants, the annual cost would be 128 billion yen ($1.03 billion) in 2030, he wrote.

Supply Security

Some 13 gigawatts of large-sized coal projects are on the drawing board at the moment. Keeping the fuel at about a quarter of Japan’s total power generation means that plants will need to operate at 60 percent capacity in 2030, compared with 80 percent currently, the environment ministry said at a May meeting.

Investors in coal say resource-poor Japan needs to get its electricity from varied sources. Also, they say, the country has been developing advanced clean coal technology, which it wants to market abroad to help other countries cut emissions.

“Coal is an energy source that excels in stable supply and cost, and has been playing an essential role for Japan,” Electric Power Development Co., known as J-Power, said by e-mail. “We would like to work on emission cuts on a global scale” through the development of advanced technology and carbon capture and storage, it said.

J-Power has the largest coal-fired power capacity in Japan and is planning 650-megawatt and 1,200-megawatt projects with partners. It also plans to replace old units with new ones.

Japan has been criticized for financing coal-fired projects outside the country, even as multinational lenders limit such lending. In 2013, the World Bank Group said it would stop financing coal projects except in rare cases. The European Bank for Reconstruction and Development followed.

“A longer-term risk is a global price on carbon and/or further pressure on fossil fuel divestment,” BNEF’s Kurosaki said. “Japanese investors do not appear as concerned or as aware as Western institutional investors, however this situation can change.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE