Coal Projects Face Increasing Risk as Japan Eyes Climate Goals

(Bloomberg) — 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.”

To contact the reporter on this story:
Chisaki Watanabe in Tokyo at
cwatanabe5@bloomberg.net

To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Iain Wilson, Aaron Clark

About BloombergNEF

BloombergNEF (BNEF), Bloomberg’s primary research service, covers clean energy, advanced transport, digital industry, innovative materials and commodities. We help corporate strategy, finance and policy professionals navigate change and generate opportunities.

Available online, on mobile and on the Terminal, BNEF is powered by Bloomberg’s global network of 19,000 employees in 176 locations, reporting 5,000 news stories a day.
 
Sign up for our free weekly newsletter →

Want to learn how we help our clients put it all together? Contact us