How Japan’s carbon neutrality goal could destroy its economic recovery
- Vehicle exports keep Japan’s economy afloat, but new regulations could put a million jobs and Japan’s trade surplus at risk
- Calculating the environmental impact of a car’s entire life could cripple carmakers unless the government changes Japan’s energy mix
Akio Toyoda, the CEO of Toyota and chairman of Japan Automobile Manufacturers Association, has appealed several times in the past year for Japan to increase its use of sustainable energy as soon as possible.
Japanese carmakers have established global production and sales infrastructure to remain viable since the yen started appreciating in 1985. Their production volume outside Japan is twice that in Japan. They do not have to follow the Japanese government if its economic recipe is nonsense.
The strong ties between the Japanese government and corporations have made many industries strong and afforded Japanese people a high quality of life. The automobile industry is a textbook example of a sector that received powerful support from the government in the 1960s, which led to Japan’s economic miracle of rapid growth.
They re-engineered themselves to boost productivity. Some sold their divisions of these products to others, including foreign companies. The government supported their efforts to keep Japan’s cutting edge in the global competition.
Now, the companies in Japan’s automotive industry are among a select few in the country that can compete globally. “Just in time”, a famous production system that encourages assemblers to minimise inventory and increase efficiency, was designed by Toyota and symbolises Japanese carmakers’ strength.
Toyota was able to prepare for the risks to the supply of semiconductors stemming from the Covid-19 pandemic, thanks to the experience of the 2011 earthquake and tsunami. However, the threat posed by the negative impact of the government’s carbon neutrality goal is steadily creeping up on it.
Japan still has 30 years to go until 2050, but if the government fails to shape a new energy mix to achieve its carbon-neutral target, it could set off a chain reaction that rips through automobile operations in Japan like wildfire.
It has the potential to cripple automobile exports from Japan, which Toyoda stressed would put a million jobs at risk. Japan could also stand to lose more than 16 trillion yen (US$145.5 billion) from its total exports, turning Japan’s trade surplus into a trade deficit.
In the past, the goal of carbon neutrality for Japan’s automobile industry was not considered to be difficult because manufacturers would just change all their production to electric and fuel cell vehicles.
Carbon emissions from vehicles in Japan decreased 54 million tons, equivalent to 23 per cent of Japanese cars’ total carbon dioxide output in the past 18 years, while such emissions in Germany and the US increased 5 per cent and 9 per cent respectively in the same period. Japanese carmakers produced 1.5 million electric vehicles, 38 per cent of global production in 2019, more than other Group of 7 countries.
However, government requirements based on the life cycle assessment of vehicles – which calculates the environmental impact of a car’s entire life – could ruin Japanese carmakers’ advantage. The assessment includes everything involved with making the car’s part, assembly, delivery to the customer and disposal.
The main question under the assessment is if and when Japan can change its energy mix. Thermal power plants currently account for more than 75 per cent of Japan’s total energy generation. The cost of renewable energy in Japan is higher than the cost in the United States or Europe.
The government still has confidence in the strength of Japanese manufacturers, so it believes Toyota and other carmakers can achieve the target and wants to focus its support on other industries. However, Toyoda has asked the government to find out how things really are and create a sustainable, practical process that better reflects the circumstances in the country.
The government’s approach to Japan’s energy mix will affect other Japanese manufacturers, too. Japan must be careful that targeting a carbon-neutral economy might end up destroying economic growth. Corporate Japan is at colossal risk now, and the yen could weaken profoundly amid the effects of a trade and fiscal deficit, which is worse than the situation the US faced in the 1980s.
Yoshihiro Sakai is a professor at Chubu University, Japan. This article reflects the author’s own views