Author: Yasuo Tanabe, Consulting Fellow, RIETI

Webinar “Toward Carbon Neutrality: Challenges for Industry and Policy”

On June 24, I participated in a webinar “Toward Carbon Neutrality: Challenges for Industry and Policy,” jointly organized by the EU-Japan Centre for Industrial Cooperation and the Research Institute of Economy, Trade and Industry (RIETI) as a moderator. It was the first event co-organized by both institutes. The participants engaged in very active and productive discussions. Please refer to the program here.

I would like to highlight the discussions and share my take-aways.

Session 1: Challenges for Industries

At Session 1 on Challenges for Industries, there were presentations and discussions by experts from the EU and Japan in sectors of hydrogen and batteries. For the hydrogen sector, Mr. Erwin Penfornis of Air Liquide stated that the company will tackle electrolysis and supply chains targeting demands in the industry and mobility sectors all over the world based on the outlook of tripling businesses to 6 billion Euros by 2035. He further pointed that the EU and Japan should address market failures, such as supporting mass production, supporting large-scale Power to Gas projects, regulatory issues on CCS technologies, in particular, storage, and deployment of various uses in mobility and industry. Ms. Nobuko Uetake of Asahi Kasei introduced its electrolysis technology, their FH2R project (demonstration of the world largest electrolysis unit of 10MW from PVs in Namie Town of Fukushima Prefecture) and CCUS, in particular. She also emphasized the need to promote expansion of demand for hydrogen in both the EU and Japan.

For the battery sector, Mr. Diego Pavia of InnoEnergy, who manages European Battery Alliance (EBA), explained that EBA has achieved a scale of 250 billion Euros and the creation of 3-4 million jobs and 70 industrial projects in battery supply chains in 22 countries. He cited securing skilled workers and key raw materials as their remaining challenges. Mr. Pavia also suggested that Japan should form a Japan Battery Alliance in view of EBA’s success. Mr. Shoichi Matsumoto, CEO of Envision AESC, mentioned four challenges; first, the expansion of production capacity, second, technology development including all solid-state batteries, third, sustainable lifecycle supply chains including recycling, and fourth, decarbonization of battery production. He expressed his hopes for international cooperation in technology, supply chains and regulatory issues to address these challenges.

Session 2: Challenges for Policy

At Session 2 on Challenges for Policy, experts from the EU and Japan made presentations mainly on carbon pricing and CBAMs (carbon border adjustment measures). Mr. Andrei Marcu from the European Roundtable on Climate Change and Sustainable Transition (ERCST) described the CBAM under consideration within EU authorities as preventing carbon leakage and establishing a level playing field in the global market and as being consistent with WTO rules. He commented about issues under consideration such as the sectors to be covered (cement, steel, electricity, aluminum, and fertilizers), emissions scope (Scope 1+2), and transitional maintenance of free allocations. Mr. Alexandre Affre of BusinessEurope expressed the position of European Industries as recognizing the importance of addressing carbon leakage issues and carbon pricing with the aim of emission reduction with the minimum cost possible. He mentioned WTO consistency, dialogues with third parties and transitional coexistence with free allowance as conditions for introducing CBAM.

Professor Toshihide Arimura of Waseda University pointed out that Japan has already introduced a carbon tax at 289 yen/t, and that the Tokyo Metropolitan Government and Saitama Prefecture have already introduced emission trading systems, resulting in emission reduction. He emphasized that carbon pricing has the double dividends of decarbonization and GDP growth through corporate investment. Mr. Hiroyuki Tezuka of JFE Steel has pointed out issues regarding CBAM such as whether the current free allowance should be maintained. He mentioned the differences in competitive conditions of Europe and Japan such as the fact that carbon price for the European steel industry is currently zero due to over allocation and that the electricity tariff rate for the German steel industry is bellow half that of the Japanese steel industry, due to exemption of FIT surcharge and tax.

Key Take-Aways from the Seminar

I would like to share my overall take-aways from the discussions. First, I was very much impressed by the constructive and cooperative attitudes of the EU and Japan toward common global challenges. This may be not unusual nowadays, because needless to say, it is against a background of the global situations such as the US-China confrontation and the growing awareness of the climate crisis. Nonetheless, to me, as a person who witnessed the trade friction years in the 1970s and 80s, it is deeply emotive to see this partnership-oriented relationship between the EU and Japan in recent years. This relationship has been evolving since around the turn of this century, but I believe it is very much attributable to the Economic Partnership Agreement (EPA) and Strategic Partnership Agreement (SPA) between the EU and Japan, which entered into force in 2019. Also, many persons involved in EU-Japan relations, including the EU-Japan Centre, have been making tremendous efforts in the past. As a witness, I would like to express my great respect for their efforts.

Secondly, I came to a realization in terms of the contrast between Europeans tending to focus on macro-, institution-, and framework-oriented issues and Japanese tending to focus on technical issues. This is often found in many dialogues between European and Japanese participants. European representatives are often rule-making oriented and Japanese representatives often focus on technical issues. In the case of batteries, Japanese researchers such as Nobel prize winner Dr. Akira Yoshino developed various technologies and Japanese companies are now concentrating on developing next-generation batteries such as all solid-state batteries. In contrast, Mr. Pavia of EBA said that the EU makes rules for battery production and usage, that are related to traceability, sustainability and circularity, etc., and that the EU is not concerned about the original nationality of battery companies being in the EU, as long as the rules are complied with. In terms of policy making also, the EU is now considering CBAM in addition to EU-ETS, which I find very innovative. It is under careful coordination within the EU, and the Japanese stakeholders are closely monitoring the situation. This contrast between the EU and Japan suggests that there is good potential for cooperation between the two parties making synergies based on the complementarity that exists.

Thirdly, it was very impressive to see strong ties between industries and authorities in the Green Deal in the EU. It looks a lot like Europe Inc. That is probably because European industries follow the strategy of leading the world toward a green economy by reforming their own economic and industrial structures. European Battery Alliance is in fact European Battery Inc. initiated by the European Commission. I found Mr. Pavia’s bold suggestion that Japan start its own Japan Battery Alliance quite interesting. As for hydrogen, the EU has also become very active in promoting hydrogen strategy in recent years, although Japan has a longer history in terms of hydrogen strategy. That is because the EU is aware that hydrogen will be an effective element in decarbonization which utilizes the growing amount of renewable power generation and the existing natural gas infrastructures. As for policies such as CBAM, dialogues between the authorities and industry seem to be underway, both of which share the objective of maintaining industrial competitiveness by establishing a level playing field. This kind of close cooperation between the authorities and industry used to be a strong characteristic of Japan Inc., or Japan’s industrial policy. Further collaboration on industrial policy between EU and Japan would be valuable.

I truly feel that this kind of EU-Japan dialogue seen in the webinar was very useful. Still, the forms and methods of cooperation between the EU and Japan toward the goal of carbon neutrality remain to be worked out. Coincidentally, the Japan-EU Summit between PM Suga, and President Charles Michel and Ursula von der Leyen was held on May 27th and the leaders of both sides agreed on the EU-Japan Green Alliance. The governments of both sides are expected to work out the concrete programs of the Green Alliance. The EU-Japan Centre for Industrial Cooperation will strengthen industrial cooperation toward this end, as stipulated in the agreed document.

Read the article on the RIETI website or in Japanese.

Image sourced from Pixabay.