OECD Environmental Performance Reviews: Japan 2025

Japan is a major investor in clean energy transition technology, but further investment is needed as the power mix remains carbon intensive. Despite a photovoltaics boom, renewables accounted for 23% of power generation in 2023, or about two-thirds the OECD average. To harness Japan’s large renewables potential, the government should continue addressing barriers to renewables expansion such as lengthy permitting processes, inadequate grids and local opposition. Meanwhile, coal – the main source of the country’s GHG emissions – still made up nearly 30% of power generation. Japan should follow through on its plans to phase out inefficient coal power plants and develop a roadmap to phase out unabated coal power on a timeline consistent with the Paris Agreement. The government intends to expand renewables, nuclear power and reduce emissions from fossil fuel-based electricity using emerging, costly technology like hydrogen and carbon capture. Developing alternative decarbonisation scenarios that account for technological uncertainties and the social acceptability of nuclear power would strengthen Japan’s energy transition strategy.

Japan’s energy intensity has continued to decline, but more could be done to reduce GHG emissions from buildings and transport. Reforms to energy performance rules for new buildings and renovation aid are positive steps, but efficiency standards for existing buildings should also be strengthened. Greater renewable energy integration into buildings is key for reducing emissions from widespread appliances and air conditioning use. The government should set more ambitious electromobility targets, refine vehicle taxes and subsidies and continue to expand the public charging network. This would enable Japan to accelerate the shift to electric vehicles, whose sales remain sluggish.

A more comprehensive and cost-effective policy package and better governance are needed to further advance the green transformation. Japan has developed a broad environmental policy mix, relying on regulations, voluntary agreements with industry, and support for research and development. The government has fostered a supportive environment for green finance. However, energy and vehicle taxes, environmental impact assessments and permitting could be strengthened. In a welcome move, in 2023, Japan launched the Green Transformation (GX) Basic Policy, aiming to achieve decarbonisation, energy security and economic competitiveness through green investment, transition finance and carbon pricing. However, cross-policy alignment, institutional co-ordination and public participation could be further enhanced.

The government’s policy to raise carbon pricing is welcome but could be improved. Under its Pro-Growth Carbon Pricing, the government plans to introduce a carbon levy and emission trading in the coming years, while providing subsidies to industry for investment in decarbonisation technology. This will help gradually increase carbon prices from their current low levels. However, the design of these carbon pricing measures could be reinforced and their implementation accelerated to ensure they contribute to achieving the 2030 GHG emission reduction target. Legislating the emission cap, the levy rate and their future tightening trajectories would provide certainty for investors.

Reforming fossil fuel support would encourage energy savings and switching to low-carbon energy sources, while alleviating fiscal pressures. Japan should systematically screen budgetary transfers and tax breaks for fossil fuel production and use, with a view to developing a plan to rationalise the support measures that are inefficient and encourage wasteful consumption. Measures that warrant systematic review include sector-specific fuel tax discounts and public support to unabated fossil fuel projects overseas. Japan should discontinue the energy price stabilisation mechanism introduced in 2022 in response to rising energy prices. Public support should focus solely on the most vulnerable households without distorting energy prices. Improving knowledge of energy poverty would enable better targeting of support policies, which could be partly funded by carbon pricing revenue.

There is significant spatial variation in environmental performance, challenges and opportunities across Japan, especially between urban and rural regions. While most urban regions reduced their GHG emissions per capita in the last three decades, emissions have increased significantly in some intermediate and rural regions. Large metropolitan areas are leading Japan’s decarbonisation efforts, but more could be done to promote compact urban development, while reducing land artificialisation. Built-up areas have been growing faster than the population in all metropolitan areas, while green area coverage has decreased in most of them.

The government has endeavoured to address multiple environmental challenges in an integrated manner and to bring social and economic benefits through environmental action, especially in regions facing depopulation and economic stagnation. Japan’s national plans and strategies have increasingly recognised the role of subnational governments in achieving national environmental objectives. About 60% of Japan’s local governments have committed to achieving net zero by 2050. Consistent and effective engagement of local governments in the development and implementation of all national-scale environmental plans and strategies would help ensure these reflect local contexts and needs. Improvements to subnational environmental data availability would enable better understanding of local contexts, as well as place-based policy interventions.

The national government has been actively providing financial and technical support for local action through pilot initiatives. The Decarbonisation Leading Areas (DLAs) and Circulating and Ecological Economy (CEE) initiatives aim to leverage synergies to tackle local economic and social challenges (such as ageing populations and labour shortages) in tandem with environmental challenges. With support from the national government, 82 areas have been designated as DLAs to pilot locally tailored decarbonisation solutions and 146 subnational governments have implemented CEE initiatives to promote circularity and local economic resilience. Renewable energy projects such as solar sharing (or agrivoltaics) provide opportunities to reduce GHG emissions, while improving local energy resilience and creating jobs in rural regions. More needs to be done to improve local support for these projects through better engagement, more inclusive consultation and transparent land-use management.

Successful pilot initiatives must be scaled up to expand reach and impact. In addition to continued financial and technical support to local authorities, the government could implement awareness campaigns, develop training programmes and establish a regional support network. Regional Environment Offices could play a more active role to improve co‑ordination between national and local governments. A more comprehensive framework to monitor and evaluate the impact of local environmental actions would help the national government make more informed decisions on how to best direct funding and support. Diversifying funding and financing mechanisms at the local level would help leverage private sector investment.