OECD Environmental Performance Reviews: Japan 2025

Japan is one of the world’s largest economies, supported by a strong industrial sector and advanced technology. Its manufacturing industry plays a larger role in the economy than in most OECD countries, making up for about one-fifth of Japan’s gross domestic product (GDP) (World Bank, 2024_[1]). Although it is a leading merchandise exporter, the country imports much of its natural resources, including fossil fuels. Japan’s focus on industry competitiveness and technology development influences its environmental policy.

The country’s population density is among the highest in the OECD but shows considerable regional disparities. While rural areas are facing depopulation, ageing and economic decline, population and economic activities are heavily concentrated in dense metropolitan areas and along coastal plains. This is due to Japan’s geography, including being an archipelago and its mountainous and forested terrain (OECD, 2024_[2]). Revitalising rural economies is a key policy priority. The government sees the green transformation as an economic and social opportunity for struggling regions (Chapter 2).

The Japanese economy has grown moderately for several decades. GDP grew by an average of 0.6% per year over 2010-22 compared to the OECD average of 1.9%. At about USD 50 000 (in current purchasing power parities), Japan’s GDP per capita is the lowest among G7 countries. The economy is projected to grow by 1.5% in 2025, thanks in part to robust public investment and government subsidies for the green and digital agendas (OECD, 2024_[3]; OECD, 2024_[4]). At about 240% of GDP, Japan’s public debt is the highest in the OECD, while population ageing and decline add pressure on public finances. Fiscal consolidation is crucial for Japan to address rising pensions and health care costs, support the green and digital transformation, and ensure long-term economic stability and resilience (IMF, 2024_[5]; OECD, 2024_[4]). This calls for improving the efficiency of public spending and increasing fiscal revenues (OECD, 2024_[6]). Removing and repurposing environmentally harmful fiscal measures and expanding the use of environment-related taxes can help in this respect (Sections 1.4.3 and 1.4.4).

Japan has made considerable progress in decoupling environmental pressures from its economic performance (Figure 1.1). Energy supply declined and greenhouse gas (GHG) emissions started to decouple from GDP growth in 2013 (Figure 1.1). However, Japan’s energy mix remains heavily reliant on fossil fuels. The 2011 Great East Japan Earthquake and the ensuing accident at the Fukushima Daiichi Nuclear Power Station (hereafter “2011 earthquake and nuclear accident”),1 have exacerbated energy security concerns and affected Japan’s climate and energy policy (Sections 1.2.1 and 1.2.2). Japan has also made progress in reducing emissions of air pollutants, generation of municipal waste per capita, use of chemical fertilisers and fishing effort (Figure 1.1). However, most of the country’s population is exposed to harmful levels of particulate pollution (Section 1.2.3), and the circular use of resources could be improved further (Section 1.2.4). More than half of assessed fish stocks fall below biological sustainability standards. Japan is home to diverse endemic species, but pressures on terrestrial and marine biodiversity persist (Section 1.2.5). Japan is one of the most earthquake-prone countries in the world and is exposed to climate-related extreme weather events (Section 1.2.6).

Japan has consistently advocated, both domestically and internationally, for a “synergistic approach” to address the triple planetary crisis of climate change, biodiversity loss and pollution effectively, while improving economic prospects and well-being (Section 1.3.1). The government has also emphasised the socio-economic benefits of the green transformation for local communities (Chapter 2). As this chapter discusses, to fully harness policy synergies, Japan needs to further strengthen its governance and foster inter-institutional collaboration (Section 1.3.1). A comprehensive policy package is needed to advance towards the green transformation in an integrated and cost-effective manner. The policy mix should include public investments, better regulations, innovation, support and incentives for businesses and households, and consistent price signals (Section 1.4). Japan can leverage its high energy efficiency, vast renewables potential, extensive railway network, solid industrial base and renowned innovation capacity. To enable a smooth transition and seize its economic opportunities, Japan will need to facilitate reallocation of resources and alleviate the potential negative impact of the transition on vulnerable households.

Japan is the second largest GHG emitter in the OECD and G7, after the United States (Figure 1.2, panel A). The year 2013 marked a turning point in the country’s GHG emission trend. Before 2013, emissions had generally increased, with the only notable drop occurring during the 2008-09 financial crisis. GHG emissions rose again after the 2011 earthquake and nuclear accident. The subsequent temporary closure of all nuclear reactors for safety checks led to increased reliance on natural gas, oil and coal for electricity generation, driving GHG emissions to an all-time high in 2013. Since then, emissions have been declining in most sectors (Figure 1.2, panel B), thanks to energy savings, reduced output of energy-intensive industries such as steel and cement, the gradual expansion of renewable energy and the restart of some nuclear power plants (Section 1.2.2). The land use, land-use change and forestry (LULUCF) sector has been a small net carbon sink, absorbing about 5% of Japan’s gross emissions in the last decade. Overall, in 2022, net GHG emissions were 11% below their 1990 level and 19% below their 2013 level (Figure 1.2).

Japan’s high reliance on fossil fuels is the main driver of GHG emissions. Use of fossil fuels (especially oil) has declined since the 2013 peak. However, their share in total energy supply and electricity generation remains above the corresponding OECD averages (Figure 1.3, panels A and B) and the levels prior to the 2011 nuclear accident (Section 1.2.2). As a result, 87% of Japan’s GHG emissions were linked to energy production and use in 2022 – the highest share in the OECD – and energy industries are the largest single source of emissions (Figure 1.3, panels C and D).2 Manufacturing, the second largest source of emissions, generates a larger share of emissions than in most OECD countries, reflecting the role of energy-intensive industries in the economy. Transport accounts for a relatively lower share than the OECD average, underscoring the efficiency of rail and public transport networks, and vehicle fleet (Figure 1.3, panels C and D) (Section 1.5.3).

Japan has revised its medium- and long-term emission reduction targets to be more stringent. The country exceeded its 2020 emission reduction target (Figure 1.4). It committed to net-zero emissions by 2050 and enshrined this commitment into its Act on Promotion of Global Warming Countermeasures (first enacted in 1998). In its 2021 Nationally Determined Contribution (NDC), Japan pledged to cut GHG emissions by 46% by FY2030 from the FY2013 peak level (Figure 1.4). It also set an aspirational goal of halving GHG emissions in the same timeframe (Box 1.1). This is a considerable increase in ambition compared to Japan’s previous targets.3

Nonetheless, Japan could aim to curb emissions further by 2030 to be consistent with the Paris Agreement. The country’s FY2030 target represents a 34% reduction in net GHG emissions from 2019 levels. By comparison, the Intergovernmental Panel on Climate Change has called for a 43% global reduction in emissions to align with the Paris Agreement’s 1.5°C temperature limit (IPCC, 2022_[7]). Japan shares with other major advanced economies the responsibility of leading this global effort.

Japan’s vision to net zero aims to create a carbon-neutral and climate-resilient socio-economic system that addresses climate change, fosters efficient and circular resource use, and protects natural ecosystems for societal well-being and economic growth. This vision counts on disruptive technological development as a key driver of emission reductions, especially from energy production and industrial activities (Government of Japan, 2022_[9]). Promoting resource circularity, especially for plastics, is expected to further contribute to achieving the NDC (Section 1.2.4). In addition, the government plans to scale up regional and local decarbonisation initiatives (Chapter 2).

Japan foresees to achieve its FY2030 target by implementing the existing policy measures and investments outlined in the Plan for Global Warming Countermeasures, which was last updated in 2021 to align it with the revised NDC. The plan focuses on increasing energy efficiency in all sectors and expanding the use of renewable energy, as well as on fostering a shift in consumption patterns to help reduce emissions from households, services and transport (Sections 1.2.2 and 1.5.3). In addition, the 2023 Basic Policy for the Realization of the Green Transformation (GX) (hereafter GX Basic Policy) provides JPY 20 trillion (about USD 130 billion) of financial support for technology development over ten years, financed through the GX Economy Transition Bonds. The policy also foresees introducing a mandatory emission trading system (ETS) in FY2026 and a carbon levy in FY2028 – the so-called Pro-Growth Carbon Pricing (Sections 1.4.3).

The Plan for Global Warming Countermeasures is comprehensive and identifies the expected emission reductions from existing policy measures. However, the plan lacks a projected emission trajectory to the 2030 target, making it more challenging to track progress and adjust policies as needed. The plan does not identify the additional policy efforts needed to reach the aspirational goal of halving emissions by 2030. Nor does it provide projections or policies for the next decades. A climate mitigation planning framework based on binding periodic carbon budgets (i.e. limits on national and/or sectoral emissions) would help Japan ensure that its current and planned measures are aligned with its long-term target. Some OECD countries have adopted the carbon budget approach, including France, Germany and the United Kingdom (OECD, 2023_[10]; OECD, 2022_[11]; OECD, 2016_[12]).

Japan has implemented a broad set of GHG abatement measures. Their potential effectiveness in driving emission reductions has increased in the last decade. The country’s climate policy approach has traditionally relied on research and development (R&D) support, subsidies (e.g. energy efficiency, renewables and electric vehicles) and non-market-based instruments such as regulations, performance targets and voluntary agreements with industry. Pricing instruments such as energy and vehicle taxes have generally played a lower role in Japan’s policy mix compared to the average in the OECD. Their ability to drive behavioural changes has been limited – a feature common to other major OECD non-European economies such as Canada and Korea (D’Arcangelo, Kruse and Pisu, 2023_[13]). Given this context, the introduction of the Pro-Growth Carbon Pricing is a welcome development, as the effective carbon rate is currently low compared to most OECD countries. However, the contribution of the planned carbon levy and ETS to meeting the 2030 target remains difficult to assess, as their level and coverage are expected to be defined in the first half of 2025 (Section 1.4.3).

Japan needs to accelerate its emission abatement efforts to achieve the target at the end of this decade and prepare for setting a more ambitious target for 2035. This would help the country contain cumulative emissions and potentially reduce the transition costs in the next decades (UNEP, 2024_[14]). If domestic GHG emissions continue to decline at the same annual average rate of 2.9% as in FY2013/22, in FY2030 net emissions would be 39% below gross emissions in FY2013 and exceed the NDC level (Figure 1.4). UNEP (2024_[14]) estimates that Japan is unlikely to meet the NDC with existing policies.

Japan has made progress in reducing energy use in the last decade. Primary and final energy intensities have declined by 31% and 22%, respectively, since 2010, in line with OECD trends. They remain below the corresponding OECD averages (Figure 1.5, panel A). Energy consumption has declined in all sectors (Figure 1.5, panel B). Longstanding policy measures such as the Top Runner Programme, industrial voluntary agreements and financial support have contributed to this progress (IEA, 2021_[15]) (Section 1.5.3).

Some progress has also been made in shifting to low-carbon energy sources. As of January 2024, Japan had reactivated one-third of the country’s operational reactors, which have been off line since the 2011 Fukushima accident. This brought the share of nuclear in power generation from zero in 2013 to 9% in 2023 (Figure 1.3, panel B). At the same time, the decontamination of the areas affected by the nuclear accident has advanced (Box 1.2). Renewable energy supply grew by 60% between 2010 and 2023 (Figure 1.6, panel A), following a decade of nearly stable production. Increased solar photovoltaics (PV) capacity and generation, encouraged by generous subsidies, has been the main driver of this growth (Section 1.5.2). This has helped contain the role of fossil fuels in the energy mix and curb GHG emissions (Section 1.2.1). In particular, the use of coal has declined since 2017. However, coal still accounted for 26% of Japan’s total energy supply in 2023, double the average share in the OECD. Meanwhile, the role of renewables in the energy mix was still below the OECD average (Figure 1.3, panel A).

The government recognises that Japan’s high reliance on fossil fuels for energy production, low self-sufficiency and its island geography make the clean energy transition a must on both decarbonisation and energy security grounds. Japan imports about 90% of its needed fossil fuels. The government’s Sixth Strategic Energy Plan (SEP, adopted in 2021) aims to lower the share of fossil fuels in total energy supply from 85% in 2023 to 68% in 2030 (Figure 1.6, panel A). This would allow Japan to reduce energy-related CO₂ emissions by 45% by 2030 compared to 2013, accounting for nearly 95% of all emission reductions needed to achieve the NDC target (Section 1.2.1). It would also help improve energy security and reduce the total energy bill of the country.4

Lowering energy demand and shifting to low-carbon power generation sources are the main levers of Japan’s plan to reduce GHG emissions from the energy sector to 2030. The Sixth SEP assumes decreased energy demand with a lower population, moderate economic growth and substantial energy efficiency improvements (Section 1.5.3). It plans to more than double the share of power from nuclear and renewable sources from the 2019 shares (Figure 1.6, panel B). However, the SEP also foresees to boost investment in natural gas generation. Fossil fuels are projected to account for 41% of electricity generation in FY2030, with coal comprising a little less than half of this (Figure 1.6, panel B). The expected contribution of fossil fuels to power generation in 2030 is larger than that of most OECD countries in 2023 (Figure 1.3, panel B). It also exceeds the global average of 30% for unabated fossil fuels in electricity generation projected as necessary by 2030 by the International Energy Agency (IEA) to achieve net zero (IEA, 2024_[16]).5

Japan has sufficient renewable economic and technical potential to reach and exceed the SEP target of 36-38% renewables in power generation by 2030 (IEA, 2021_[15]) (Figure 1.6, panel B). The SEP indicates this share may rise to 50-60% in 2050. Some scenario analyses suggest renewables may grow further (Box 1.3). Renewables are mature technologies that can decarbonise power generation in a cost-effective manner. The government has taken steps to address barriers to renewables deployment. Some barriers are common to other countries, notably inadequate grids, lengthy permitting procedures and social resistance (IEA, 2024_[18]) (Section 1.5.2).

The government expects that restarting 30 reactors will bring nuclear to cover about 20% of electricity generation by the end of the decade – more than double the 2023 share (Figure 1.6, panel B). It also plans to build new advanced and small modular reactors. The reactivation of nuclear power plants depends on meeting stringent safety assurances, requiring an extended technical and safety review process.6 Social acceptance of nuclear power has increased nationally in recent years, after a dramatic drop following the 2011 accident and heightened concerns about disaster risks (The Asahi Shimbun, 2024_[24]).7 However, opposition to nuclear power remains strong at the local level, where the reactors are situated, and regaining local community acceptance requires lengthy consultations with uncertain outcomes.

The SEP foresees developing hydrogen, ammonia and carbon capture, utilisation and storage (CCUS) technology to reduce emissions from existing and new thermal power plants, paving the way to full-scale applications in the next decades. Ammonia and hydrogen are expected to be co-fired with coal and gas to produce 1% of electricity in FY2030 (Figure 1.6, panel B). The SEP also indicates low-emission hydrogen and ammonia may contribute to 10% of power generation by 2050 – a share ten times higher than the global figure projected by the IEA’s net-zero emission scenario (IEA, 2023_[25]). However, there are considerable uncertainties about the scope for scaling up these technologies in a cost-effective manner. Despite Japan’s remarkable R&D investment, hydrogen and CCUS technologies remain at early stages of deployment in the country, as in the rest of the world (Section 1.5.2). They are expensive and may face public resistance (IEA, 2024_[16]). Increasing their use will depend on global market development and on whether R&D efforts can successfully reduce production, transport and storage costs (OECD, 2024_[6]). If hydrogen and ammonia – whether domestic or imported – are not decarbonised, investing in retrofitting existing or building new thermal combustion power plants could lead to higher GHG emissions over the lifespan of these plants, as well as carbon lock-in (IEA, 2023_[26]). Japan should consider prioritising the use of low-emission hydrogen and ammonia and CCUS in sectors where other emission abatement options are limited and where these technologies would be the most cost-effective option, such as for hard-to-abate industrial processes (e.g. chemicals, iron and steel) (BNEF, 2023_[20]; IEA, 2023_[25]).

Overall, Japan’s strategy to decarbonise the energy sector faces potentially high costs and several uncertainties, including about reactivation of mothballed nuclear power facilities, technology development, grid constraints and social acceptance of energy infrastructure. If low-emission hydrogen and CCUS technologies cannot be deployed at a large scale and nuclear plants do not restart as planned, the anticipated high reliance on coal and gas will weaken Japan’s ability to reach net zero.

In light of these uncertainties and implementation challenges, the SEP recognises the need to develop alternative pathways for decarbonising the energy sector to 2050. This is essential to ensure that the 2030 energy mix targets are compatible with the energy mix needed in 2050 to achieve the net-zero goal, and that policy actions are adequate to achieve the targeted mix. Some organisations have formulated unofficial, independent energy scenarios for Japan (Box 1.3). Japan should also further engage civil society in energy policy making to build broader social support for the infrastructure developments essential to achieving the country’s energy and climate policy objectives (Section 1.3.2).

Coal is expected to maintain a key role in Japan’s energy supply beyond 2030 due to the government’s energy security concerns. Coal is a major fuel for both electricity generation and industrial activities in Japan. While declining, coal’s share in the power mix will remain high, at 19% in 2030 (Figure 1.6, panel B). This is higher than the OECD average in 2023 (Figure 1.3, panel B). The country has the fourth-largest operating coal fleet in the world behind the People’s Republic of China, India and the United States (IEA, 2022_[27]; Global Energy Monitor et al., 2024_[28]) and has historically financed coal projects overseas (Section 1.4.4). Its coal power capacity has increased since the 2015 Paris Agreement (Agency for Natural Resources and Energy, 2024_[29]).8 While Japan’s coal fleet is among the most efficient in the world, even a highly efficient coal plant emits more CO₂ than any alternative power source (IEA, 2024_[30]). As a result, coal remains the dominant source of Japan’s GHG emissions from energy production and use (Figure 1.7).

Japan has taken some steps towards reducing its reliance on coal. The Sixth SEP outlines a progressive phase-out of inefficient coal power plants,9 which made up about half of total coal capacity in 2023. Available information indicates that as of July 2024, 8.5% of operating capacity was planned to be retired in 2024-31 (Global Energy Monitor, 2024_[31]). The pace of closing inefficient coal plants should be accelerated. At the 2023 Conference of the Parties for the United Nations Framework Convention on Climate Change, Japan announced it would end new construction of unabated coal-fired power plants. To put this announcement into action, Japan could introduce a regulatory requirement for all future plants to be built CCUS-ready, in line with an IEA recommendation to the country (IEA, 2021_[15]).10 In 2024, along with other G7 countries, Japan pledged to phase out unabated coal power generation by 2035, or in a timeline consistent with the Paris Agreement and in line with countries’ net-zero pathways. Taking energy security concerns into account, formalising this pledge by committing to a coal phase-out timeline, as done by most OECD countries with coal power capacity, would provide a clear direction of travel for the sector and smooth the transition. It would also encourage the development of renewables and other low-carbon generation capacity.

The government plans to co-fire ammonia in existing and new coal power plants to reduce emissions.11 Co-firing ammonia with coal lowers CO₂ emissions from burning the fuels. However, Japan is a net ammonia importer and virtually all hydrogen and ammonia worldwide are currently produced from unabated fossil fuels. Thus, in the short term, co-firing would likely lead to higher life cycle CO₂ emissions than coal-only combustion and displace GHG emissions to the countries producing ammonia using carbon-intensive processes. In addition, ammonia combustion emits nitrogen oxides (NO_x) and fine particulate matter (PM_2.5), as well as nitrous oxide (a powerful GHG). This can worsen air quality in Japan and increase GHG emissions (Myllyvirta and Kelly, 2023_[32]). Japan has tested co-firing coal and ammonia at a 20% blend rate with reduced NO_x emissions (METI, 2024_[33]). While further technology development is under way to reduce the emissions impact at higher blend rates, results remain uncertain.

Japan’s climate mitigation and air pollution control policies have reinforced each other, exemplifying the potential for synergies. Regulations, industrial voluntary agreements and international market demands have driven technological improvements in electricity generation, manufacturing and vehicles. This has brought down emissions of both major air pollutants and GHGs in the last decade (Figure 1.8, panel A). Intensities of sulphur oxides and NOx decreased further and are among the lowest in the OECD (OECD, 2024_[2]). The COVID-19 pandemic brought emissions down even more in 2020-21. Dioxin emissions, which mostly originate from widespread waste incineration, declined due to the incineration facility upgrade (MOE, 2024_[8]).

Environmental quality standards (EQSs; Section 1.4.1) are set for several air pollutants: sulphur dioxide (SO₂), nitrogen dioxide (NO₂), carbon monoxide, PM_2.5, suspended particular matters, photochemical oxidants (Ox), hazardous air pollutants (such as benzene and trichloroethylene) and chlorinated dioxins. In 2022, compliance was nearly 100% for major air pollutants except Ox, such as ground-level ozone. Measures such as emission standards for fixed sources and more stringent regulation for mobile sources in specific regions have helped reduce emissions of NOx and non-methane volatile organic compounds (NMVOCs) (Figure 1.8, panel A), which are precursors of ground-level ozone and other Ox (Botta and Yamasaki, 2020_[34]). This has lowered the Ox concentration (Figure 1.8, panel D) and the number of acute episodes of high Ox levels12 but not enough for them to meet the related EQS in most locations (MOE, 2024_[35]). Efforts to reduce emissions of NOx and NMVOCs should continue complemented by other measures to tackle ozone formation such as addressing the heat island effect (i.e. higher temperature due to human activities and heat-absorbing built environment). These include nature-based solutions (NbS) like urban green spaces (Section 1.2.6).

PM_2.5 emissions and concentration decreased over the last decade (Figure 1.8, panels A and B). In 2022, Japan met the domestic PM_2.5 EQS (15μg/m³) with almost 100% compliance rate. Indeed, the share of population exposed to PM_2.5 over 15μg/m³ is lower in Japan compared to the OECD, G7 and OECD Asia-Oceania average. However, as in nearly all OECD countries, 99% of the population is exposed to levels of PM_2.5 above the World Health Organization (WHO) guideline (5μg/m³) (Figure 1.8, panel C), which is stricter than the domestic EQS. PM-related mortality and its welfare impacts are higher in Japan than the average of OECD countries (OECD, 2024_[2]).

Japan should consider updating its EQSs to take in the latest scientific findings and the WHO guideline to safeguard the health of its ageing and vulnerable population. Moreover, Japan should consider policies to further reduce PM_2.5 concentration by addressing both primary PM_2.5 emissions and secondary formation from precursor emissions. It should also better report official PM_2.5 emissions data, as currently available official data stop at 2018. Updating comprehensive emission inventories and improving atmospheric model simulation would provide better evidence for informed policy decisions to address both PM_2.5 and Ox. This effort is a key component of Japan’s “Photochemical Oxidant Countermeasures Working Plan”, launched in 2022.

Promoting circularity provides an opportunity to reduce GHG emissions. The government estimated that 36% of Japan’s GHG emissions (before electricity and heat allocation) come from sectors such as industry, freight transport and waste, where resource circulation can contribute (MOE, 2023_[36]). Waste management (including landfilling and incineration) accounted for about 3% of GHG emissions in 2022. GHG emissions from landfilling have declined steadily in the last decade with the progressive shift from landfilling to incineration of municipal waste (Figure 1.9, panel A). GHG emissions from waste incineration with energy recovery (which are accounted for under energy-related emissions) hovered around the same level over 2012-22, remaining strongly coupled to the amount of incinerated waste. Total waste generation in Japan has remained stable. Industrial waste accounted for about 90% of total generation, while household waste and other municipal waste made up the remainder (Figure 1.10, panel A).

Japan has a longstanding and effective policy of promoting municipal waste prevention and sorting at source. This dates back to the 1970s and builds upon the country’s mottainai culture (a simple lifestyle avoiding waste). As a result, municipal waste generation per capita is less than two-thirds of the OECD average (Figure 1.9, panel B). It has continued to decrease in the last decade, albeit moderately. As in other OECD countries, local governments are responsible for managing waste in their jurisdictions. They are required to develop local solid waste management plans and promote waste reduction, reuse and recycling, based on national guidelines.

Recycling of municipality waste should improve further. At about 20%, the rate of municipal waste recycled is lower than the averages of the OECD and Asia-Pacific OECD countries (Figure 1.9, panel B). In contrast, a higher share of industry waste is recycled (54%) in Japan. As a result, about 44% of the country’s total waste is recycled (MOE, 2024_[8]). The country slightly missed the 2020 targets of recycling rate (cyclical use rate) but shows a positive trend towards achieving 2025 and 2030 goals (Figure 1.11, panel C).

An increasing share of municipalities implement pay-as-you-throw waste charging systems. The government has provided guidance to municipalities on implementing unit-based (or pay-as-you-throw) waste charging systems to reduce municipal waste generation. In FY2022, 67% of municipalities had implemented unit-based charges for household waste, up from 61% in 2010, and 87% for commercial waste. Experience from other countries shows that pay-as-you-throw charging schemes and collection services can help reduce waste generation and encourage recycling (Brown, 2024_[37]). Despite progress in charging for waste management services, cost recovery is still low: about 12% nationwide in FY2022.

With limited land for landfilling, Japan has gradually turned to incineration for waste disposal. Today, landfilling is residual, while almost 80% of municipal waste is incinerated – the highest rate in the OECD (Figure 1.9, panel B). Nearly three-quarters of Japan’s incineration facilities enable energy recovery (MOE, 2024_[8]). In 2022, power generation from incineration plants was enough to meet the demand of 2.6 million households in Japan. This type of power generation can contribute to provide energy to local community, in line with the concept of Circulating and Ecological Economy (Chapter 2). Although average power generation efficiency of Japan’s incineration plants has increased, the efficiency is still relatively low compared to other types of fuels (PWMI, 2023_[38]). The country’s heavy reliance on waste incineration can be an obstacle to improving circularity.

The country has taken some steps to promote circularity. The MOE provides guidance to business on principles of the circular economy. It formulated the Circular Economy Roadmap in 2022, which set the direction towards circular economy with the aim to achieve net-zero GHG emissions by 2050. The Roadmap aims for a market size of JPY 80 trillion (about USD 530 billion) or more for businesses related to circular economy by 2030 (from JPY 63 trillion in 2022). The GX Basic Policy (Section 1.3.1) foresees investments of JPY 2 trillion (about USD 13 billion) on circular economy over ten years. This would cover areas such as installing facilities to manufacture products that use less carbon and fewer materials, as well as recycling facilities for plastics and metals. The government and Keidanren (Japan Business Federation) launched the Japan Partnership for Circular Economy in 2021 to enhance public-private collaboration.

The legislation requires formulation and review of a Fundamental Plan for Establishing a Sound Material-Cycle Society approximately every five years. The Fifth Fundamental Plan, adopted in 2024, set several targets on waste management and circular economy to be achieved by 2030, including those set by the 2022 Roadmap. In a positive development, it also expanded the indicator set to be measured to include public awareness and contribution to net-zero objectives. The country is on track to meet the 2030 target for the resource cyclical use rate, while the waste cyclical use rate has been hovering around the target level in the last decade, which suggests reviewing these targets could be explored (Figure 1.11, panel C). In the European Union, municipal waste has a recycling target of 55% by 2025 and 60% by 2030 (European Environmental Agency, 2020_[39]). These targets are more ambitious than those in Japan.

Further promoting prevention and recycling of plastic waste, especially packaging, can help achieve climate mitigation goals in Japan. Prevention and recycling help curb GHG emissions from incineration and the carbon-intensive plastics production process. Japan has a large plastics industry, producing about 3% of global plastic materials and products (OECD, 2022_[40]). Japan’s plastic waste per capita is higher than the OECD average (Figure 1.12, panel A). Most plastic waste is used as fuel in incineration because of its high calorific value; only 25% is used as mechanical and feedstock recycling (Figure 1.12, panel B). While incineration with energy recovery is considered “used”, it generates significant amounts of GHGs.

Japan has introduced targets and policy measures to promote reducing, reusing and recycling (3Rs) of plastic waste (Box 1.4), including design guidelines for plastic products and certifications for recyclable or reusable products. The fee on single-use plastic bags, introduced in 2020, triggered a considerable response from consumers: by the following year, use of plastic bags had been halved from 2019 levels (MOE, 2022_[41]). Measures in the 2022 Plastic Resource Circulation Act (Box 1.4) go in the right direction but Japan could strengthen these measures. For instance, an outright ban on single-use plastics and plastic bags as in the European Union can accelerate progress in reducing use. Producers of containers and packaging are required to pay recycling fees to recyclers based on the concept of extended producer responsibility. Japan could take this further by differentiating these fees based on product design, as seen in Korea. Implementing similar modulated extended producer responsibility fees could contribute to further increase the lifespan, recyclability and recycled content of plastic products. In Japan, certain regions implement deposit-refund schemes. Scaling up such programmes to national level can promote the collection of non-contaminated recyclable plastic waste.

Reducing plastics waste would also help address marine litter. The government hosted and endorsed the G20 Osaka Blue Ocean Vision in 2019 that aimed to reduce additional pollution by marine plastic litter to zero by 2050. This called for a comprehensive life cycle approach through improved waste management and innovative solutions.

Reducing food loss and waste13 also contributes to reducing GHG emissions. In 2021, food loss and waste was estimated to account for nearly 6% of total waste generation and 25% of home municipal waste (MOE, 2024_[8]). While 87% of food loss and waste from businesses is recycled (converted into animal feed and fertilisers), only 35% from restaurants and 8% from households is recycled. The composting rate of municipal waste is significantly lower than that of other OECD countries (Figure 1.9, panel B). Japan should expand composting to manage organic waste and to harness synergies with net-zero and nature-positive objectives. Using organic compost fosters plant growth, sustains diverse animal populations and reduces reliance on synthetic fertilisers, which emit GHGs and pollute soil and water (Section 1.2.5).

In 2022, nearly 20% of all food loss and waste was of edible food (MOE, 2024_[42]). The amount of wasted food decreased by over 25% from 2012 and seems on track to meet the domestic target of 4 Mt by FY2030. In FY2022, Japan had already achieved the goal of halving business-related food waste by FY2030 from the FY2000 level (MAFF, 2024_[43]). The government promotes best practices for both business and individuals (e.g. bringing leftovers home “mottECO”). However, direct waste of non-used foods from homes remained almost constant over FY2012/22, and waste from retailers (e.g. out of shape, refunded products, unsold products) dropped only in FY2022 (MOE, 2024_[42]). Major convenience stores started initiatives such as raising accuracy of food demand prediction and giving discounts on food nearing its best-before date. However, food waste from convenience stores remains substantial. This is partly due to their specific accounting system that incentivises headquarters to push franchises to over-order food (Kimura, 2022_[44]), on top of consumers’ expectations for food freshness.

Japan’s wide latitude and extended coastline results in a wide diversity of flora and rich marine biodiversity. Over two-thirds of the country’s land is mountainous and covered in forests, leaving relatively little space for agriculture, settlements, facilities and infrastructure. Indeed, Japan is one of the most forested countries in the OECD, with forests covering 68% of the country’s land area. About 12% of land is cropland, with permanent meadows and pastures accounting for less than 1% of total land area. Built-up areas are concentrated along the coastline and occupy 3.4% of Japan’s land, one of the highest shares in the OECD (OECD, 2024_[2]).

Japan has made some progress in conserving its biodiversity in the last decade. The rapid post-war economic development continues to drive ecosystem degradation today, but the rate of biodiversity loss has been slowing in some regions and ecosystems in the last two decades. Conversion of natural land to built-up areas has progressed and continues to exert pressures on biodiversity, although at a lower rate than in the past. Other direct drivers of biodiversity loss in recent years include farmland abandonment, invasive alien species and climate change (Working Group for Comprehensive Assessment of Biodiversity and Ecosystem Services, 2021_[46]).

Conservation and breeding projects have helped restore the populations of some threatened species.14 However, many known species are at risk of extinction (Figure 1.13, panel A). The Red List Index of threatened species is among the lowest in the OECD and has declined further since 2010 (Figure 1.13, panel C). The risk of extinction of species has increased particularly in freshwater ecosystems (Working Group for Comprehensive Assessment of Biodiversity and Ecosystem Services, 2021_[46]). The MOE intends to develop and implement a conservation and breeding project plan to protect highly threatened species in collaboration with relevant stakeholders.

Fisheries resources are also under strain. Fishing capacity and catch volume have declined, but half of the assessed commercial fish stocks is in unfavourable biological condition (Figure 1.13, panel B). Fishing is important in Japan, with seafood central to its diet. The government has strengthened regulations for sustainable fisheries management. The 2020 amendment of the Fishery Act in 2020 expanded the use of catch limits based on maximum sustainable yield. Japan is one of only three countries engaging in commercial whaling.

While forest, freshwater and urban ecosystem degradation has stabilised, the quality and extent of agricultural and coastal and marine ecosystems have continued to decline (Working Group for Comprehensive Assessment of Biodiversity and Ecosystem Services, 2021_[46]). Agricultural ecosystems are central to Japan’s biodiversity. The traditional and culturally significant satochi-satoyama rural mosaic landscape accounts for about 40% of Japan’s total area but is threatened by farmers’ ageing, farmland abandonment and conversion to other uses (OECD, 2023_[47]). Over the last two decades, the government has actively promoted sustainable management initiatives from the private sector that contribute to biodiversity conservation in, and economic revitalisation of, satoyama landscapes.

The government has focused on supporting sustainable farming to reduce the potentially negative impact of agriculture on biodiversity, soil and water. With limited land available for farming, Japan’s agriculture is intensive, with rice paddies occupying more than half of agricultural land. Water abstraction and intensity of use of chemical fertilisers and pesticides are high (FAO, 2024_[48]). Some reports suggest a possible causal link between the use of some pesticides (notably systemic insecticides) and the reduction of dragonflies and other insects (Working Group for Comprehensive Assessment of Biodiversity and Ecosystem Services, 2021_[46]). A negligible share of agricultural land is devoted to organic farming (OECD, 2024_[2]). As in other countries, Japan’s agricultural sector is also vulnerable to climate change. The MIDORI Strategy for Sustainable Food Systems is a promising initiative to improve the sustainability and productivity of Japan’s agriculture (OECD, 2024_[49]). It sets targets on agriculture’s environmental performance (e.g. GHG emissions, organic farming, fertilisers). It also introduces farm certification and product labelling to encourage eco-friendly farming practices and consumption choices.

Nitrogen surplus is high in Japan due to a combination of high fertiliser use and livestock production on limited pastureland (OECD, 2024_[49]). This has contributed to water and soil pollution, as well as eutrophication of lakes and enclosed coastal waters, although eutrophication has been declining over the past two decades (Working Group for Comprehensive Assessment of Biodiversity and Ecosystem Services, 2021_[46]). While 88% of water bodies meet organic pollution standards, progress has stalled in the last decade. Organic pollution of lakes has worsened (Figure 1.14, panel A). Compliance with nitrogen quality standards has improved, but still less than a quarter of lakes met nitrogen quality standards in 2022 (Figure 1.14, panel B). The third Japan Biodiversity Outlook recommended implementing regulations to prevent inappropriate use of chemical fertilisers and pesticides, while promoting technical innovation and investment to tackle chemical pollution and eutrophication. Regulatory measures and public investment in wastewater treatment aim to reduce water pollution. The government provides subsidies for advanced decentralised wastewater treatment systems (johkasou) in sparsely populated rural areas, which cover 9% of the population. As of 2023, 81% of the population had access to public wastewater treatment, mostly secondary treatment without nutrient removal (MOE, 2024_[8]; OECD, 2024_[2]).

Japan has strengthened its biodiversity policy framework and the measures to halt and reverse biodiversity loss. It has continued to provide financial assistance for biodiversity conservation in developing countries, including through the Japan Biodiversity Fund. Japan revised its National Biodiversity Strategy and Action Plan 2023-2030 (NBSAP) to reflect the findings of the third Japan Biodiversity Outlook and outline the roadmap to achieve the 30by30 target of the Kunming-Montreal Global Biodiversity Framework (GBF). In line with Japan Biodiversity Outlook, the NBSAP calls for a transformative approach to restoring the country’s biodiversity. In addition to reinforcing biodiversity conservation and management measures, the NBSAP emphasises NbS (Section 1.2.6) and nature-positive economies that harness synergies between biodiversity conservation and economic opportunities, including at local level. The local biodiversity strategies and action plans (LBSAPs) should take these elements into account. All prefectures have adopted their LBSAPs, but only about 10% of municipalities have done so (Chapter 2).

Japan has increasingly engaged the business community in biodiversity conservation and in mainstreaming biodiversity into economic activities. The 2024 inter-ministerial Transition Strategies toward Nature-Positive Economy encourage companies to reduce environmental impacts and contribute to nature conservation throughout their value chain. The MOE estimated the transition to a nature-positive economy would create JPY 47 trillion in new business opportunities annually by 2030 (MOE et al., 2024_[50]).

Japanese companies and financial institutions have shown increasing interests in biodiversity. The MOE supports the nature-related information disclosure in line with recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD). It developed a guideline for the private sector to participate in biodiversity initiatives in 2023, which includes how to set quantified biodiversity-related targets. By October 2024, 133 Japanese institutions had adopted the TNFD recommendations, the world’s highest number. Keidanren also promotes biodiversity considerations within industry through its Nature Conservation Council.

Japan met the 2020 Aichi targets for protected areas but needs to expand conservation areas to reach the 2030 target under the GBF (Figure 1.15). In 2024, 20.6% of the country’s land was designated as protected in various forms, a rate that has changed only marginally in the last decade. In addition, about 0.1% of total land was under Other Effective area-based Conservation Measures (OECMs). Marine protected areas have expanded considerably with the establishment of a large offshore seabed nature conservation area, reaching 13.3% of Japan’s territorial waters and exclusive economic zone.

Protected areas have been moderately effective in preventing pressures on biodiversity, depending on strictness and location of the area (Shiono, Kubota and Kusumoto, 2021_[51]). They have contributed to reducing the extinction risk of some rare species (Working Group for Comprehensive Assessment of Biodiversity and Ecosystem Services, 2021_[46]). Protected areas in the strictest conservation categories have successfully limited land conversion to built-up areas. These are mostly located in remote, scenic regions, which generally face lower development pressures. However, nearly half of all protected areas fall under less strict categories, which have been less effective in preventing land conversion (Shiono, Kubota and Kusumoto, 2021_[51]).

Further efforts are needed to strengthen the governance and management effectiveness of protected areas. Estimates indicate that human resources per national park are below international standards (Tanaka and Takashina, 2023_[52]). Management effectiveness has only been evaluated for four national parks on a trial basis (CBD and UNDP, n.d._[53]). No assessment is reported in the global database of Protected Area Management Effectiveness (PAME) evaluations (UNEP-WCMC and IUCN, 2024_[54]).15

To achieve the 30by30 target (protecting at least 30% of both terrestrial and marine areas by 2030), the government plans to expand officially protected areas and adopt OECMs in areas of high biodiversity value. The MOE has identified 14 potential terrestrial sites for new designation of national and quasi-national parks. The government also aims to double the area of Marine Special Zone by 2030. In expanding protected areas and OECMs, Japan should consider improving the ecological significance of protected areas. In 2023, protected areas covered about two-thirds of the country’s terrestrial and marine key biodiversity areas (defined as sites that make significant contributions to the global persistence of biodiversity) (UNSD, 2024_[55]). Privately managed lands used for agriculture or forestry and around/within urban areas are under more pressure. Modelling suggests that establishing OECMs in these areas to complement officially protected areas is effective at reducing pressures on biodiversity and increase connectivity among areas of high ecological value (Shiono, Kubota and Kusumoto, 2021_[51]).

To facilitate identification of OECMs, the MOE established a scheme to certify areas hosting community or private biodiversity conservation initiatives. These sites include satochi-satoyama rural landscapes, forests, and urban and coastal areas. Some of these areas face higher risks of degradation but are challenging to designate as protected areas due to their significant economic and social value. The government spearheaded the 30by30 Alliance for Biodiversity – a network of citizens, local governments, business and non-business stakeholders – to encourage the certification. As of October 2024, 253 sites had been certified as Nationally Certified Sustainably Managed Natural Sites. These sites can qualify for registration as OECMs if outside officially protected areas. As of December 2024, Japan had registered 159 sites in the international OECM database (UNEP-WCMC and IUCN, 2024_[56]).

Expanding the areas under conservation will require effective governance and management to address intricate land ownership patterns, overlapping laws and limited administrative resources. It will also call for appropriate incentives for engaging the private sector (Tanaka and Takashina, 2023_[52]). With this aim, since September 2024, Japan has been piloting a scheme that issues certificates to individuals or entities supporting OECMs. These certificates can be leveraged for TNFD purposes and enhancing investor relations. Likewise, programmes of payments for ecosystem services (PES) can encourage local communities or private entities to undertake actions that maintain or improve ecosystem services in OECM sites and provide financial resources to support OECM implementation (Sharma et al., 2023_[57]). A few PES programmes are implemented at subnational level.

More extreme and variable climatic conditions intensify Japan’s exposure to weather-related hazards such as tropical cyclones, storm surges and floods. While population exposure to river and coastal flooding is lower than in many other countries, 28% of Japan’s built-up area is exposed to violent windstorms – among the highest shares in the OECD (Figure 1.16, panel C). There have been several such events in the last decade (Figure 1.16, panel D). According to government estimates, extreme weather events caused 1 402 fatalities between 2000 and 2023. In the same period, losses and damages were estimated at USD 150.8 billion (at 2024 prices) (0.12% of cumulative GDP over the period) (CRED, 2024_[58]).

Beyond their impact on human lives and high costs, extreme weather events pose a severe risk to Japan’s energy supply reliability, as the country lacks electricity connection with neighbouring countries that could provide support during shortages. Japan has managed the impact of climate-related disasters on the energy system effectively through established natural disaster risk management strategies (IEA, 2022_[59]). The overall temperature increase has reduced winter heating needs but boosted cooling in the summer. Summer peak electricity demand may increase further, except in the northern island of Hokkaido. Diversifying the power mix, strengthening incentives for energy savings and upgrading grids are, therefore, important to reach both mitigation and adaptation goals (Section 1.2.2).

Hotter temperatures will expose more people to periods of extreme heat, with considerable health impacts. The annual average temperature is 0.98°C higher than in the baseline period of 1981‑2010 (OECD, 2024_[60]) and is set to rise further (World Bank, 2023_[61]). Over 60% of the country’s population is exposed to hot summer days with temperatures above 35°C, some of the highest exposure levels in the OECD (Figure 1.16, panel B). The health impact has been evident, with growing numbers of heat-related illnesses and fatalities, especially among the elderly. Heatstroke fatalities have dramatically increased, exceeding 1 000 per year since the mid-2010s (Figure 1.16, panel A).

In 2023, to strengthen the prevention framework and ensure stronger government co‑operation, Japan amended its Climate Change Adaptation Act to require adoption of the Heat Illness Prevention Action Plan by cabinet decision, thereby ensuring stronger government co‑operation on the matter. The plan was approved the same year, setting the target of halving the number of annual fatalities due to heat illness by 2030. The amendment also mandates local authorities to issue special heatstroke alerts and allows for the opening of designated heat shelters during such alerts (MOE, 2024_[8]).

The increase in temperature has been more pronounced in urban areas than in rural ones. For example, Tokyo’s average temperature has risen twice as quickly as that of rural areas (IEA, 2022_[59]). Stricter energy performance standards for new buildings and ongoing investments in improving the energy efficiency and earthquake resistance of buildings can simultaneously bolster their capacity to withstand extreme heat (Section 1.5.3). These efforts should be part of urban neighbourhood regeneration plans that include green spaces, renewables-powered community cool spaces and access to sustainable transport modes. For example, regulations in the Tokyo Metropolitan Area require new developments to incorporate green spaces, such as rooftop gardens and vertical vegetation (OECD, 2023_[62]). Urban green spaces lower the urban heat island effect. This helps reduce energy demand for cooling and related GHG emissions. Furthermore, urban green spaces contribute to carbon sequestration and increase water absorption capacity, thereby mitigating the risk of urban flooding (OECD, 2021_[63]).

Japan has strong capacity to cope with extreme weather-related disasters and a well-developed framework for climate change adaptation (IMF, 2022_[64]). It played a key role in steering the development of the Sendai Framework for Disaster Risk Reduction 2015-2030 and has shared knowledge and technology for mitigating climate-related risks with developing economies (IMF, 2022_[64]).

As a country that has long dealt with natural disasters, including earthquakes and typhoons, Japan has significant expertise in disaster risk management and resilience building. It has an advanced, satellite-based early warning system (J-Alert), which facilitates timely evacuations and resource mobilisation. Japan prioritises preventive maintenance to enhance infrastructure resilience to climate impacts. This approach allows to reduce maintenance costs compared to reactive methods and enhance the quality and resilience of infrastructure (OECD, 2024_[65]). Insurance coverage is more developed than in many other countries, with about 45% of damages due to weather-related events insured in 2000-23 (CRED, 2024_[58]). This helps alleviate the financial burden on the public budget for disaster relief and reconstruction. Two government-subsidised insurance programmes are available to help farmers mitigate climate risks (OECD, 2023_[47]).

By adopting the Climate Change Adaptation Act in 2018, Japan established a legal foundation for adaptation. The Act mandates the formulation of the Climate Change Adaptation Plan, requires the development of information systems and promotes subnational adaptation initiatives. A comprehensive assessment of climate change impacts is expected to be conducted about every five years. The 2021 revision of the adaptation plan includes actions to mainstream adaptation into relevant policies. It also identifies key performance indicators for adaptation measures and introduces a system for monitoring progress, in line with best international practice (OECD, 2024_[66]).

Japan has historically used “natural infrastructure” to limit damage from erosion, floods and natural hazards while conserving ecosystems. However, NbS have gained renewed traction in the context of disaster risk reduction after the 2011 earthquake (SIP, 2022_[67]). The adaptation plan and the NBSAP 2023-2030 highlight the contribution of NbS to enhancing climate resilience and halting and reversing biodiversity loss, but also to mitigating GHG emissions and promoting sustainable local development. Various NbS initiatives are aimed at increasing carbon removal capacity of soil, forests and coastal ecosystems to help Japan achieve its emission reduction targets (Section 1.2.1).16 Such initiatives include sustainable forest management and conservation, enhancing urban green spaces, supporting agricultural practices that increase soil carbon storage and researching blue carbon ecosystems (MOE, 2024_[8]).17

Ecosystem-based Disaster Risk Reduction (Eco-DRR), which aims at managing disaster risks by harnessing the disaster mitigation functions of healthy ecosystems, has been increasingly incorporated into national policies (SIP, 2022_[67]). The national and local governments have gradually developed Eco‑DRR projects for coastal system restoration, flood management and reforestation in the six prefectures affected by the 2011 earthquake (Nakamura, 2022_[68]). For example, extending the coastal forest within the Sanriku Fukko Reconstruction National Park protects against tsunamis, while revitalising the regional economy. This initiative is projected to save more than JPY 2.5 billion compared to raising high sea walls (IUCN, 2017_[69]). The government supports local governments in integrating NbS into their adaptation plans and biodiversity strategies, offering resources like the “Potential Map of Ecosystem Conservation/Restoration” to identify suitable areas for Eco-DRR and the Green Infrastructure Public-Private Partnership Platform to share information and raise awareness.18 These efforts are welcome and should be continued to foster wider adoption and integration of NbS.

As in all countries, local authorities in Japan play a crucial role in building climate resilience through their responsibility for territorial development (OECD, 2023_[62]). Japan’s national adaptation legislation encourages local governments to formulate their local plans and set up adaptation centres to collect and share local climate risk data and adaptation information. As of July 2024, all 47 prefectures had formulated Local Climate Change Adaptation Plans, while only 303 municipalities (or 17.6% of municipalities) had done so. Meanwhile, 66 local governments had established Local Climate Change Adaptation Centers (NIES, 2024_[70]). These centres serve as the primary source of information for developing local adaptation plans and designing effective adaptation measures.

As in many countries, many local governments, especially smaller municipalities, lack the technical and financial capacity to develop adaptation plans and invest in climate resilience (OECD, 2023_[62]). To address these challenges, the MOE provides guidance to municipalities. However, as in many other countries, local authorities may have insufficient incentives to make proactive resilience investments. This is because the national government steps in to finance most post-disaster recovery costs. Delegating specific adaptation responsibilities to local governments, along with enhancing their revenue-raising capacity, could help mobilise local resources for adaptation actions (OECD, 2023_[62]).

Japan has developed several initiatives to share information about climate-related hazards and adaptation measures with local governments, the business community and civil society. These include the Climate Change Adaptation Information Platform (A-PLAT), established in 2016. The platform provides forecasts on climate change impacts, as well as adaptation plans, case studies and guidelines. In 2022, the MOE revised its guidelines on climate adaptation for businesses, introducing the approach of the Task Force on Climate-related Financial Disclosures to managing physical risks. The Climate Change Risk Industry-Government-Academia Collaboration Network, established in 2021, fosters collaboration to enhance use of climate risk data (MOE, 2024_[8]). All these initiatives are welcome, as sharing information among all policy-making levels is key to scale up preventive adaptation action at the local level (OECD, 2023_[62]).

As in other policy areas, Japan’s approach to environmental policy planning is based on Basic Environment Plans (BEPs) developed every six years. The BEP is a multi-annual framework that outlines the long-term objective and measures of Japan’s environmental policy. The MOE and the Central Environmental Council – an advisory body to the MOE (see below) – assess implementation of the BEP. Prefectures often develop multi-year environment plans as well. The Sixth BEP approved in 2024 builds on the Fifth BEP’s “Circular and Ecological Economy” concept, which aimed for self-sustaining regional societies to address environmental, economic and social challenges holistically. The Sixth BEP focuses on improving citizens’ well-being and quality of life and emphasises synergies across net-zero, circular and nature-positive objectives, including through regional development. Numerous other plans address each environmental policy area, as well as sectors related to the environment, such as energy, transport and agriculture.

The 2023 GX Basic Policy, along with its related legislation, strategies and plans, brought welcome and important novelties to Japan’s environmental and climate policy frameworks. It jointly pursues decarbonisation, energy security and economic competitiveness. As such, it has become the cornerstone of Japan’s climate mitigation policy (Box 1.5). The GX Basic Policy aims to leverage public and private investment for the net-zero, clean energy and circular transition for JPY 150 trillion (about USD 980 billion) over ten years (Figure 1.17). To achieve this goal, it merges Japan’s traditional policy approach based on close collaboration with industry and strong government support for investment and R&D, alongside new instruments such as sovereign transition bonds and carbon pricing.

While commendable, the GX could be more effective with a synergistic vision of the country’s transformation towards net zero, and circular and nature-positive economic and social systems. The government aims to develop a GX2040 vision as a more concrete long-term strategy that provides clarity for investors. The GX2040 provides scope for better integrating into the GX vision underrepresented aspects. These include policy measures to encourage sustainable consumption choices, incentives to engage in nature-positive activities, and mechanisms to engage local communities in the green transformation and share its benefits.

Like many OECD countries, Japan has a line ministry responsible for environmental policy (the MOE), alongside other ministries and agencies responsible for sectoral policies with significant environmental dimensions. These include the Ministry of Agriculture, Forestry and Fisheries (MAFF); the Ministry of Land, Infrastructure, Transport and Tourism (MLIT); and the Ministry of Economy, Trade and Industry (METI). The Central Environment Council (CEC), composed of non-governmental experts, is the major advisory body to the MOE for environmental policies, including on climate. Still, the CEC is positioned within the MOE, which selects members. Establishing an independent body providing science-based advice to the whole government could help enhance coherence and better address synergies across environmental, social and economic objectives and policies. Some European countries have set up such independent advisory bodies for climate policies (Box 1.6).

Japan has continued to strengthen inter-institutional co‑operation in environment-related matters. It has established several inter-ministerial bodies to promote a whole-of-government approach to policy making. These include the Sustainable Development Goals (SDGs) Promotion Headquarters, the Global Warming Prevention Headquarters and the GX Implementation Council. Despite progress, however, a “silos” administrative culture and practice (tatewari gyōsei) tend to persist. Different government ministries and agencies operate with a high degree of independence and limited co‑ordination (Aoki, 2023_[75]). Many countries face similar institutional challenges, which can hinder comprehensive policy making and lead to inefficiency in tackling multifaceted environmental and socio-economic problems. Some countries have established government secretariats directly attached to the Prime Minister to co‑ordinate development of national strategies for climate, energy, biodiversity and the circular economy, such as France’s General Secretariat for Ecological Planning.

In Japan, as in most countries, the environment-related budget is dispersed across multiple ministries. This may lead to policy misalignment in the absence of appropriate co‑ordination mechanisms. The FY2024 preliminary budget for environment-related policies doubled compared to the previous year, reaching about 2% of the total government budget. This mostly reflects allocations to the METI for implementation of the GX Basic Policy. As a result, in FY2024, the METI received more than one-third of the environment-related budget, mostly for “global environment matters”, which include climate change (Figure 1.18). The MOE was allocated the second largest share (mostly for radioactive pollution, global environment and circular economy), followed by the MLIT (mainly for water, soil, ocean) and the MAFF (which handles half of the biodiversity budget). However, the initial budget allocations provide only a partial view of environment-related outlays, as Japan’s government often approves supplementary budgets during the fiscal year. This lowers the consistency of annual budgets and the reliability and transparency of fiscal projections and targets (OECD, 2024_[6]).

Adopting a green budgeting approach could help Japan strengthen policy synergies and enhance the transparency of budget allocations. While Japan tags environment-related budget allocations, it has not fully integrated climate and environmental considerations into its budget and fiscal frameworks (OECD, 2024_[76]). The government does not systematically evaluate the environmental impacts of budgetary and fiscal policies, including taxes and subsidies, or assess their alignment with environmental goals (Section 1.4.4). Adopting green budgeting tools could also help boost public credibility by improving transparency of government spending decisions. Publishing green budgeting information promotes accountability and encourages citizen engagement. Some OECD countries incorporate civil society into budget processes through methods like citizens’ commissions and public inquiries (OECD, 2024_[76]).

Japan is a decentralised country, and subnational expenditure is higher than the OECD average for most large categories of spending. Local governments have regulatory and enforcement power, such as setting emission standards (Section 1.4.1). They formulate and implement environmental conservation measures in accordance with national policies. Several local governments, especially prefectures and large municipalities, have been increasingly engaged in environmental and climate policies. The national government has also spearheaded local actions through, for example, the Regional Decarbonization Roadmap, and provides financial and technical assistance for implementation. “Regional energy and global warming mitigation councils” co‑ordinate regional climate action, including efforts by local governments (Chapter 2).

Japan actively supports international environmental initiatives and institutions. In the last decade, it has given more importance to regional and bilateral co‑operation in the Asian region. The country’s absolute level of official development assistance (ODA) increased steadily between 2018 and 2023 and is among the highest in the world. However, Japan’s ODA is 0.44% of gross national income, below the 0.7% UN target. Environment is a prominent component of Japan’s development assistance. In 2021-22, Japan committed 69% of its total bilateral allocable aid in support of the environment and the Rio Conventions (the DAC average was 35%), mostly for climate change mitigation (OECD, 2024_[77]). Moreover, the GX Basic Policy highlights Japan’s commitment to contribute to decarbonisation overseas, particularly in Asia. Still, OECD (2020_[78]) noted that Japan could improve coherence between domestic policies and its aid policy towards global sustainable development objectives, including the Paris Agreement goals.

Progress has been made on environmental education under the 2003 law on promotion of environmental education. The Education for Sustainable Development (ESD) domestic action plan aligns with UNESCO’s 2019 ESD framework, integrating ESD into school curricula. Environmental education initiatives include a certification system for teachers, counsellors and organisations; training; ESD support centres in eight regions; and activities through a learning platform.

The MOE has implemented various initiatives to promote disclosure of environmental information. The ministry collects, organises and publishes environmental statistic data, as well as annual reports, on its website. The MOE also supports establishment of open data platforms20 and launched its data management policy in 2021 to promote information transparency and provision based on users’ needs. The National Institute for Environmental Studies operates a website called the Environmental Observatory to share recent environment-related studies and technology, using geographic information systems data for visual descriptions.

These efforts contributed to the high public interest in environmental issues such as climate change and plastic waste (Figure 1.19). More than 90% of public opinion survey respondents expressed willingness to take actions in these fields. In the 2023 survey, 30% of respondents cited lack of information as the reason for their “unwillingness to take action”, down from 45% in the 2020 survey. This suggests an improvement in the availability of environmental information (Cabinet Office, 2023_[79]). Regarding plastic waste, 75% of respondents reported that the new plastic bag fee raised their interest in the issue, and 50% said the fee changed their behaviour (e.g. more use of reusable bags) (Cabinet Office, 2022_[80]). However, interest in, and knowledge of, biodiversity issues remained lower (Figure 1.19). Still, this area shows signs of improvement, especially among younger respondents (Cabinet Office, 2019_[81]).

Public participation in policy formulation is secured by established mechanisms. These include the public consultation processes in developing the BEP and in formulating cabinet orders and ministerial ordinances (for 30 days in general). When laws are established, the opinions submitted and response to them are published via the Internet.

However, there is room to improve such mechanisms for communication, consultation and stakeholder engagement in decision making. Overall, stakeholder engagement in Japan is relatively low. Japan ranked among the lowest in the share of those who think their government would adopt opinions expressed in a public consultation, as well as in the stakeholder engagement score for developing primary laws (OECD, 2023_[82]). Efforts to foster a more inclusive and participatory approach to environmental policy making are particularly important for decisions about reactivating nuclear power plants and the siting of renewable energy infrastructure, which have faced opposition from local communities, as well as of emerging technology installation, such as CCUS and hydrogen transport infrastructure.

Japan has been working to improve the balance in gender and age representation. Women and youth appear to have fewer opportunities to participate and influence government decisions. The inequality index on “having a say to the government” in Japan is worse than the OECD average, in both gender and age group categories (OECD, 2024_[83]). For instance, members of 15 working groups to form the Sixth SEP turned out to be skewed to the 50-70 age group and male (over 75%), with limited participation from the energy demand-side companies and non-profit organisations (Climate Integrate, 2024_[84]).

Environmental impact assessment (EIA) has been routinely implemented in Japan since 1997. It is required for a wide variety of projects, including infrastructure, power plants, and industrial, commercial and residential developments (Box 1.7). The EIA scope could be broadened to cover some activities with potentially high environmental impacts that are excluded, such as mining or aquaculture (OECD, 2024_[85]). The EIA procedure must be conducted prior to the permitting decision, and the EIA outcome is considered when granting a licence permit (Box 1.7). All major cities and prefectures developed their own EIA ordinance to ensure that smaller projects, with potential local environmental impact, undergo an EIA process. These ordinances require the creation of independent review commissions, which provide “expert opinions”, and in some prefectures, stipulate a power for the local administrative chief to call public hearings as necessary (Takao, 2016_[86]).

As of March 2024, most EIAs had been conducted for power plants since the promulgation of the EIA Act in 1997, with the largest number for wind farms in recent years (MOE, 2024_[88]). Wind power plants accounted for more than 80% of the EIAs in process as of March 2024. This reflects developers’ interest in renewables but also the complexity and length of the procedure. The government has taken several steps to streamline the EIA process for renewable power plants (Section 1.5.2). However, Japan needs a more adaptive EIA framework that can address the challenges posed by emerging technologies, especially those needed by the clean energy transition. For example, photovoltaics (PV) plants were included in the EIA scope only in 2020, well after the start of the PV boom in the country (Section 1.5.2).

In the EIA process, it is critical to systematically ensure effective participation of local stakeholders. Local citizens and governments can provide their views at several stages of the EIA process, including during the scoping for determining the EIA methodology and the EIS development. However, more inclusive and effective public engagement methods can be pursued (Kitamura, 2023_[87]). Japan would also benefit from introducing environmental assessments at the level of plans, programmes or policies (strategic environmental assessment, or SEA) as recommended by the OECD (OECD, 2024_[85]), while ensuring effective public participation during the SEA process. Improving communication is essential for renewable energy projects, which have been facing opposition from local communities. This is even more relevant for installations of emerging technology, such as hydrogen, ammonia and CCUS, to enhance local buy-in and propose mitigation measures to address potential conflicts.

Japan establishes EQSs on air, noise, water and soil, and emission standards on air and water pollution. While emission standards require penalties for non-compliance, EQSs function as an administrative target value to protect human health and environment, based on the Basic Environmental Law. Even when there is no EQS, a guideline value can be set as needed, such as noise value for wind power plants. Prefectures can establish stricter emission standards than those set by the central government. As in several other OECD countries, local authorities in Japan monitor quality regulations and operate the permitting system. If EQSs are not achieved, the local government can ask stationary sources to reduce emission-causing activities.

Japan’s permitting system for economic activities is medium-specific, with separate permits for air, water and waste releases. EU member states and several other countries issue integrated environmental permits that cover all releases and processes, in line with the OECD Recommendations on Integrated Pollution Prevention and Control (IPPC). Japan would benefit from transitioning to an integrated approach that covers all releases to air, water and land, and all processes of a facility. This would allow consideration of cross-media effects, such as preventing shifting pollution from air to water.

In Japan, licensing conditions for pollution sources on air emissions, as well as water and waste discharges, are set based on EQSs and technological feasibility. These conditions consider best available techniques (BATs), defined as the most environmentally effective and economically viable proven techniques within each sector, for certain substances such as mercury. To promote BATs further, Japan could implement a stepwise approach that identifies BATs by sector and establishes national BAT-based standards systematically, in line with the OECD IPPC Recommendation.21 BAT-based emission/effluent limit values are set in other OECD economies such as the European Union and the United Kingdom.

Establishing BATs by sector, such as BAT Reference Documents in the European Union, can be a starting point. In Japan, this type of practice exists in some sectors such as for thermal power plants. The country may also consider adopting BATs of other countries, with the necessary adjustments to national circumstances (OECD, 2020_[89]). Using BAT-based standards to set permitting conditions would increase the effectiveness of the permitting system in continuously minimising pollution. Permits would systematically reflect the latest available knowledge and incorporate increasingly stringent conditions as technology develops.

Chemical management has further improved in the last decade in Japan. In 2012, the country compiled the national plan for the implementation of the Strategic Approach to International Chemicals Management (SAICM). This aims to minimise the significant adverse effects on human health and the environment of chemicals production and use by 2020. Japan has initiated chemical management measures aligned with the Global Framework on Chemicals, adopted in 2023 as the successor of SAICM.

Regarding general purpose (industrial use) chemical substances that are to be newly manufactured or imported, the government evaluates the hazard and other aspects of substances based on the Chemical Substances Control Law in line with best international practices. For existing chemicals, the government identifies Priority Assessment Chemical Substances (PACS) through screening assessments. In the screening assessment, chemical substances with high hazard and exposure index values are judged to be equivalent to PACS. As of April 2024, 225 substances were designated as PACS, and the results of the detailed risk assessments were discussed for 46 substances by April 2024.

Monitoring of chemicals in the environment has been an important element of Japanese chemicals management since 1973. Japan established its Pollutant Release and Transfer Register (PRTR) system in 1999. The PRTR legislation requires designated facilities to report annually on the quantities of specified chemicals released to the environment (air, water, land) and transferred for disposal as waste. The government complements the reported data with estimates of amounts of these chemicals released to the environment that are not reported. Releases decreased across all top six chemicals with high-volume of reported and estimated releases over 2011-22 (Figure 1.20).

Japan showed leadership in management of mercury in particular, based on historical lessons. The Minamata Convention on Mercury, adopted in 2013, was named after the city of Minamata, which recorded an outbreak of mercury poisoning. In 2015, to comply with the convention, Japan adopted specific legislation on prevention of environmental pollution by mercury. Moreover, Japan is providing international support to promote implementation of the Minamata Convention in developing countries, especially in Asia.

Japan’s toolbox for compliance promotion includes training or guidance provided to the controlled facilities during inspections. Numerous governmental and business organisations, such as the Japan Environmental Association for Industry, help disseminate information on environmental laws and pollution control technologies. This helps ensure that regulated entities are aware of their environmental responsibilities and possess the capacity to comply. Disclosing non-compliance also helps promote adherence to environmental laws. For instance, the MOE discloses the results on the attainment rate of air quality standards and provides almost real-time information on the concentration of certain pollutants through its Atmospheric Environmental Regional Observation System (Soramamekun). Inspection activity data are collected at national level and published annually in aggregated reports.

Compliance monitoring activities are based on self-monitoring and on-site inspections. Authorities check reports from business operators to verify compliance with the regulations under each individual law (Miyagawa, Kurano and Kagawa, 2023_[90]). Either the regulated firm or third parties (i.e. accredited laboratories) perform the measurements (Botta and Yamasaki, 2020_[34]).

The Air Pollution Control Act and the Water Pollution Prevention Act request local governments to measure and monitor the status of air and water pollution through inspections on facilities in their territory. The number of inspections has decreased since 2019 due to COVID-19 (Figure 1.21). The MOE has released guidelines for the organisation and design of inspections, which encourage regular inspections of all facilities. Local governments can develop their own priorities (e.g. levels and hazardousness of emission, compliance record). This allows for a prioritisation of inspections for higher-risk facilities, in line with the OECD Council Recommendation on Environmental Compliance Assurance. The MOE also issues guidelines on how to draft inspection manuals, but local authorities’ approaches to inspections range from detailed manuals to simple checklists. While prefectures have the autonomy to adjust inspection strategies to local needs, there is limited oversight to ensure consistent standards across regions.

In cases of non-compliance, and before issuing a sanction, inspectors provide administrative guidance with recommendations to improve pollution control. This non-binding act is an effective way to help the facility return to compliance. When administrative guidance fails to bring the necessary corrective actions, or in the case of major non-compliance, inspectors issue administrative orders. These are binding legal acts requiring firms to improve or suspend operations (Botta and Yamasaki, 2020_[34]). After receiving a guidance or an order, a firm must submit an improvement plan and timeline, which local governments use to schedule follow-up inspections. Sanctions are specified in individual laws. They usually range from suspension of the use of facilities necessary for the business to revocation of the business licence, from fines to imprisonment with labour (Miyagawa, Kurano and Kagawa, 2023_[90]). In case of incidents, the local government can also order to take the necessary measure to prevent worse environmental consequences.

There is limited information sharing on violation and inspections results between prefectures. This information is first reported to the national government that decides whether to initiate further investigations and/or inform other prefectures. Establishing direct information-sharing mechanisms among prefectures would speed up identification of similar violations in other regions (OECD, 2018_[91]).

A strong culture of compliance results in a low ratio of non-compliance, ranging from almost full compliance with air emission standards to 6% non-compliance with water effluent standards. The number of cases of administrative guidance for operators to return to compliance has accounted for around 10% of inspections for air and 20% for water. Meanwhile, administrative orders are rarely seen (Figure 1.21). The intervention of the authority is already regarded as a sanction due to the potentially high damage to reputation.

In Japan, voluntary approaches play an important role for environmental management. The longstanding Keidanren’s Voluntary Action Plan (VAP) (Box 1.8) encouraged the industry to improve its environmental performance, with a focus on GHG emissions, energy efficiency and waste management. As part of the 2023 GX Basic Policy, large companies are encouraged to participate in the GX League (Box 1.8). Keidanren has also been promoting consideration of biodiversity in industrial activity through its sister organisation Keidanren Nature Conservation Council (Box 1.8).

The VAP has triggered visible commitment of industry to reduce GHG emissions and waste generation, but it is not clear whether the progress made goes beyond business-as-usual. The VAP has tended to promote incremental rather than fundamental changes in products and processes. At the same time, investing in energy-saving technology or waste recycling to meet the targets is in the first interest of companies as it confers them a competitive advantage. The VAP does not secure a cost-effective and well-balanced distribution of mitigation efforts across industries and companies, and it does not necessarily motivate them to go beyond their voluntary commitments (OECD, 2010_[94]; IEA, 2021_[15]).

The level of ambition of industry targets and the potential for further energy improvements should be carefully considered. The government regularly reviews progress and is consulted when industries set their targets. However, the target-setting process should be made more transparent. For example, it should consider the information advantage of the business sector (e.g. on emission abatement costs) and the incentive for businesses to slow down progress towards targets to avoid stricter targets in the future. A broader involvement of the public in setting the targets would help counterbalance the demands of the business sector and economic decision makers.

Large corporations are required to publish environmental reports following MOE guidelines, which include information on environmental compliance. The MOE has also promoted Environmental Due Diligence, drawing on the OECD Due Diligence Guidance for Responsible Business Conduct. Moreover, more companies disclose non-financial information in line with the corporate governance code by the Financial Services Agency (FSA). As of 2022, about 80% of 400 surveyed companies listed on the Tokyo Stock Exchange have published integrated reports, and about 35% have published reports on topics like environment, social and governance, and corporate social responsibility (Japan Exchange Group, 2023_[95]).

Japan has strongly supported initiatives for disclosing financial information related to climate change and biodiversity. By March 2024, Japan had the largest number of institutions supporting recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (MOE, 2024_[8]), the international initiative aiming to help companies improve transparency on climate-related financial risks. As of November 2024, Japan also had the largest number of institutions adopting the recommendations of the international Taskforce on Nature-related Financial Disclosures (TNFD), which aims to help organisations disclose and manage nature-related risks and opportunities (TNFD, 2021_[96]). In 2022, Japan became one of the first six countries/regions with a TNFD Forum. Since 2023, the FSA has required companies listed on the Tokyo Stock Exchange Prime Market to disclose climate information following the TCFD recommendations or an equivalent framework. The FSA has also promoted impact investing – an investment that intends to yield positive environmental or social outcomes while securing financial return – through guidelines and a consortium.

Expanding the use of environmental taxation and reforming environmentally harmful subsidies would provide more consistent price signals, while helping to generate revenues. With the highest public debt-to-GDP ratio among OECD countries, Japan needs to consolidate its fiscal position to rebuild buffers amid rising pensions and health care costs and high investment needs for the green and digital transformation (IMF, 2024_[5]; OECD, 2024_[6]). The country’s tax revenue is in line with the OECD average (at about 34% of GDP). Its tax system is skewed towards social security contributions and features a low consumption tax rate, which can lower employment and investment incentives (OECD, 2024_[6]) (Figure 1.22, panel B).

Environmental taxes account for a lower share of GDP (1.2%) and total tax revenue (3.6%) than in most other OECD countries (Figure 1.22, panel A). This reflects the lower tax rates on energy and vehicles – the main environmental tax bases – compared to many other countries. As elsewhere, taxes on pollution and resource use are negligible. The main pollution-related tax is on sulphur dioxide (SO_x) emissions. Some prefectures and ordinance-designated cities22 have also introduced environment-related taxes, such as one based on the amount of industrial waste generated or disposed of and a tax for forest development.

Japan has made progress in linking vehicle taxes to fuel efficiency and exhaust emissions of vehicles, but better taxes and subsidies are needed to accelerate the transition to electromobility, reduce GHG emissions from transport and contain fiscal costs. The government has long provided support to lower-emission vehicles through tax incentives and purchase subsidies. It applies several taxes to vehicle purchase and ownership.23 Electric vehicles or EVs (battery electric and plug-in hybrid electric) and hydrogen fuel cell vehicles benefit from purchase subsidies and are fully exempt from most vehicle taxes. As of 2024, cars running on natural gas benefited from the same tax treatment as EVs. Hybrid and internal combustion engine vehicles (ICEVs) were fully or partially exempt depending on their fuel efficiency and exhaust emission levels (JAMA, 2024_[97]). Criteria for tax exemptions for hybrid and ICE vehicles have been tightened progressively. However, continuing to exempt vehicles running on fossil fuels from taxes could delay the transition to truly zero-emission vehicles. The government should limit eligibility for full vehicle tax exemptions to EVs.

Subsidies to electric vehicles aim to boost demand by reducing the gap in purchase price between EVs and traditional cars. Even the small EV models remain more expensive than best-selling small ICE cars in Japan (IEA, 2024_[98]). Subsidies have stimulated sales of electric cars in recent years. Sales grew from around 1% of total car sales in 2010-19 to 3.6% in 2023. However, this remains the lowest share among G7 countries (IEA, 2024_[99]), while hybrid vehicles dominate Japan’s car market (Section 1.5.3).

Like other countries, Japan should carefully manage the cost effectiveness and fiscal implications of EV purchase subsidies. These subsidies are generally a costly way to abate CO₂ and pollutant emissions from transport, mainly benefiting those who would buy these cars regardless. They are also regressive, as only households that can afford to purchase a new vehicle can access them. To address the regressive impact of EV subsidies, the government could increase the subsidy amount for low-income buyers, as seen in France, or fund low-interest loans for low-income households, like in Scotland.

The fiscal cost of purchase subsidies has been substantial and increasing. Budget allocations to cover the fiscal costs of EV purchase subsidies tripled in FY2021/23.24 These subsidies are part of Japan’s strategy to build a competitive domestic EV industry and supply chain. However, they risk leading to ongoing financial support for the industry, straining government finances. As the country’s EV market matures, purchase subsidies should be gradually replaced by higher taxes on ICEVs to narrow the EV-ICEV cost gap (ITF, 2023_[100]). For example, France introduced a fee-bate system that combines an EV purchase subsidy and hefty registration taxes on high-emitting cars. Reducing and better targeting subsidies to vehicle purchase would free up resources that could be redirected to initiatives like expanding charging infrastructure. With the gradual shift to electromobility, Japan will need to further boost its comprehensive road use toll system to internalise costs of car use and substitute transport fuel tax revenues (OECD, 2024_[101]).

In 2024, the government revised EV subsidy criteria to encourage private investment in charging networks and services that enable wider EV adoption. The subsidy amount differs across manufacturers based on factors like provision of EV charging points, maintenance services, disaster response agreements and used battery collection systems. This aims to address the main barriers to EV deployments, namely the lack of charging infrastructure and inadequate post-sale services, in addition to the high prices of the vehicles (Section 1.5.3). In addition, the new subsidy scheme helps reduce pressures on the public budget.

Energy taxes are broadly applied in Japan and the main instrument to price GHG emissions from fuel combustion (Box 1.9). However, tax rates are relatively low and reduced in several sectors. The overall tax burden on fuels is lower than in many OECD countries (IEA, 2024_[102]). Energy-related GHG emissions are also priced through a carbon tax and two subnational ETSs in Tokyo Metropolitan City and Saitama prefectures. The headline carbon tax rate and the emission coverage of the ETSs are the lowest among the OECD countries that implement these instruments (Box 1.9).

The coverage and level of carbon pricing are limited in Japan. In 2023, fuel and carbon taxes and the subnational ETSs together covered nearly three-quarters of GHG emissions, mostly at an effective carbon rate (ECR) below EUR 30/tCO₂ (Figure 1.23, panel D). The average ECR (excluding pre-tax subsidies) was EUR 23/tCO₂, among the lowest rates in the OECD (Figure 1.23, panels A and C). This is also below EUR 120/tCO₂, which is the mid-range estimate of the carbon price that would be needed by 2030 to be consistent with net-zero goals (OECD, 2023_[106]). Only 15% of Japan’s emissions were priced at an ECR at or above EUR 60/tCO₂ (Figure 1.23, panel D). Emissions priced at this level mainly originated from the road transport sector. While all transport emissions and nearly all emissions from buildings and electricity faced a carbon price, about half of industrial emissions and all emissions from agriculture and fishery, as well as non-CO₂ emissions, were not priced at all (Figure 1.23, panel B).

In 2022, the government introduced a fuel price stabilisation mechanism in response to soaring energy prices (Section 1.4.4). As in many countries, fuel price support has had a considerable impact on pricing of GHG emissions across sectors (OECD, 2024_[101]). Japan’s effective carbon price dropped to EUR 3/tCO2 in 2023 (Figure 1.23, panel A), with only 60% of road transport emissions priced and 64% of emissions priced across the economy (Figure 1.23, panel B).

As in all countries, the ECR varies widely across fuels and users, leading to inconsistent abatement incentives (Figure 1.23, panel A). The effective CO₂ price is particularly low in industry, power generation, and agriculture and fishery. Coal is taxed at a particularly low level, despite its carbon intensity, because it is considered critical for energy security. As in all countries, ECRs on transport fuels are higher than on other fuels because taxes on petrol and diesel have historically been levied to raise revenue. Higher tax rates on transport fuels may be justified to reflect other externalities of road transport (air pollution, noise, accidents and congestion) in addition to GHG emissions (OECD, 2023_[106]). As in most OECD countries, petrol faces higher effective energy and carbon rates than diesel. This preferential tax treatment for diesel is unjustified on environmental grounds as the fuel emits more CO₂ per litre than petrol. Moreover, diesel vehicles generally produce higher emissions of local air pollutants, although regulations and emission control technologies could reduce the difference (OECD, 2022_[107]).

The effectiveness of Japan’s carbon tax and subnational ETSs has been limited, due to the low prices and scope. Estimates indicate that Japan’s carbon tax has helped reduce CO₂ emissions by 0.5% below 1990 levels by 2020. Other countries with higher carbon tax rates have reduced emissions by a similar or greater amount in a shorter period (Gokhale, 2021_[105]). Analysis suggests the two ETSs contributed to reducing GHG emissions in the covered sectors (Arimura, 2024_[108]), but other drivers have played a bigger role, notably the impact of the 2011 earthquake on electricity supply and prices (Wakabayashi and Kimura, 2018_[109]).

Against this backdrop, the Pro-Growth Carbon Pricing, part of the GX Basic Policy, represents a welcome breakthrough in Japan’s environmental policy. It provides immediate subsidies to industry for investment in decarbonisation technology followed by a country-wide ETS for large emitters and a carbon levy on fossil fuels (GX surcharge) introduced later in the decade (Box 1.9). Revenue from the new carbon levy and ETS will be used to repay the GX Economy Transition Bonds, which will finance the investment in low-carbon energy technologies that are not yet cost competitive such as hydrogen, ammonia and CCUS (Box 1.5).

Future carbon pricing level and coverage are still undefined, with implementation details set to be legislated in 2025. The GX surcharge is scheduled for FY2028 and the ETS will be implemented in three phases over ten years, starting with a voluntary system in FY2023 (Box 1.9). Annual performance assessments of the first phase should be conducted to point to any needed adjustments and clarify design of the next phases.

Allowances could be auctioned ahead of the scheduled start in FY2033 (Box 1.9). While free allocation might help safeguard competitiveness, prevent carbon leakage and build support for the policy, it may distort markets and weaken abatement incentives. Analysis suggests that free allowance allocations have reduced the effectiveness of the EU ETS system (Dechezleprêtre, Nachtigall and Venmans, 2023_[110]). They also represent a subsidy to ETS participants that receive them (IEA, 2020_[111]), which comprise power generation facilities based on fossil fuel (including coal). In addition, the free allowance allocation, along with the late introduction of the carbon levy, will hinder revenue generation. Japan could consider a border carbon adjustment for energy-intensive, trade-exposed industries as an alternative to free allocation (OECD, 2023_[106]).

The GX surcharge should be set at an adequate rate and gradually raised to provide sufficient incentives. An estimated GX surcharge rate between JPY 1 000 and JPY 2 750/tCO₂ (about USD 6.70 to USD 18.40/tCO₂) would be required, assuming that the GX Economy Transition Bonds of JPY 20 trillion are fully repaid through revenue from the GX surcharge over FY2028-50 (Nikkei, 2022_[112]; Hachiya, 2023_[113]). However, such a carbon tax rate would be well below the level required to accelerate GHG emission reductions in line with the Paris Agreement. OECD (2023_[106]) indicates that EUR 120/tCO₂ is the mid-range estimate of the carbon price that would be needed by 2030 to be consistent with net-zero goals. IMF (2024_[5]) estimates that increasing the carbon tax rate linearly to USD 75/tCO₂eq by 2030 would contribute to substantially reducing GHG emissions (‑17.6% from business-as-usual) and raising fiscal revenue (1% of GDP) by 2030. Recycling half of the carbon tax revenue to finance targeted social benefits would offset the negative impact on vulnerable households (see below).

Japan would benefit from bringing forward the implementation of the GX surcharge and ETS to encourage low-carbon investment and reduce the fiscal costs of the transition. While the GX Economy Transition Bonds will provide a substantial low-carbon investment push, the long phase-in of the mandatory ETS and carbon levy may limit their contribution to achieving the 2030 emission reduction target (OECD, 2024_[6]). Modelling suggests that carbon pricing needs to be introduced around 2025 to promote behavioural changes and industrial restructuring effectively (Kuriyama et al., 2023_[23]). For the ETS and carbon levy to work effectively, it is essential to enshrine in legislation an automatic tightening of the emissions cap and increases in the levy rate, which will create certainty for investors.

Accelerating implementation of the GX surcharge and mandatory ETS could enhance the economic efficiency and effectiveness of Japan’s climate policy mix and help put the country on the net-zero trajectory. Evidence suggests that, as part of a broad policy mix, carbon pricing is effective in reducing emissions and amplifies the effectiveness of other policy instruments (D’Arcangelo et al., 2022_[114]; D’Arcangelo, Kruse and Pisu, 2023_[13]; Stechemesser et al., 2024_[115]). In addition to encouraging production and consumption choices that reduce GHG emissions in a cost-effective way, carbon pricing can generate government revenues, at least until higher prices achieve their goal of substantially lowering emissions.

The Pro-Growth Carbon Pricing has helped gain acceptance of carbon pricing from the regulated business community. Meanwhile, subsidies for decarbonisation technologies that are not yet cost competitive (such as hydrogen and CCUS) aim to lower their costs and pave the way for large-scale deployment. However, like green industrial policies worldwide based on government financial support, the GX Basic Policy (Box 1.5) entails risks such as market distortion, picking winners, political capture and windfall gains for companies that would invest even without financial assistance (Millot and Rawdanowicz, 2024_[116]; OECD, 2024_[117]). To manage these risks, it is necessary to ensure additionality of the financial support provided under the GX Basic Policy and implement a competitive and transparent selection process for businesses and technologies receiving support. The GX Basic Policy would also gain in effectiveness and transparency if it incorporated regular review and feedback mechanisms, including to enable independent scrutiny of supported investments to protect against political capture.

As in other countries, raising carbon prices, as well as removing support to fossil fuel use (Section 1.4.4), can have important distributional implications in Japan. They would lead to higher energy costs, with potentially heavier impacts on the population groups at risk of energy poverty (Inoue, Matsumoto and Morita, 2020_[118]). Japan's high dependence on imported energy and lack of electricity import options as an island country make its energy supply vulnerable to external price shocks, increasing vulnerability to energy poverty.

Poverty among the working-age population and income inequality have been rising in Japan (IMF, 2024_[5]; IMF, 2023_[119]). Official data on the population at risk of energy poverty are lacking, but analysis indicates it is a significant issue, with considerable regional and seasonal variations (Castaño-Rosa and Okushima, 2021_[120]). Some population groups face higher energy affordability risks, including the elderly and single-person households, as well as residents of rural areas that depend on cars for their mobility and kerosene for heating (Okushima and Simcock, 2024_[121]).25 To address energy affordability risks, Japan provides means-tested social schemes to low-income households and generalised energy price subsidies for the broader population (Section 1.4.4).

Using revenues from carbon prices and subsidy removals (Section 1.4.4) to finance means-tested social benefits for vulnerable households would mitigate energy affordability risk due to higher energy prices (Flues and van Dender, 2017_[122]; Hodok and Kozluk, 2024_[123]). This, along with information campaigns explaining the effectiveness and distributional effects of carbon pricing, could help boost public acceptance of these reforms (Dechezleprêtre et al., 2022_[124]). Several economies have used carbon pricing revenue to finance social benefits, such as Ireland, the European Union and the US state of California (OECD, 2023_[106]; OECD, 2021_[125]). Analysis shows that recycling revenues to lower social security contributions could mitigate the impact of carbon prices on households in Japan effectively (Asakawa et al., 2020_[126]). At the same time, transparency and clear communication of carbon pricing revenue-use decisions are essential to reduce the risks of spending inefficiency linked to earmarking (Marten and van Dender, 2019_[127]).

Reforming subsidies that are potentially harmful to the environment and repurposing the saved financial resources for social spending or reducing distortive taxes can help meet Japan’s environmental goals, while delivering better economic and distributional outcomes. This would ensure that public funds are not supporting practices that undermine climate and biodiversity objectives, in line with the SDG target 12.c on reforming inefficient fossil fuel subsidies that lead to wasteful consumption and environmental harm, and the GBF target 18 on reducing incentives that are harmful for biodiversity by 2030.

In Japan, as in most countries, the government implemented several economic packages to shield households and businesses from the rapid energy price increase that began in 2021. In January 2022, the government introduced a mechanism to mitigate the increase in fuel prices (the “Project to mitigate drastic changes in fuel oil prices”). The scheme subsidises wholesalers when market prices of petroleum products, including transport fuels, are above certain thresholds. The subsidy has been repeatedly extended and was still in place in December 2024, with plans to gradually reduce the subsidy rate. In addition, discounts on electricity and city gas rates, first put in place in 2023, were reinstated from January to March 2025.

The main support measures have been sizeable and have helped mitigate the impact of high prices on household budgets (Monshauer and Bizeul, 2023_[128]). However, they have been predominantly untargeted (IMF, 2023_[129]; OECD, 2024_[6]). Energy price subsidies like those implemented in Japan tend to benefit the entire population rather than just protecting vulnerable groups. These measures distort price signals and weaken the incentive for consumers to save energy or to switch to cleaner fuels. For example, they narrowed the cost savings of switching to EVs in Japan (Monshauer and Bizeul, 2023_[128]). In addition, being extended over long periods, such measures exacerbate Japan’s fiscal sustainability challenges (OECD, 2024_[6]). The fiscal cost of the fuel price stabilisation mechanism was JPY 3.5 trillion in 2022, or 84% of the energy tax revenue that year.26 As a result, direct budgetary support to fossil fuels spiked to JPY 3.9 trillion (or 0.7% of GDP) in 2022. This is 15 times higher than the average annual budgetary support in the previous decade, which mostly financed business investment in energy projects overseas (OECD, 2023_[130]) (see below).

Japan should phase out support measures for energy prices, as they dramatically reduce the already low ECRs (Figure 1.23, panel A). Any further public support, if needed, should focus on vulnerable people not adequately covered by the social protection system. Targeted income relief or lump-sum payments, untied from energy prices, would be more cost-effective and equitable measures to protect those most in need. At the same time, such an approach would maintain incentives towards low-carbon energy choices (Hemmerlé et al., 2023_[131]). Improving knowledge of energy poverty and information sharing across government agencies would enable more effective targeting of support policies.

Several other exemptions and discounts apply to the energy and carbon taxes, often provided as tax refunds. These include exemptions for fuels used in agriculture, fishery, shipping and certain energy-intensive industrial sectors (IEA, 2021_[15]). Like the fuel price stabilisation mechanism, these concessions lower effective carbon prices, reducing the incentive for fuel efficiency and potentially increasing emissions. They may also entail sizeable fiscal cost, although comprehensive data on the fiscal revenue losses due to these fuel tax concessions are not available.

Removing inefficient fossil fuel subsidies will be essential for the GX subsidies and carbon pricing to deliver effective incentives. Japan should establish a transparent and systematic mapping of fossil fuel subsidies and other potentially environmentally harmful support measures and evaluate their economic, social and environmental impacts. This would help identify reform priorities in line with the SDG target and develop a subsidy reform plan in consultation with relevant stakeholders. On the one hand, the plan should outline a stepwise phase-out of inefficient fossil fuel subsidies to prevent sudden energy price hikes. On the other, it should implement appropriate measures to support vulnerable households and facilitate business adjustments during the transition (Elgouacem, 2020_[132]).

Japan has long provided direct public support for oil, gas and coal exploration and development projects overseas with a view to increasing energy security. The available data, though incomplete, suggest that in 2019-22, Japan’s international public finance institutions provided on average USD 8.7 billion per year to fossil fuel projects, compared to USD 3.7 billion to clean energy projects and other non-fossil fuel investment (e.g. grids and energy savings) (OCI, 2024_[133]). The biggest Japanese commercial banks also provide finance to the fossil fuel sector and increased lending in 2017-21 compared to 2010-16 (Romanello et al., 2023_[134]). However, these figures may not fully capture the overall financing landscape.

As a participant to the OECD Arrangement on Officially Supported Export Credits, Japan agreed to halt officially supported export credits and tied aid for unabated coal-fired power plants as of 2021.27 In 2022, along with other G7 countries and recognising the importance of national security and geostrategic interests, Japan committed to ending new direct public support for the international unabated fossil fuel energy sector by the end of 2022, except in limited circumstances consistent with the goals of the Paris Agreement, as defined by countries.28 Support will continue for existing projects (METI, 2023_[135]). According to Japan’s definition of “limited circumstances”, an unabated fossil fuel project can be financed if Japan considers that it aligns with the decarbonisation strategy of the host country. In addition, financing can be allowed if the project serves Japan’s national security, energy security or geopolitical interests (METI, 2023_[135]).

It would be prudent to periodically review the implementation of the “limited circumstances” conditions to ensure that financed projects fully align with climate goals and contribute to transitioning away from fossil fuels in energy systems as agreed at the 2023 Dubai COP28. Given the lifetime of energy infrastructure, today’s financing and investment decisions in developing countries have the potential of either accelerating their shift to clean energy sources or locking in emissions for decades (IEA, 2021_[136]).

The government should consider ensuring more granular and detailed reporting of overseas energy investments by public financial institutions and better disseminating this information to the public. It could also explore ways to track overseas energy investments by commercial financial institutions and enhance public access to this data. This would support transparent monitoring of the implementation of the G7 pledge and help regulators and institutions identify the potential climate-related financial risks.

Japan provides considerable support to agriculture. Support to farmers, as measured by the Producer Support Estimate (PSE), declined in the last decade. However, it still averaged 33% of gross farm receipts in 2021-23 – more than twice the OECD average and among the highest in the OECD (OECD, 2024_[49]). Part of this support aims to encourage farmers’ environment-friendly investments, such as through the MIDORI Strategy for Sustainable Food Systems. Support includes financial assistance for organic farming, adoption of climate-smart technologies, and less use of synthetic fertilisers and pesticides (OECD, 2023_[47]).

The share of potentially most distorting support (i.e. market price support; support based on output; and variable input use without input constraint) declined. However, it still accounted for 26% of gross farm receipts and 78% of PSE in 2021-23 (OECD, 2024_[49]) (Figure 1.24). Market price support is largely sustained by border measures, while farmers benefit from refunds of the excise duty and carbon tax on fuel used in agriculture.

Agriculture support linked to production, such as market price support and other commodity-specific subsidies, potentially distorts markets and contributes to high domestic food prices. OECD work has shown that these measures are also potentially harmful to the environment. Support linked to production and input use can increase pressures on natural resources, increase GHG emissions and discourage innovation (OECD, 2023_[47]; FAO, 2024_[137]), although the actual environmental impacts of these policies depend on several local context-specific factors. Intensive farming on limited agriculture has contributed to water pollution and biodiversity pressures in Japan (Section 1.2.5). Japan should reform support to agricultural producers that is tied to production and input use, including fuels. The government could replace them with payments targeted to producers in need and to encourage green farming practices and technology, including for reducing use of fertilisers and pesticides, and enhancing climate resilience (OECD, 2024_[49]).

Japan provides some of the highest support for fisheries among OECD countries, primarily funding general services such as capital investment in infrastructure (OECD, 2022_[138]). In a welcome move, Japan accepted the World Trade Organization’s Agreement on Fisheries Subsidies in 2023. However, the government exempts fuel for fishing boats from excise duties. It also implements a fuel price stabilisation mechanism (Fishery Management Safety Net), where both the government and fishing companies contribute to a fund to prepare for possible fuel price hikes. The mechanism is activated if fuel prices rise above a certain threshold, as has been the case since 2022.

In general, support to fuel presents a high risk of encouraging unsustainable fishing in the absence of effective fisheries management. This, in turn, could negatively affect marine species and ecosystems and increase GHG emissions. In addition, it tends to disproportionally benefit large companies over small-scale coastal fishers (OECD, 2022_[138]). Japan should carefully review fishery support linked to input use, primarily fuel use. If necessary, it should consider providing alternative, more targeted forms of support, such as targeted direct income support to fishers in need and for improving the social, economic and environmental sustainability of fishing. Removing fuel subsidies would lead to resource savings that could be reinvested in sustainable fisheries management, enforcement and research into the health of fish stocks and the impact of climate change (OECD, 2022_[138]).

Public investment for environmental protection grew by 20% between 2010 and 2022, to JPY 2.5 trillion or 1.7% of the country’s total capital investment (ESRI, 2024_[139]; OECD, 2024_[140]).29 As in many countries, this investment mostly targeted wastewater treatment (65%) and waste management (31%). Large government spending in extending and upgrading centralised and decentralised wastewater systems has contributed to improved water quality (Section 1.2.5). Meanwhile, local governments have increasingly invested to expand incineration and recycling facilities (Section 1.2.4).

With large spending on procuring goods and services, the government has used its public procurement policy to create demand for greener goods and services and encourage environmentally responsible production. In 2021, public procurement spending was 41% of Japan’s general government expenditure and 18% of GDP, among the highest shares in the OECD. Environmental protection accounted for 5.2% of public procurement spending, also among the largest shares in the OECD and nearly double the OECD average (OECD, 2023_[82]). The 2001 law for promoting green public procurement (GPP) requires all government institutions to develop GPP policies, set annual targets and report to the MOE each year. The government updates the list of covered items and the applicable standards annually. In FY2023, it updated standards for 23 items, bringing the total to 280 items. The MOE maintains a database of GPP initiatives and conducts training sessions for national and local government branches and businesses. Progress has also been made to help local governments with GPP implementation, which has resulted in improved outcomes.

The government has supported development of the domestic market for green finance products, i.e. financial instruments designed to support environmentally sustainable projects or initiatives. It issued guidelines to address greenwashing risks and established platforms to encourage collaboration among relevant stakeholders. As a result, sustainable debt issuances have grown considerably in Japan since 2014, reaching over JPY 5 trillion (about USD 38 billion) in 2023 (Figure 1.25, panel A). The market has continued to expand since 2021, bucking the global trend (IEA, 2024_[73]).

Japan leads globally in transition finance – funding raised by corporations to implement their net-zero transition through credible transition plans (OECD, 2022_[141]). While transition-labelled debt issuance is a small share of global sustainable debt, Japan accounted for over half of its global amount in 2022-23 (IEA, 2024_[73]). The energy sector (power, gas and oil) accounts for 70% of transition-labelled debt in 2021-23 (Figure 1.25, panel B). To support this market and promote credibility, the FSA, MOE and METI formulated the “Basic Guidelines on Climate Transition Finance” in 2021. This accompanied transition roadmaps that identify financeable technologies in eight sectors.30 According to the guidelines, to issue transition-labelled instruments, the fundraiser must set climate targets in line with the Paris Agreement, have a science-based climate transition strategy and ensure transparent implementation, among other criteria. The government also developed the framework for Japan Climate Transition Bonds, the world’s first sovereign transition-labelled bonds (Box 1.5).

Japan has increasingly invested in the clean energy transition, but higher investment will be needed. The country has entered the top ten of major investors in the sector, along with countries such as the People’s Republic of China, United States, Germany and Brazil (BNEF, 2024_[142]). Average annual (public and private) investment grew by 40% from 2016-20 to 2021-23 (Figure 1.26, panel A), with energy efficiency in end-uses attracting over half of investment (Figure 1.26, panel B). Out of total energy investment amounting to 1.5% of GDP, Japan invested about USD 15 in clean energy for each dollar invested in fossil fuels, over eight times the global average (USD 1.8) and much above the ratios in other major economies (Figure 1.26, panel C) (IEA, 2024_[73]). IEA (2024_[73]) estimates that clean energy investment should increase by 17% between 2024 and 2035 for Japan to align with its own climate goals. However, this would not be enough to be on the path to net zero (Figure 1.26, panel A). As in all countries, timing and co‑ordinating the increase in clean energy investment and divestment in unabated fossil fuels will be vital to secure energy supply and avoid high energy costs (IEA, 2023_[25]).

Clean energy investment could boost technological innovation and business investment, with positive effect on Japan’s productivity and economic growth (Kurachi et al., 2022_[143]). The government has supported business innovation in climate mitigation technology and development of related supply chains. Initiatives include the METI’s Green Innovation Fund and the more recent GX Basic Policy (Box 1.5). Japan is among the leading producers and exporters of electronics, machinery and basic metals, all industries essential for manufacturing clean technology (IEA, 2024_[144]). Large manufacturing businesses account for most of the country’s R&D spending (OECD, 2024_[6]). Gross domestic R&D expenditure amounted to 3.4% of GDP in 2022, among the highest in the OECD. Meanwhile, environment averaged 2.6% of government R&D budgets in 2019-23, with energy at 8.5% (OECD, 2024_[145]). Nuclear power has traditionally been the most highly funded field in public energy research. Clean energy R&D, including energy efficiency, renewables and hydrogen, averaged nearly half of public energy R&D outlays in 2019-23 (Figure 1.27, panel A). This reflects the government’s policy focus on these areas. As a result, Japan has built a relative specialisation in climate change mitigation technologies, such as batteries, EVs and hydrogen (Figure 1.27, panel B).

The shift to a clean energy system will change skill needs and contribute to reallocations of workers across sectors and regions in Japan, like elsewhere in the world. The government should ensure adequate support to workers and communities potentially affected by the transition (Hodok and Kozluk, 2024_[123]). This requires an effective mix of active labour market policies, local investments and measures to remove obstacles to geographical labour mobility. To seize the economic opportunities and minimise the costs of the transition, Japan will need structural reforms that facilitate reallocation of capital and labour resources and help the country adjust more quickly to economic shifts (Kurachi et al., 2022_[143]; OECD, 2024_[6]).

In the last decade, Japan saw significant investment in renewables electricity, partly to offset lower nuclear power generation after the 2011 accident. Renewable capacity more than doubled between 2010 and 2023, with nearly all new capacity coming from a surge in solar PV (Figure 1.28, panel A). Generous feed‑in tariffs spurred PV growth but increased costs for electricity consumers (METI, 2024_[33]). In a welcome move, the government introduced a feed-in-premium scheme in 2022 to encourage further renewable investment while reducing costs for customers and boosting generation during peak demand.31 Today, Japan is among the global and OECD leaders in PV installations, while wind power accounts for a relatively low share of renewable capacity compared to other OECD countries (Figure 1.28, panel C). Despite this progress, renewables accounted for 23% of electricity generation in 2023, a little over two-thirds of the OECD average (Figure 1.28, panel B).

More investment in renewables and storage capacity will be needed to compensate for expected lower fossil fuel-based capacity, produce low-emission hydrogen and move towards further electrification of the economy. Japan plans to reach 36-38% of renewables in power generation by 2030 (Figure 1.6), mainly by expanding solar and wind capacity. The IEA estimates that Japan’s 2030 target translates into 187‑201 GW of renewable power capacity, or some 17-25% above the 2022 level. While this is a considerable increase, it is below the level of ambition shown by other G7 countries (Figure 1.28, panel C). In addition, Japan should assess whether its plan to expand renewable power generation capacity is ambitious enough to produce sufficient carbon-free hydrogen and ammonia to meet the country’s growing demand of these fuels (see below).

Japan has vast potential for renewable electricity generation, particularly from offshore wind, tidal power and geothermal resources.32 The IEA estimates the country will exceed its 2030 capacity target under current policy and market conditions and could increase renewables capacity further by introducing policy changes to address its challenges (IEA, 2024_[146]). Other analysis indicates that renewables could account for 70-80% of Japan’s total power generation by 2035, more than double the government’s target for 2030 (Box 1.3). Modelling suggests further expansion of renewables would reduce the need for higher-cost technologies such as hydrogen and CCUS and, in turn, the average cost of abating GHG emissions from the electricity system (Kuwabara et al., 2021_[19]). It could also create job opportunities in rural areas, where renewable energy potential is high. This could help counteract economic and population decline in these regions and, ultimately, improve overall welfare in Japan (IRENA, 2022_[147]) (Chapter 2).

To fully harness its renewables potential, Japan needs to address key bottlenecks that contribute to the relatively high costs of renewables in the country. The costs of electricity from PV and onshore wind have declined in Japan in the last decade, in line with global trends. PV and onshore became cost competitive with fossil fuel electricity generation in recent years (IRENA, 2023_[148]). However, costs are higher in Japan than in many other countries, especially for onshore wind (Figure 1.29, panel A), primarily due to high installation costs (IRENA, 2023_[148]).

The scarcity of cheap, suitable land is a major factor driving up costs (Kuwabara et al., 2021_[19]), with Japan having the highest density of PV-installed capacity per plain field (Figure 1.28, panel D). The GX Basic Policy promotes solar PV installations in public buildings to help address land-use conflicts. In addition, the country’s deep coastal waters make fixed offshore wind turbines costly, favouring floating turbines. Meanwhile, its geothermal resources are mostly in protected areas and interact with hot springs operations. Other causes of high costs include grid constraints, special safety requirements for equipment against natural disasters, lengthy and complex permitting procedures and social resistance.

Japan has taken steps to address administrative and social barriers to renewables deployment. Like many other countries, Japan has a complex and time-consuming permitting process for renewable electricity projects, which typically take several years to complete (Figure 1.29, panel B). As of March 2024, wind power plants accounted for more than 80% of the ongoing EIA procedures, which is preliminary to permitting (Section 1.4.1). The government has amended the EIA regulations to expedite the procedure for wind power projects and enabled local governments to designate renewables energy promotion zones with faster EIA and permitting processes (Box 1.10). Japan should ensure that ongoing administrative streamlining does not compromise the effectiveness of the EIA and permitting processes in mitigating potential environmental impacts.

The renewable promotion areas may facilitate the engagement of local communities in the decision-making process (Chapter 2). This would help address local opposition, which has increased with the rapid growth of utility-scale PV plants. Nonetheless, Japan should ensure that sufficient time is devoted to public consultations in identifying renewable promotion areas and in specific siting decisions. It also needs adequate mechanisms to share the benefits of renewable energy projects with hosting communities (e.g. through tenders).33 Dual-use land systems, like combining renewable energy generation with farming (solar sharing or agrivoltaics), can address social resistance by supporting traditional land use, preserving local landscapes and providing economic benefits. Solar sharing has been successfully implemented in some rural areas in Japan (Chapter 2). Other OECD countries have taken steps to address public resistance. For example, France's 2023 Renewable Energy Acceleration Law strengthens local communities’ decision-making power in siting renewable energy projects and enhances mechanisms for sharing the economic benefits of these installations. The law also established an observatory to monitor the impact of renewable energy on biodiversity (Ministère de la Transition Énergétique, 2023_[149]).

Japan has planned considerable investment in grid and storage infrastructure to facilitate the integration of renewables into the electricity system. The fragmentation of the electricity network into regional grids constrains the dispatch of renewable power, whose best potential lies in areas located far from demand centres (IEA, 2021_[15]). This has often led to curtailment of electricity generated from renewables, especially in the Kyushu area which hosts large capacities of both nuclear and solar power (Zissler, 2024_[155]). The 2023 national plan for grid development foresees investment of JPY 7 trillion (about USD 55 billion) in regional grid interconnectors to 2050. However, estimates indicate that much higher grid investment (nearly USD 490 billion over 2022-40) – including for interconnecting regional grids – will be needed to stay on the path to net zero (BNEF, 2023_[20]). Japan should continue investments in transmission and distribution infrastructure, based on cost-benefit analysis (IEA, 2021_[15]; OECD, 2024_[6]). The government needs to consider reforms to enable more grid investment, particularly from the private sector (BNEF, 2023_[20]).

Japan has taken steps for recycling critical minerals to help ensure their supply security, which is crucial in a decarbonised energy system (IEA, 2023_[156]). The country has potential to leverage high un-managed electrical and electronic waste (e-waste). It has among the highest levels of e-waste generation per capita in the OECD but one of the lowest e-waste collected and recycled volumes per capita (OECD, 2024_[157]). The Fifth Fundamental Plan for Establishing a Sound Material-Cycle Society aims to increase the amount of electronic scrap recycled and processed to about 500 000 tonnes by 2030 (a 50% increase from 2020).

In 2022, Japan established a system for setting aside funds to cover dismantling and other costs of utility-scale solar power generation equipment to prevent such facilities being abandoned or illegally dumped.34 The MOE also updated the guidelines on PV panel recycling. The MOE and METI are considering a system to address the expected peak in PV panel dismissal beginning in the late 2030s, while supporting the development of appropriate recycling facilities. To accelerate progress, Japan could set targets for PV panel recycling, as done in the European Union since 2018, with a target of 80% of waste from PV panels recycled or prepared for reuse. Japan has commendably worked with international partners to enhance critical mineral security, including by establishing partnerships with the Association of Southeast Asian Nations.

Japan was an early developer of ammonia, hydrogen, CCUS and carbon recycling technologies. In 2017, it became the first country in the world to develop a national hydrogen strategy, which was last revised in 2023. The country has increasingly invested in R&D of these technologies, with successful pilot applications in industry and power generation (IEA, 2023_[26]). Hydrogen, ammonia and CCUS technologies are expected to play an important role in decarbonising Japan’s power mix and economy at large (Section 1.2.2). The Sixth SEP projects Japan’s demand for hydrogen to grow more than ten-fold to 2050, which underlies the need to decarbonise hydrogen production and supply chains.

However, production and deployment of low-emission hydrogen and ammonia, as well as CCUS, have remained modest in Japan, as elsewhere in the world. This is due to high costs, uncertainty around future demand for low-emission hydrogen and recycled CO₂, lack of infrastructure and underdeveloped supply chains, among other reasons. Low-emission hydrogen still accounts for less than 1% of global hydrogen production and use.35 Producing low-emission hydrogen is more expensive than producing it using unabated fossil fuels. Much investment is needed in infrastructure to deliver hydrogen safely and to transport and store CO₂ (IEA, 2023_[25]; IEA, 2023_[26]). The government plans to considerably extend its CO₂ storage capacity, but most of Japan’s CCS potential is offshore, which makes it more costly to exploit. GHG emission abatement solutions using hydrogen and CCUS technologies are unlikely to be economically competitive in Japan in the absence of a sufficiently high carbon price that keeps unabated fossil-based power generation out of the market (BNEF, 2023_[20]) (Section 1.4.3).

Japan has started to address the barriers to the large-scale deployment of low-emission hydrogen, ammonia and CCUS. The GX Basic Policy provides considerable funding for developing CCUS and hydrogen and ammonia infrastructure and the related supply chains (Figure 1.17). In 2024, Japan enacted legislation to regulate and promote the commercial use of these technologies (Box 1.11). Both pieces of legislation are broadly in line with IEA recommendations for these sectors (IEA, 2024_[158]; IEA, 2023_[26]).

Japan rightly prioritises further reducing energy use to achieve its climate and energy security goals. Consistent with past trends, energy captured over 60% of clean energy investment in 2021-24 (Figure 1.26, panel B), a higher share than in many other world regions (IEA, 2024_[73]). Longstanding policy measures, such as the Top Runner Programme (Box 1.12), voluntary agreements with industry and considerable financial support, have encouraged investment and helped reduce the energy intensity of all sectors but freight transport (Figure 1.30, panel A). In addition, government-led energy-saving initiatives in the aftermath of the 2011 accident have brought lasting efficiency improvements (IEA, 2021_[15]).36 Japan’s high level of electrification also contributes to saving energy. In 2022, electricity covered a larger share of energy use across all sectors (except transport) than the OECD average, as well as the global levels needed by 2030 to align with the IEA’s net-zero scenario (Figure 1.30, panel B). The Sixth SEP expects that continuous progress in energy efficiency and electrification will contribute to reducing final energy consumption by 20% by 2030 compared to business-as-usual (Figure 1.5).

Japan’s large manufacturing sector has traditionally been at the forefront of energy efficiency investment. Industry is the country’s largest energy user and the second largest source of GHG emissions (Figure 1.3, panel C). Intensity of energy use in the industrial sector has continued to decline (Figure 1.30, panel A), driven both by reduced output in energy-intensive industries (such as cement and steel) and energy efficiency advancements.

Japan’s policy to encourage industry’s investment in energy efficiency and GHG emission reduction relies on subsidies and tax incentives, as well as reporting requirements, benchmarking and voluntary industry commitments under the Keidanren voluntary action plans (Box 1.8). Large companies in major industrial and commercial sectors are required to meet energy efficiency targets based on the best performers in each sector. However, in 2022, only about a quarter of reporting companies complied with the benchmarks, with no sector reaching full compliance (METI, 2023_[162]). Large companies are also required to improve energy efficiency by 1% a year, which is not an ambitious target for companies that regularly renew their equipment. The government should assess the effectiveness of the target and benchmarking system, consider raising the target and reinforcing deterrence for non-compliance (IEA, 2021_[15]). While there is no penalty for missing the targets, companies that meet them may benefit from financial support. More efforts are also needed to encourage energy efficiency improvements in small and medium enterprises, which are the majority of businesses in Japan, as well as in the expanding service sector.

Much government efforts focus on energy savings in the residential sector. Residential energy consumption declined by 17% between 2010 and 2022 (Figure 1.5, panel B). Energy intensities of space and water heating, cooking and appliances also decreased (Figure 1.31, panel A). The space heating energy intensity is among the lowest in the OECD, including countries with similar climates. However, space cooling intensity is among the highest in the OECD and has been rising (Figure 1.31, panels A and B). This reflects the nearly ubiquitous presence of air conditioning systems, albeit highly efficient ones.37 In addition, the carbon intensity of space heating and cooling (when CO₂ emissions from electricity are factored in) has increased with the rising carbon intensity of Japan’s power generation after the 2011 accident (Section 1.2.2) (Figure 1.31, panel A).

The recent reform of energy performance regulations for buildings is welcome. Given long lifespans of buildings, energy codes are essential for improving efficiency and must align with long-term climate goals to prevent lock-in, especially in countries like Japan with relatively high rates of new construction (IEA, 2024_[163]; OECD, 2024_[164]). Despite a relatively young building stock, with only a quarter of housing built prior to 1980 (OECD, 2024_[164]), 80% of homes and 60% of non-residential buildings do not meet current energy performance standards (MOE, 2024_[8]). Unlike most OECD countries, energy performance standards are mandatory only for new mid- to large-scale non-residential buildings in Japan (IEA, 2024_[163]). They will become compulsory for all new buildings as from 2025, four years after the European Union implemented its nearly zero-energy building mandate for new buildings. The revised Building Energy Conservation Act also aims for zero-energy buildings and zero-energy houses (ZEH) for all new buildings by 2030 and on average for the building stock by 2050.38 In 2022, a third of new houses met the ZEH standard, up from 12% in 2016. The new requirements are broadly in line with the IEA’s Net-Zero Emissions scenario and standards in the European Union.39

Japan has been providing financial support for energy efficiency retrofitting and integrating the use of renewable energy into buildings. Frequent retrofitting for earthquake resilience provides opportunities to improve energy efficiency in existing buildings (Kuwabara et al., 2021_[19]). Nonetheless, Japan should strengthen efficiency requirements for major building renovations, as done in several European countries. It could consider introducing energy performance standards and certification for existing homes when sold or rented, aiming to encourage the retrofitting of the worst-performing buildings. France has been implementing a similar policy since 2023. In addition, Japan should mandate renewable energy integration into new and retrofitted buildings, as this will be key for reducing the carbon intensity of energy use in homes and commercial buildings and fully reap the benefits of electrification. The MOE’s initiative to source all its energy needs from renewables by 2030 is an exemplary action that could be replicated.

Decarbonising buildings also requires considering GHG emissions across the entire building life cycle. Japan established a standardised method for this assessment. It could go further by introducing mandatory CO₂ declarations and limit values for new buildings, following the lead of countries such as Finland, France, the Netherlands, Norway and Sweden (OECD, 2024_[164]). This would help minimise the sector’s carbon footprint, from construction materials onward, and enhance resource circularity. The government’s plan to raise the Top Runner standards for building materials and equipment goes in the right direction (Box 1.12).

Beyond reducing energy use and GHG emissions, energy efficiency renovations and renewables integration contribute to enhancing comfort and health outcomes, including by increasing the resilience of homes to more frequent extreme heat events (Section 1.2.6). They could also reduce energy bills and help address energy poverty. Targeting aid for renovations to vulnerable and credit-constrained households could prevent the benefits from accruing only to wealthier homeowners (Hemmerlé et al., 2023_[131]). Offering financial support for the solar PV home installation in rural areas without access to the natural gas network and among vulnerable population groups could be particularly beneficial (Chapman and Okushima, 2019_[165]).

Greater focus on encouraging behavioural changes, alongside technical efficiency gains, is needed. The flagship Top Runner Programme has driven improvements in energy performance of appliances, office equipment and vehicles for more than two decades. However, its energy performance targets may lack ambition (Box 1.12). Rising size, number and usage of electric appliances have partly offset the technical energy efficiency gains (Inoue and Matsumoto, 2019_[166]). Japan has one of the highest energy and carbon intensities of appliance use in the OECD (Figure 1.31, panel D). In 2022, residential appliances accounted for the largest share of Japan’s household energy use and CO₂ emissions (Figure 1.31, panel C). Demand-side initiatives like the 2015 “Cool Choice Campaign” and the more recent Decokatsu information sharing and collaboration platform are positive steps to encourage changes in consumption behaviours and lifestyles. They could be expanded.

Japan’s GHG emissions from transport have steadily declined over the past two decades in light of improving fuel efficiency of passenger cars and decreasing freight transport volumes. Emissions decreased by 10% between 2010 and 2019, prior to the sudden drop in 2020 during the COVID-19 pandemic, but have been on the rise since (Figure 1.32, panel A). Japan’s excellent rail system and coastal shipping play a significant role in passenger and freight transport, respectively. Yet, road transport is the dominant mode and accounts for 90% of GHG emissions from transportation (Figure 1.32, panel B). While the freight modal split has remained virtually unchanged in the last decade, the COVID-19 pandemic shifted people’s travel preferences towards private cars.

Transport modes differ significantly between metropolitan and rural areas in Japan. Public transport in Japanese metropolitan regions is widely regarded as reliable, convenient and affordable. For example, Tokyo boasts the world’s busiest and most densely populated urban railway network (OECD, 2024_[167]). On weekdays in 2021, train usage accounted for about 25% of trips in the three major metropolitan areas, compared to only 3.7% in rural areas. In these rural regions, over half of transportation relies on private cars (MOE, 2024_[8]). Depopulation in rural areas further reduces the economic viability of public transport services, leading to fewer shared mobility options and exacerbating car dependency (Chapter 2). Hence, people in rural areas, who are often older and with lower income, are more vulnerable to higher prices of transport fuels, in addition to be more likely to suffer from energy poverty for home needs (Okushima and Simcock, 2024_[121]). Appropriate spatial planning, support for shared mobility and demand-side initiatives are needed to reduce private car use and boost alternative modes of transport in rural areas. This would help decarbonise the transport sector. Steps have been taken in this direction, with the promotion of community buses and on-demand transport services, as well as some local initiatives with self-driving buses.

CO₂ emissions from passenger car use have declined despite increasing traffic volumes (Figure 1.32, panel A), indicating a shift towards more fuel-efficient and lower-emission vehicles. This shift has been primarily promoted through fuel economy targets under the Top Runner Programme (Box 1.12). Vehicles that meet or exceed these fuel efficiency standards receive reductions in purchase and ownership taxes (Section 1.4.3). Since 2010, the average fuel efficiency of new petrol cars has improved significantly. The 2020 average fuel efficiency target was surpassed as early as 2013, though gains since then have been modest (JAMA, 2024_[97]). Recognising the need for continued progress, Japan introduced a new 2030 target that is 25% stricter than the previous one. This new standard for cars is less stringent than the 2030 standards in the European Union but more ambitious than those in the United States (IEA, 2021_[15]). Japan has also tightened standards for heavy-goods vehicles, with new targets to be met by 2025. Japan was an early adopter of fuel efficiency standards for heavy-duty vehicles. However, the stringency of its regulations has since fallen behind those in other major countries and regions, such as Canada, the European Union and the United States (IEA, 2021_[15]). The government should consider further tightening fuel efficiency targets for vehicles.

Japan is home to one of the world’s largest automotive industries and has been a frontrunner in the development of hybrid, electric and fuel cell vehicles. It has long provided subsidies and tax incentives for the purchase of electrified vehicles, including hybrid cars (Section 1.4.3). However, sales of EVs (BEV and PHEV) have been stagnant for the best part of the decade, while those of hybrid cars increased to over half of new domestic car sales. EV sales rose only recently to 3.6% of new passenger car sales in 2023 (Figure 1.33, panel A), likely thanks to higher purchase subsidies for EVs and the subsidy removal for hybrids. Despite this growth, the shares of EVs in car sales and stock (less than 1%) are far below other OECD countries (IEA, 2024_[99]) (Figure 1.33, panel C).

Electric and fuel cell vehicles could make a key contribution to emission reductions for transport. The government targets 100% sales of “next-generation vehicles” (including hybrid, PHEV, BEV and fuel cell) by 2035. Modelling suggests that, if power generation quickly shifts to low-carbon sources, a 90% share of battery electric in new vehicle sales by 2030 would help meet the NDC in a more cost-effective manner (Kuwabara et al., 2021_[19]). Shifting to fully electric and fuel cell vehicles will require more ambitious targets on EVs and fuel cells and improved regulations. The government should consider setting a phase-out target for all fossil-fuelled vehicles (BNEF, 2023_[20]).

The rising global demand for EVs and regulations in Japan’s export markets, such as the upcoming ban in the European Union on new internal combustion vehicles (including hybrids) from 2035, could pose risks for Japan’s automobile industry, which has focused on hybrids until recently (OECD, 2024_[6]). The auto industry would have to ramp up production of EVs and hydrogen-powered vehicles. Battery manufacturers would also need to adjust production to meet the new demand, which would increase eight-fold in the next decade.

Expanding Japan’s EV charging network in co‑ordination with renewables and power grid development is essential to support the transition to electromobility. As the home to the world’s most populous city, Tokyo, and two other densely populated megacities – Osaka and Nagoya – Japan also faces spatial challenges in rolling out public and private charging stations and other infrastructure required for electric and hydrogen-fuelled vehicles (Kuwabara et al., 2021_[19]). The public charging network has grown slowly and has not kept pace with sales of electric cars, hindering EV deployment (Figure 1.33, panel B). The government aims to install 300 000 charging plugs by 2030, a ten‑fold increase from 2023. In a welcome development, the government linked the EV subsidy to manufacturers’ investment in EV infrastructure provision in 2024 (Section 1.4.3).

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