Ireland’s Eye on Japan’s Groundbreaking USD$11 Billion Climate Transition Bonds

"Japan to Launch JPY1.6 Trillion Climate Transition Bond to Fund Green Transformation Program"

The Japan Climate Transition Bonds Framework under the Ministry of Finance (MoF) has announced that Japan will launch its inaugural JPY1.6 trillion (USD 11 billion) Climate Transition Bond on July 2, 2024. This bond is dedicated to funding the nation’s extensive Green Transformation (GX) program, which aims to mobilize JPY150 trillion (USD 1 trillion) in public and private investments over the next decade. The program targets cutting-edge, sustainable technologies to mitigate domestic emissions, aligning with Japan’s commitment to achieving a 46% reduction in greenhouse gas (GHG) emissions by 2030 and becoming carbon neutral by 2050.

The GX Plan recognizes the need to address high-emission sectors such as heavy industries like steel and chemicals, as well as everyday life sectors including households, transportation, commercial, and educational facilities. Efforts will focus on implementing technologies that efficiently reduce emissions in each sector, with priority given to those that enhance industrial competitiveness and drive economic growth. Japan’s GX promotion strategy establishes two key initiatives to meet international commitments, ensure a stable energy supply, and realize economic growth.

In FY 2021, Japan’s energy self-sufficiency rate stood at 13.3%, highlighting its heavy reliance on imported oil, coal, and liquefied natural gas since the Great East Japan Earthquake in 2011. To achieve Green Transformation, the country must prioritize emission reduction efforts and transition to renewable energy sources. The two key initiatives under Japan’s GX promotion strategy are focused on promoting energy conservation measures, transitioning power sources to improve energy self-sufficiency, and implementing growth-oriented carbon pricing concepts through instruments like GX Economy Transition Bonds.

Japan’s Climate Transition Bonds have set new standards in sustainable finance, being certified under the Climate Bonds Standard. This certification ensures that the bonds adhere to global best practices in environmental objectives. Sean Kidney, CEO of Climate Bonds Initiative, emphasized the importance of transition plans in line with global emission reduction targets, highlighting the significance of investments like Japan’s Climate Transition Bonds in supporting the transition to a low-carbon economy.

A substantial 55.5% of the bond’s proceeds will fund research and development initiatives focused on renewable energy and hydrogen utilization in steelmaking to limit global temperature increases to 1.5°C. The remaining 44.5% will support subsidies for activities like manufacturing electricity storage batteries and implementing energy-efficiency measures in buildings. Notably, the bond excludes funding for gas-fired power generation or ammonia co-firing in coal-fired plants, emphasizing a commitment to sustainable practices.

The independent verification report by the Japan Credit Rating Agency (JCRA), a Climate Bonds Approved Verifier, reinforces the credibility of the bond. Atsuko Kajiwara, Managing Executive Officer at JCRA, expressed optimism that Japan’s strong initiative will help corporates in achieving carbon neutrality while expanding their businesses in the coming decades.

In February 2024, Japan made history by issuing the world’s first sovereign transition bonds—Japan Climate Transition Bonds (JCTBs). These bonds, certified by the Climate Bonds Initiative, are grounded in Japan’s national transition strategy. The issuance included two tranches of JPY 800 billion (USD 5 billion) each, with tenors of 5 and 10 years, marking a significant step towards achieving carbon neutrality by 2050.

Japan’s Basic Policy for the Realization of Green Transformation, published in February 2023, outlines a detailed investment plan for 22 industrial sectors to achieve carbon neutrality by 2050. With a focus on nascent technologies and innovative carbon pricing approaches, Japan aims to generate over JPY 150 trillion (USD 1 trillion) in investment through public and private financing by 2050. The model of Japan’s climate transition bonds can serve as a guide for other nations, especially in emerging markets, to attract significant investment for green transformations.

Japan’s Climate Transition Bonds are paving the way for sustainable finance and setting a new standard for sovereign transition bonds. Through strategic investments and a commitment to reducing emissions, Japan is leading the charge towards a greener and more sustainable future.

Matt Lyons

Matt Lyons

Matt Lyons is the founder of Forestry & Carbon. Matt has over 25 years as a forestry consultant and is invoilved in numerous carbon credit offset projects.

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