The government of Japan announced the completion of its first-ever Climate Transition Bond offering, raising JPY800 billion (USD$5.3 billion) in proceeds aimed at funding efforts to support the country’s transformation to a carbon neutral economy, with a particular focus on decarbonizing hard-to-abate industrial sectors.
The issuance of the 10-year bond marks the first tranche in a planned $11 billion transition bond funding round, kicking off the government’s plan to raise as much as JPY20 trillion (USD$133 billion) to fund climate transition efforts over the next decade.
Japan has committed to reach net zero emissions by 2050, with an interim 2030 goal to reduce greenhouse gas emissions by 46% by 2030. In 2021, the government unveiled plans to roughly double the share of renewable energy to 36%-38% of the energy mix by 2030, from less than 20%.
Government estimates indicate that JPY150 trillion (USD$1 trillion) of public and private investment will be needed over the next decade in order to reach the country’s decarbonization goals, with the bulk of the required investments targeting the transformation of industries and the achievement of major improvements in energy efficiency.
Use of proceeds for Japan’s transition bonds, as outlined in the government’s Climate Transition Bond Framework published in November 2023, must be allocated to specific categories, in projects aligned with Japan’s “GX (Green Transformation) Promotion Strategy,” with priority given to investment in sectors that contribute to emissions reductions and enhance industrial competitiveness and economic growth, with the projects primarily carried out by companies in hard-to-abate sectors.
In the framework, the government stated:
“In addition to further promotion of green investment in areas such as renewable energy, it is also important to promote the transition in decarbonization such as low carbon initiatives in hard-to-abate sectors (the industrial and energy conversion sectors where there are no alternative measures for decarbonization technically and economically at this moment) from the viewpoint.”
Eligible categories of investment follow the GX Promotion Strategy’s 14 “Future Actions” initiatives, which target transitions in the energy supply side, such as supporting renewables, nuclear power, hydrogen and batteries, as well as demand side transformations ranging from energy efficiency promotion, facilitating the introduction of clean fuels in industry and resource circulation to transport sector transformation, carbon recycling and CCS, and infrastructure.
The government aims to issue the second tranche of the bonds on February 27, with JPY 1.4 trillion (USD$9.3 billion) in climate transition bonds planned to be issued in the fiscal year starting April 2024.