TOKYO -- The pledge by Group of Seven rich nations to end support for overseas coal projects this year and move away from the polluting fuel at home presents a particular challenge for Japan, which has few alternatives in either setting.
The agreement reached at the summit calls for members to end all direct government support for international coal power, though funding is allowed to continue for facilities with mitigating technology such as carbon capture and storage.
Japan, which has been slower to pivot away from coal than Europe and the U.S., now faces the task of finding new power sources to promote in a highly competitive global market, while also making the transition in a domestic power industry already grappling with tight supply.
High-efficiency coal-fired plants have been central to the climate-related support Tokyo provides to developing countries, accounting for just over a quarter of the 1.37 trillion yen ($12.4 billion at current rates) total from the public and private sectors in 2019.
The Japanese government's plan to end support for these exports has caused consternation among Japanese companies involved in the energy business overseas.
"The government hasn't made it clear whether it's still fine to export high-efficiency [systems], whether we need carbon dioxide capture and storage, or whether it's all a no-go, so we can't comment at this time," said a representative from J-Power, Japan's top coal power producer.
While trading houses had already indicated they will no longer work on new coal projects, the government's stance could affect Sumitomo Corp.'s decision on whether to continue participating in the Matarbari project in Bangladesh. The company had said it would consider staying in the project as the "only exception" to its no-new-coal policy.
During a discussion on climate change at the G-7 summit, Japanese Prime Minister Yoshihide Suga said Japan would keep up its current levels of climate-related support, providing the equivalent of 6.5 trillion yen -- about $60 billion -- in public and private funding over five years starting in 2021.
That will require finding a replacement for coal power exports, but there is little in the way of good alternatives.
Nuclear energy, formerly an area of focus for Japan, has stalled since the 2011 Fukushima Daiichi disaster, and export conditions do not look promising. Japanese players led the market for solar panels in the mid-2000s but have since been supplanted by Chinese rivals with cheaper products, and Chinese companies are carving out a larger space in batteries as well. Europe enjoys an edge in wind turbines.
With few options, Japanese companies will focus for the time being on high-efficiency gas power, which has lower emissions than coal, and geothermal energy know-how.
The impact of the policy pivot is poised to extend to Japan's own electricity supply. The communique issued after the G-7 summit states that "domestically we have committed to rapidly scale up technologies and policies that further accelerate the transition away from unabated coal capacity."
Japan generated 32% of its power supply from coal in fiscal 2019, a higher share than any other G-7 member. During working-level talks to hammer out the text of the statement, objections from parties including Japan sank a proposal to set a specific deadline for moving away from domestic coal power.
The government aims to have all old, inefficient coal plants either updated or shut down by 2030, but it decided in April to allow those with at least 43% efficiency to continue operating beyond that year.
With efforts to restart nuclear plants making little headway, and deregulation of the electricity market leading to price wars, utilities have suspended or shut down expensive oil-fueled power plants, leaving electricity supplies tight in the summer and winter. Rather than scrap coal plants, companies are counting on building new ones to add crucial capacity.
The government's past reluctance to join the global shift away from coal has made it more difficult now to maintain a stable energy supply while still achieving its decarbonization goals.