TOKYO -- On the tenth anniversary of northeastern Japan's catastrophic earthquake on March 11, Akio Toyoda delivered a chilling warning.
Stressing the auto industry's role in restoring the devastated region's economy, the president of Toyota Motor and the Japan Automobile Manufacturers Association was blunt: "If things continue as they are now, we won't be able to produce cars in Japan anymore. We need green energy first and foremost."
Toyoda has made headlines for questioning Prime Minister Yoshihide Suga's climate policy -- focused on an ambitious goal of net zero carbon emissions by 2050. The target urges a rapid transition to electric and other electrified vehicles. It also entails an end to sales of new gasoline-only vehicles by 2035.
Suga is under pressure to make good on his promises, including one made last week for U.S. President Joe Biden's Earth Day summit, where Japan pledged to cut 46% of greenhouse gas emissions by 2030 from 2013 levels. But his "Green Growth Strategy" has put him at odds with not only automakers but also other heavy industries that built the world's third-largest economy.
The environment and economy ministries -- tasked with executing Suga plan -- have also heard "disturbances" from the iron and steel sector and construction companies.
Toyoda is bullish on planet-friendly technology but wants assurances that cars can be produced and powered by clean energy.
The European Union, for instance, is looking at including the manufacturing process in its assessment of a vehicle's total carbon dioxide emissions -- a move Toyoda believes would force Japanese carmakers to shift more production to places with greener grids.
Japan is not alone in walking a fine line between saving the planet and choking key sectors. Neighboring South Korea rolled out a greenification strategy as part of its COVID-19 economic relief plan. Yet, despite their similar industrial makeup, Japan placed 60th on MIT Technology Review's Green Future Index for 2021, a ranking of 76 countries and their decarbonization efforts. South Korea came in 31st.
Only Hong Kong, Pakistan and Bangladesh fared worse than Japan among Asian economies.
"Japan's policy implementation goals are not yet geared up to create the incentive structures to bring industry along," said Ross O'Brien, lead researcher for the Green Energy Index. "Corporate targets are set almost without a commensurate level of intense energy transition on the government side."
The auto industry, which generates about 2.5% of Japan's gross domestic product, blames the country's energy mix for its fall behind the global electric curve.
With 75% of domestic power derived from fossil fuels, excluding ever-controversial nuclear reactors, EVs are partly made and charged by burning coal. And making an "emissions-free" electric car is more energy-intensive than a traditional vehicle because of the battery, which requires the extraction and refinement of metals like copper and nickel.
So most Japanese carmakers have prioritized hybrids -- which combine gasoline engines with electric motors and do not require charging stations -- in their electrification efforts, alongside plug-in hybrids, fuel-cell vehicles and some pure EVs.
Driven by the 1997 launch of the Toyota Prius as the first mass-produced hybrid car, Japan now sells the most electrified vehicles worldwide, in the broadest sense of the term. "The hybrid technology has indeed reduced greenhouse gases while drawing support from consumers," said Kazuo Shimizu, a motor journalist and former race car driver. "It is not easy for [Japanese carmakers] to drop their strategy."
International Energy Agency findings show that hybrids produce less greenhouse gases than electric vehicles with 80 kWh batteries when comparing total life-cycle emissions, from manufacturing to recycling.
But there is no denying that pure EVs are gaining ground.
In Europe -- which accounts for 11% of Toyota's total unit sales -- the sales share of electric cars increased to 6.2% in 2020 from 2.3% in 2019, spurred by progressively tougher regulation. Toyota itself announced a new electric vehicle strategy last week at the Shanghai auto show, aiming to introduce 15 all-electric models by 2025 versus the four it sells now.
Honda, meanwhile, announced last week that all its new cars will be either EVs or FCVs by 2040, described by CEO Toshihiro Mibe as a "very challenging" goal. The carmaker in 2016 had set a target for electrified vehicles to account for two-thirds of global sales by around 2030, but this was mostly based on hybrids. All-electric and fuel-cell cars were only envisioned to make up 15%.
However, if the government insists on carbon-neutral auto production without energy to match, "car manufacturers may soon shift production to countries with low carbon dioxide emissions" to maintain global competitiveness, Toyoda said.
He warned this would eliminate up to 15 trillion yen ($139 billion) from car exports and up to 1 million jobs, or nearly 20% of positions in the automobile and related industries.
Achieving carbon neutrality in Japan by 2050 will require "not only technological efforts from the industry but also energy policy efforts from Tokyo with much increased speed than today," agreed Arifumi Yoshida, an analyst at Citigroup Global Markets Japan.
Japanese automakers, he said, are asking the government "for time to get ready for the momentum." Yoshida pointed out that there is at least some harmonization between government and industry, as unlike the U.K., Japan has chosen to keep hybrids in the mix even as it looks to ban gasoline car sales in 2035.
"Renewables are needed, and battery production which enables longer range and shorter charging time is also required in the country," he said, explaining it will take "at least a decade" to put all the pieces in place for low-emission mass production of EVs.
Yet the winds of change are gusting through the Ministry of Economy, Trade and Industry.
Suga's sudden announcement of the net zero goal in October caused a "paradigm shift" within the ministry, according to a METI official who requested anonymity. The guardian of manufacturing, which also sets the national energy strategy, realized decarbonization's importance to Japanese competitiveness.
Over in the Ministry of Environment, officials acknowledge that automakers are "completely right" to demand an energy transition but still want a faster shift beyond hybrids.
"Japanese automakers have some of the most advanced technologies in the world, but they have been focusing on hybrid vehicles," said a senior ministry official. This technology "can reduce carbon emissions significantly but not completely."
Other industries face even higher technological hurdles.
For Nippon Steel, Japan's largest steelmaker, efforts to use hydrogen instead of coal in blast furnaces are complicated by a two-pronged problem. Hydrogen has a cooling effect inside the furnaces, which must be extremely hot. But hydrogen also combusts at around 500 C, posing an explosion risk. The gas is also four times the price of coking coal.
If the government expects the industry to rush toward carbon neutrality, "steel will no longer be produced in Japan," Shimizu said.
For now, Nippon Steel has pledged to meet the 2050 deadline mainly by downsizing capacity, a competitive hedge. "The reason that South Korea's Posco has been able to remain in the black for many years, even amid recessions, is that its production capacity is smaller than domestic demand," said Atsushi Yamaguchi, analyst at SMBC Nikko Securities.
Yamaguchi predicted that "it will take at least 30 years to develop a hydrogen-based steel plant, not only for Japanese steel companies but also China."
For that, steelmakers want the government to subsidize test plants. "Japanese steel companies say we should be the leader in R&D, and there is a chance now to regain their market position," Yamaguchi said. "But Chinese companies get 100% government support."
On the other hand, government contracting has sheltered the construction industry from pressure to invest in carbon neutral innovations.
"Government should provide incentives for sales, such as tax breaks for buying houses or condos built with carbon neutral technology," said Yukiko Konno, professor of economics at Rikkyo University, adding that such technologies should also be given higher priority in bidding for public works projects.
The senior Environment Ministry official said, "We need to move very quickly because once you build a house, it will be there for decades."
Green infrastructure construction is one of three main pillars of South Korea's Green New Deal, with the government pushing eco-remodeling of public buildings to address unemployment and a housing shortage.
The overall deal promises 73.4 trillion won ($65 billion) worth of investment to create over 650,000 jobs, marrying environmental and socioeconomic policy. Implementing renewable energy systems and energy-efficient insulation is the largest jobmaker in the plan, projected to create 387,000 positions by 2025.
"In East Asian neighbors, there is more of a coordinated thread," O'Brien said. "China's environment and energy security and industrial policy objectives are all knitted together as part of a holistic strategy. That's happening in Korea now as well, with pledges to increase both renewable energy and production of EVs."
In Japan's case, the researcher said the country "just needs more coordination, connecting the dots of energy transition, technological innovation and a shift in domestic consumption."
What Suga's and Moon's strategies have in common is a lack of legally binding targets. South Korea's plan does not set annual emissions goals, only aiming to reduce greenhouse gas emissions by 16.2 million tons -- not enough to reach net zero by 2050, as Moon has also pledged.
"Laying out the proper legal infrastructure is as important as establishing the industrial or technological infrastructure," wrote Jae Hyup Lee, law professor at Seoul National University.
Aligning Japan's legal, regulatory and industrial systems with the prime minister's proclamation will fall on METI, which is negotiating the amount each target sector will receive from a 2 trillion yen Green Innovation Fund.
"METI is basically trying to protect Japanese industries, but they realize it's quite impossible to protect the industries as they are now," said the senior Environment Ministry official.
"Corporates in Japan are desperately seeking ways to be carbon neutral as ESG standards become ever more important," said O'Brien, using the shorthand for environmental, social and governance. "It's just the infrastructure made available to them. Japan's weighted down by a structural inability to transition its energy generation with speed sufficient to meet its decarbonization goals."
METI is expected to update the national energy strategy -- a critical indicator of whether Japan can achieve net zero by 2050 -- but the new version has been pushed back for months.
"It will come around the summer season," said the Environment Ministry official. "But due to climate change, we may have a longer summer."