The Japanese government, with the support of Japan’s megabanks, has been betting on a seriously flawed strategy to extend the lifespan of coal power for decades to come, according to a new report from Reclaim Finance and Kiko Network. Japan is the only G7 member without a clear coal phase-out plan, and instead pursues a misguided climate strategy of retrofitting coal plants with carbon capture and ammonia co-firing technology that is unlikely to reduce emissions. Reclaim Finance and the Kiko Network are urging the new Japanese government to reset its priorities and focus on a coal phaseout and rapid transition to renewables in the upcoming revision of its Strategic Energy Plan.

Despite the G7 commitment to phase out coal, Japan remains the only G7 country without a commitment to phaseout coal power and has only agreed to end “unabated” coal by 2035. Coal is used to generate almost one third of Japan’s electricity and is expected to still generate 19% by 2030. This is despite both the International Energy Agency and the Intergovernmental Panel on Climate Change projecting that coal use must be phased out in Organization for Economic Cooperation and Development (OECD) countries by 2030 to stay under 1.5°C.

In line with the government’s policies, Japanese banks have pumped US$23.5 billion into the thermal coal sector since 2021, making them the third largest banker of the coal industry after Chinese and US banks. Eighty percent of Japanese banks’ coal finance comes from the country’s three biggest banks, Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group, and Sumitomo Mitsui Banking Corporation (SMBC). This includes finance for J-Power for example, a corporation that is planning a coal gasification facility at its Matsushima plant that will test co-firing ammonia and biomass with coal and eventually implement a CCS system with hydrogen power generation.

These megabanks have much weaker coal policies than many of their global peers and have included high-carbon technologies that extend the lifespan of coal plants within their definition of “transition financing”.

"In order to maintain its existing coal-fired power generation facilities, Japan has created a system that promotes costly and ineffective power generation methods such as ammonia co-firing and CCS and takes advantage of citizens by making them shoulder the costs. It is extremely problematic that megabanks continue to provide loans using this system as collateral. Furthermore, it is reprehensible that Japan is trying to force this approach on other Asian countries as well. Japan’s policy needs to change so that coal-fired power generation can be phased out as soon as possible." Takako Momoi, Kiko Network Manager of Tokyo Office

"It is deeply worrying that Japan’s big banks are aligning with their government’s pro-coal positions by labeling CCS and co-firing coal with ammonia as “transition activities”. Financing for these costly and unproven technologies may benefit Japan’s coal companies, but it does so at the expense of the climate, prolonging the life of coal plants without delivering meaningful cuts to emissions. Japan’s government, banks and corporations should be committing to a truly sustainable transition without protecting the high-emissions status quo." Danielle Koh, Reclaim Finance policy analyst

In addition to seeking to prolong the life of coal power plants at home, Japan has launched the Asia Zero Emission Community initiative, which looks set to export these expensive and likely ineffective technologies to the Asia-Pacific region.

Reclaim Finance and Kiko Network are urging the new government to adopt an energy strategy with a clear plan to phaseout coal power in Japan by 2030 and to replace the lost generation with renewables, grid upgrades and energy efficiency.