Why Japanese Are Struggling to Wean Off Coal Use

Last month, the G7 countries including Canada, the United States, Italy, Germany, France, the United Kingdom and Japan agreed to phase out coal use by 2035. While this is a commendable goal to work toward, some members of the coalition are already showing that it could be a tall order to hit that target.

Japan is one such country that is likely to struggle. It has the wealth, so money is unlikely to be the issue. The country also has the technology, so the argument that it may not have the know-how is moot.

For starters, Japan imports 94% of its energy. The cost of doing this means that businesses and households pay a premium for the energy they use, and the natural tendency is to opt for the energy source that is least expensive. Coal fits that bill, and the country gets 27% of its total energy from this source. When this is narrowed down to electricity, the country derives 31% of its electric power from coal.

At one time, Japan derived a significant portion of its electricity from nuclear energy, but the Fukushima nuclear accident caused the country to idle its nuclear fleet and resort to fossil fuels, especially coal. Planning, constructing and finally commissioning a nuclear plant takes several years, even decades to pull off, so Japan may not have the time to ramp up this option in time to meet its emissions reduction targets by the deadlines set.

Another factor compounding Japan’s bid to wean off coal is the growing demand for energy as the years go by. This demand is likely to push many countries to their default source of energy: coal. In the case of Japan, this is already happening.

In 2023, the country brought online a pair of newly built coal power plants. Coal plants are known for their hefty upfront costs and modest operational costs. This means that if Japan is to quit using coal by 2035, these brand new plants will have to be closed long before they have had a chance to recoup the costs that went into establishing them. That would be a hard decision to make, and only time can tell if the decision makers will pull the plug on such investments when they can still be productive.

The issues that Japan has to contend with in its bid to phase out coal energy are more or less what other industrialized nations are facing. When attention is shifted to developing countries, the situation is worse. Limited technology, limited resources and accelerating demand for energy all mean that emissions will grow at a high rate in these poorer countries. Will the world attain its climate change targets in time?

What is clear at the moment is that major global suppliers of coal such as Arch Resources Inc. (NYSE: ARCH) are likely to remain in business plying their trade for many years to come.

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