What is Japan's pathway to limit global warming to 1.5°C?

While industrial CO₂ emissions have trended downward since 2013, this decline primarily reflects lower production and energy demand rather than structural decarbonisation of the energy mix.²2 Aligning with 1.5°C will involve structural energy demand reduction through electrification (which is more energy efficient than fossil fuels) as well as targeted energy efficiency measures. Under the Highest Possible Ambition (HPA) scenario, industrial energy consumption would fall by 45% below 2023 levels by 2050.

Industry can decarbonise before 2040 in the HPA scenario by ramping up electrification from 27% in 2023 to 47% by 2040, reducing fossil fuel use to 18%, and scaling up carbon dioxide removal technologies for the so-called hard-to-abate industries such cement and steel. By 2050, electrification would approach 50%, while fossil fuels would decline to 4% with gas fully phased out. Hydrogen and biomass would play growing roles, accounting for 20% and 13% of the energy mix by 2040, rising to 22% and 18% by 2050. The role of hydrogen would emerge by 2030 and supply over 20% of the energy mix from 2040 onwards.

Accounting for around 15% of Japan’s total CO₂ emissions, the steel sector is a priority for industrial decarbonisation.³3 Policy measures include 20 trillion yen in Green Transformation (GX) Economy Transition Bonds, the introduction of mandatory carbon-pricing (GX-ETS) in FY 2026, a levy on imported fossil fuels from FY 2028, and targeted tax credits and subsidies.⁴4 Electric arc furnaces have consistently accounted for about 25% of crude steel production over the past 27 years.⁵5 However, a weak baseline in the GX-ETS, high renewable electricity costs, and continued reliance on LNG could slow the decarbonisation progress.⁶6 Secondary steel produced from scrap steel in a 100% renewables-powered electric arc furnace can already outcompete business-as-usual scrap electric arc furnace production drawing power from the grid.⁷7 Decarbonising primary steel production from iron remains expensive. However, the relative old age of Japan’s coal-fired Blast Furnace-Basic Oxygen Furnace plants, and the need for steelmakers to decide whether to reinvest in about half the country’s BF-BOF capacity by the end of 2030 offers an opportunity to reinvest in greener alternatives before locking in more coal-based production. Primary steel produced from direct reduced iron-electric arc furnace using green hydrogen (made from renewables) for energy and reduction, can beat business-as-usual costs in the early 2030s – so long as production uses imported green iron.⁸8 The cost-competitiveness could also be improved through policy interventions such as increased carbon pricing and hydrogen subsidies.

This largely aligns with Japan’s broader policy, as the country is advancing a hydrogen-based society through an integrated policy framework, including the Hydrogen Society Promotion Act (2024), with targets of 3 million tonnes per year of domestic hydrogen consumption by 2030, 12 million per year by 2040 and approximately 20 million tonnes per year by 2050, and a carbon intensity target of no more than 3.4 kgCO₂ per kg of hydrogen produced across its entire lifecycle.⁹9^,1010 This strategy is supported by major capital investment through the Green Innovation Fund, which backs large-scale hydrogen supply chains, renewable-powered water electrolysis production, and hydrogen use in steelmaking.¹¹11 In addition, around 3 trillion yen over 15 years has been allocated to reduce hydrogen production costs and accelerate deployment.¹²12