Japan is on track to emerge as the largest player in the captured carbon dioxide (CO2) trade in the Asia-Pacific (APAC) region by 2050, according to a recent analysis by Wood Mackenzie. With greenhouse gas emissions accounting for around 7% of East Asia’s emissions and 2.5% of the global total, a focus on reducing emissions in the industrial and energy sectors has become a priority for the country.
Carbon capture, utilization and storage (CCUS) technology is crucial for so-called “hard to decarbonize” sectors, such as steel and energy. By 2050, Japan’s catching capacity is expected to reach 55 million tonnes per year (Mtpa) in the base case. However, with limited storage capacity, around 80% of captured carbon will be transported to other countries for sequestration, placing Japan at the heart of cross-border carbon transport opportunities in the region.
The Japanese government plays a key role in this transition. At the Japan CCUS Summit 2024, Hetal Gandhi, CCUS Manager for APAC at Wood Mackenzie, highlighted that Japan is ahead of the majority of countries in the region in policy effectiveness, according to the CCUS Index. institute. However, despite this advance, the country remains behind North America and Europe, where financial incentives are more developed and regulatory frameworks more stable.
Government investments needed
To support the implementation of CCUS technologies in Japan, massive investments are essential. According to Wood Mackenzie’s forecast, the development of carbon capture technology will require an estimated global investment of $1 trillion by 2050, of which 60% will be allocated to capture technologies. For APAC, government support of $150 billion will be required by 2050 to achieve planned capture capacities, covering around 30% of investments.
In the case of Japan, minimum government support is expected to reach $10 billion by 2050, assuming the carbon price reaches $69 per unit by that same deadline. This will support carbon-intensive industrial sectors, such as steel and power generation, which are the main contributors to the country’s emissions.
Challenges of cross-border transport of CO2
One of the major challenges for Japan lies in the absence of large-capacity domestic storage sites, forcing the country to transport a significant part of the captured CO2 to other countries. This cross-border transport is expensive, with an increase of at least 25% in costs compared to national storage. To mitigate these costs, Japan will need to develop a regulatory framework and agreements with regional partners, such as Indonesia, Malaysia and Australia, to facilitate cross-border CO2 trading.
Hetal Gandhi concluded that, in addition to financial support, creating an ecosystem conducive to international carbon trading will be essential for Japan’s success in this area. Cooperation with other APAC countries will be crucial to establish harmonized guidelines for CO2 transport and sequestration.
