A turning point for Japan’s Green Transformation

Japan has positioned itself as a global leader in transition finance through its GX (Green Transformation) strategy. It has committed to net-zero by 2050, launched a sovereign Climate Transition Bond, and set out a roadmap to decarbonise its economy while revitalising regional industry. 

Unfortunately, while undertaking this transition, Japan is doubling down on fossil fuel imports, even as global tensions make this strategy increasingly risky and outdated. Due to numerous geopolitical challenges, relying on imported fossil fuels has become a national security vulnerability, not just a climate risk.  

Given these challenges, in 2024 Climate Bonds published a briefing identifying three key opportunities for Japan to establish itself as a global leader in climate action. Our newest briefing, supported by the Global Mehane Hub, revisits developments from the first six months of 2025 and reflects on how ongoing geopolitical risks further highlight Japan’s need to address its fossil fuel dependency.  

With the right approach, strategic investment in clean energy would offer Japan a pathway to energy security and strengthen its national resilience, with the added benefit of enabling the country to meet its climate goals and complete its ambitious national transition plan.  

Japan’s energy plan maintains reliance on energy imports 

The 7th Strategic Energy Plan, approved in February 2025, retains a long-term role for fossil fuels, including Liquified Natural Gas (LNG), with gas-fired power capacity set to increase due to new plant construction. Energy demand is projected to rise, driven by factors such as digital transformation and semiconductor manufacturing. Without faster investment in domestic renewables, Japan will continue to depend on imported fuels. 

Fossil gas is sometimes seen as a “transition fuel.” However, fossil gas is mostly composed of methane, a greenhouse gas with a global warming potential 80 times greater than CO₂ over a 20-year period.  

Furthermore, methane emissions from the energy sector are 70% higher than official figures, mostly due to leakage. Japan has taken steps to address methane emissions, including participation in the Global Methane Pledge and establishment of the CLEAN initiative, which brings together 27 LNG producers and consumers. However, these efforts risk being undermined by ongoing investment in fossil gas infrastructure. 

Prioritising investments and growth of renewables could stimulate regional revitalisation and domestic industry growth rather than potentially delaying industrial progress by maintaining reliance on energy imports and exposing Japan to geopolitical volatility.  

Escalating geopolitical issues threaten energy security 

The current geopolitical climate highlights how Japan’s reliance on energy imports leaves its system exposed to global market shocks and instability. Japan currently imports 99.7% of its oil, 97.7% of its LNG, and 99.6% of its coal. Its LNG supply chains rely heavily on routes through the Strait of Hormuz (20% of global LNG flows) and the South China Sea (30% of Japan’s LNG imports). Instability in these areas poses a growing risk to Japan’s energy security. 

Additionally, with many contracts with Russia expiring between 2026 and 2033, ongoing geopolitical tensions further undermine supply confidence. While the energy plan claims LNG carries a low geopolitical risk, these developments suggest otherwise. 

Japan’s historic reliance on imported fossil fuels, once a hedge against oil shocks, has become a source of vulnerability. As the global energy landscape shifts, diversifying away from fossil fuel imports is critical to national resilience. 

Clean energy presents an opportunity for Japan 

In light of these vulnerabilities, clean energy presents a key opportunity for Japan to reduce import dependence, support regional revitalisation, and meet its climate goals. Japan recently amended policy to allow offshore wind development in exclusive economic zones (EEZs), aiming to increase wind’s share from 1% today to 4–8% by 2040. 

Studies suggest that renewables, primarily wind and solar, could meet 70–80% of Japan’s electricity needs by 2035, with some estimates as high as 90% by 2050. Achieving this would increase energy self-sufficiency to 75%. However, the current energy plan targets only 40–50% renewable electricity and 40% self-sufficiency by 2040. 

To realise this potential, Japan must invest in grid expansion and modernization, infrastructure, domestic supply chains, and incentives for public-private partnerships. Financial institutions can play a key role by mobilising capital and supporting the development of sustainable finance hubs throughout Japan.  

Five Steps to Accelerate Decarbonisation 

To accelerate decarbonisation of its energy mix, Japan should:  

1. Accelerate methane abatement 
   Deploy leak detection, improve transparency, and support financing for reductions across the LNG value chain.
2. Modernise and expand the grid 
   Remove transmission bottlenecks, reduce curtailment, and unlock renewable generation in regional Japan.
3. Enhance energy system resilience 
   Invest in batteries, storage, and virtual power plants to balance supply and demand and reduce import dependence.
4. Adopt international best practices on energy markets 
   Follow examples like Germany and Scotland in coordinating permitting, stakeholder engagement, and grid planning to fast-track renewable energy markets.
5. Present nuclear as transitional 
   Restart existing nuclear capacity with transparency and public trust, while focusing long-term efforts on renewables. 

A Strategic Choice for Japan 

The momentum and leadership shown by Japan in issuing the Climate Transition Bond as part of its GX Strategy is commendable and should be further strengthened. But global political disruption highlights the need for a faster renewable energy transition. Japan’s continued fossil fuel reliance undercuts its GX goals, and in a world facing geopolitical and environmental volatility, domestic renewables offer Japan a path to energy security, climate alignment, and economic revitalisation. 

“If Japan can on-shore the energy it needs through transitioning to renewable energy sources, it will increase its geopolitical flexibility and independence.” – Council on Strategic Risks 

By recognising the interconnections between climate, the economy, and geopolitics, Japan can shape policies that not only mitigate risk but also unlock new pathways towards a competitive and sustainable society. Building on the five considerations outlined above, Japan has the opportunity to lead the region’s clean energy transition while strengthening domestic resilience. 

Now is the time to align policy, finance, and infrastructure with the ambitions of the GX strategy, before the window of opportunity closes. 

'Til next time! 

Climate Bonds