Research
History of Ruling to Reduce Greenhouse Gas Emissions and Efforts by Japanese Companies [Part 2]
2024-8-15
In Part I, we discussed the evolving international landscape surrounding greenhouse gas emission rights and highlighted the actions of Japanese companies. Between the latter half of 2020 and the first half of 2021, trading companies made a series of declarations affirming their commitment to decarbonization and outlined their roadmaps for achieving this aim. This period coincided with the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26) in Glasgow, UK, when countries were actively engaged in discussions aimed at establishing more ambitious numerical targets and concrete actions.
Faced with the urgent need to demonstrate their commitment to decarbonization both internally and externally, trading companies recognized that their ownership of coal mines and coal-fired power plants significantly impacted the financing of other projects and the initiation of transactions. A notable event occurred in January 2021, when Mitsubishi Corporation announced its decision to withdraw from a coal-fired power plant project slated for construction in Binh Thuan Province, southern Vietnam. This decision was influenced by the exit of UK-based HSBC from its lending syndicate, driven by increasing interest in decarbonization and uncertainties regarding the project's feasibility.
As the global momentum toward decarbonization accelerates, general trading companies are diversifying into new energy sectors that capitalize on their unique strengths. This article presents examples of emission-reduction initiatives undertaken by sogo shosha companies, which are advancing at a remarkable pace.
Examples of General Trading Companies
1. Mitsubishi Corporation's Roadmap to a Carbon Neutral Society
In October 2021, Mitsubishi Corporation unveiled its "Roadmap to a Carbon Neutral Society." The roadmap's key pillars include: 1) halving greenhouse gas (GHG) emissions by FY2030 compared to FY2020 and achieving net-zero emissions by 2050; 2) investing approximately 2 trillion yen by FY2030 in Energy Transformation (EX) related projects to realize this goal; and 3) integrating EX and Digital Transformation (DX) efforts under the banner "Creating a New Future."
In the realm of EX-related businesses, Mitsubishi Corporation is expanding its renewable energy initiatives, ensuring the sustainable supply of base and rare metals essential for electrification, and establishing a next-generation energy supply chain to secure a stable flow of low-carbon and decarbonized energy while preparing for the transition to next-generation energy. Concurrently, DX efforts will optimize supply chains and deliver tailored services through data interlinkage, thereby minimizing energy and resource waste. Below are some specific initiatives aligned with this roadmap.
The Power Solutions Group, leveraging its acquisition of Eneco, a Dutch integrated energy company in 2020, has engaged in numerous renewable energy development projects across Europe. Eneco excels in offshore wind projects, utilizing the expertise of its in-house development team and its robust supplier relationships not only for European projects but also for offshore wind initiatives in other regions, including Japan. Additionally, they have pioneered floating solar power generation, operate one of Europe's largest energy storage facilities, and recently launched a project in Germany that involves underground storage of hydrogen produced via electrolysis, harnessing wind-generated electricity to supply the grid during electricity shortages.
The Global Environmental Energy Group is actively involved in a project for the underground storage of carbon dioxide emitted during operations at a site adjacent to an LNG plant in which it holds equity. They are also participating in a demonstration experiment aimed at commercializing direct air capture (DAC) technology, which captures carbon dioxide directly from the atmosphere. Furthermore, they are working on projects across Asia, the Middle East, and beyond to establish optimal hydrogen supply chains with a focus on transportation safety, cost-effectiveness, and energy efficiency. These projects include synthesizing hydrogen, a clean alternative fuel, using recovered carbon dioxide to produce methane or convert it into Methylcyclohexane (MCH) and ammonia.
The Mineral & Metal Resources Group, which previously generated over 70% of its revenue from coking coal, announced a strategic shift towards carbon neutrality by partially selling its coking coal mine for steelmaking in Queensland, Australia, in October 2023. This sale includes two of the seven coal mines that produce higher carbon dioxide emissions. The company will now concentrate on supplying high-grade coking coal and iron ore while ensuring a stable supply of metal resources critical to a clean electrified society, such as direct-reduced iron and lithium, essential for storage batteries.
Mitsubishi Corporation is also participating as a Catalyst in Breakthrough Energy, a project established by Bill Gates in 2015. This initiative aims to accelerate the adoption of innovative decarbonization technologies through investments and mentorship. Mitsubishi plays a vital role in identifying new technologies and innovations crucial for achieving a carbon-neutral society, a pressing global challenge, and facilitating their implementation within society. The company continues to engage with various stakeholders across sectors such as steel, aviation, finance, and energy to foster advancements in green technology.
2. Mitsui & Co. Enhancing Resource Portfolio and Expanding LNG Business
Mitsui's commitment to low-carbon and decarbonization was articulated in its medium-term management plan unveiled in May 2020, with subsequent plans in May 2023 demonstrating continued progress and determination to further this agenda. Mitsui's approach to low-carbon and decarbonization involves: 1) reducing emissions through an improved resource and power generation portfolio; 2) promoting fuel conversion via LNG and other businesses that mitigate environmental impact; and 3) spearheading emission reductions through business expansion in the energy solutions sector and other areas that address climate change.
In relation to portfolio quality enhancement, Mitsui announced the sale of its stake in a coal-fired power plant in Paiton, Indonesia in June 2021, followed by the divestment of its interest in an Australian coking coal mine in August 2022. Conversely, in April 2022, the company made a new investment in Mainstream Renewable Power Limited, a renewable energy development firm based in Dublin, Ireland, and joined a large-scale renewable energy project in India, encompassing wind power, solar energy, and energy storage facilities. This proactive approach has positioned Mitsui at the forefront of upgrading its resource and power generation portfolio. The company has continued its low-carbonization efforts by divesting from an offshore oil field project in the Gulf of Mexico while investing in diverse renewable energy projects.
In promoting fuel conversion through LNG and other avenues, Mitsui regards the transition from coal and petroleum fuels to gas as a pragmatic solution. They are actively securing gas resources and developing gas fields for power generation facilities, including engagements in shale gas and tight gas development in Texas (April 2023) and Block B gas field development in Vietnam (March 2024). Additionally, they are advocating for cleaner energy sources by introducing co-firing and mono-firing techniques that incorporate next-generation fuels such as hydrogen, ammonia, and methanol.
To accelerate emission reductions through innovative energy solutions, Mitsui is investing in clean hydrogen and compressed natural gas production companies that utilize methane from waste landfills. They are also investing in renewable diesel and sustainable aviation fuel (SAF) production ventures, as well as in the integration of compressed hydrogen tanks, systems, and battery vehicles. The company has announced a new investment in Climate Friendly, an Australian firm engaged in the carbon credit business by regenerating old-growth forests, along with additional funding for New Forests, a forest asset management company in Australia.
3. Marubeni Corporation Accelerating Decarbonization Target: Halving Coal-Fired Power Generation Capacity by 2025
From an early stage, Marubeni Corporation has articulated its guiding principles for decarbonization. In September 2018, the company unveiled its "Policy Concerning Coal-Fired Power Generation Business and Renewable Energy Power Generation Business," which aims to: 1) halve the anticipated coal-fired power generation capacity (approximately 3 GW) by the end of fiscal 2018 by 2030; 2) reduce the overall power generation assets by enhancing efficiency and minimizing environmental impact; and 3) refrain from developing new coal-fired power generation, while increasing the share of renewable energy power generation from 10% to 20% of total capacity by 2023.
In the "Long-Term Vision for Climate Change," announced in 2021, Marubeni set a target of achieving net-zero GHG emissions by 2050 and contributing to low-carbon and decarbonization efforts through its business activities. The company further committed to halving its coal-fired power generation capacity (approximately 3 GW) by 2025, ahead of the initial 2030 target. This policy continues to be upheld in the Mid-term Business Strategy announced in 2022, focusing on "strengthening green business" and "promoting greenification across all business areas."
Marubeni's energy supply initiatives include participation in renewable energy power supply and retail businesses, alternative energy ventures such as hydrogen and ammonia, the construction of distributed energy systems, and involvement in electric vehicle (EV) infrastructure and battery-related initiatives. The company has engaged in various renewable energy projects, conducted demonstration experiments to establish a green hydrogen supply chain between Japan and Australia, and undertaken feasibility studies for ammonia supply chains. They have launched a carbon-neutral ethylene marine transportation service from Texas, invested in an Estonian firm specializing in next-generation energy storage technology, initiated a study to produce SAF in Dubai, UAE, and invested in LineVision, a U.S. company offering solutions to address transmission capacity limitations that hinder the integration of large-scale renewable energy.
On the demand side, Marubeni is involved in battery recovery and reuse initiatives, investments in carbon capture and storage technologies, and the provision of energy-saving materials, products, and services, alongside efforts to promote modal shifts. In 2021, the company invested in B2U Storage Solutions, Inc., a U.S. startup that facilitates adjustments in electricity supply and demand using used EV batteries to alleviate pressure on the power grid. Building on this knowledge, in 2023, they began joint development of a secondary use business for EV batteries with VinFast, Vietnam's first automobile manufacturer. Furthermore, in 2023, Marubeni invested in Bison Low Carbon Ventures Inc., which is developing a carbon dioxide capture and storage business in Alberta, Canada, targeting commercialization in 2024. Notably, Marubeni does not maintain any coal interests, eliminating the need for divestiture.
Summary
This article has examined the guidelines, strategies, and actual business activities of three trading companies in their efforts to reduce greenhouse gas emissions. While they share a common objective of accelerating investments in renewable energy and next-generation energy production businesses, their specific areas of focus—especially in solution-oriented businesses aimed at minimizing energy requirements—differ significantly, reflecting each company's unique strengths in their business strategies.
Mitsubishi Corporation reported record consolidated net income in FY2022 and maintained its second-highest profit level in FY2023. Similarly, Mitsui & Co. has demonstrated strong performance, with consolidated net income surpassing 1 trillion yen for multiple consecutive years beginning in 2022. Both companies have benefitted from soaring prices for high-grade coking coal and sustained high LNG prices, attributable to the enhancement of their resource asset portfolios. However, both trading companies project that the new energy businesses they are currently cultivating will primarily contribute to profits beginning in FY2027, with the outcomes of their new business portfolio development gradually becoming evident.
We hold high expectations for the initiatives that these trading companies will develop in collaboration with partners worldwide to reduce greenhouse gas emissions, and we will continue to monitor their progress.
References
About the Author
Nahoko Imamura. After graduating from Hitotsubashi University with a degree in commerce, she gained experience in various management consulting roles at McKinsey & Company, including business strategy planning, new business development and execution, and operational improvement. After working at Marubeni Corporation, where she was involved in business investment in Central America, Asia, and the Middle East, she held positions such as Head of the President's Office and Executive Officer at startups. She is currently based in the UK, providing various consulting services and supporting business startups.
