Back to InsightsAnalysis
August 5, 2026
Japan can reach net zero more cheaply with mature renewables than with unproven innovative thermal
New modelling finds a renewable-led transition reaches net zero at 7% lower cost, with stronger economic returns and far less emissions risk than betting on unproven abated thermal.
Summary
Japan is one of a growing number of countries that have legislation in place committing to net zero greenhouse gas emissions by 2050. Innovative thermal technologies are a central pillar of its power sector decarbonisation, expected to supply 30 to 40% of generation by 2050. This raises two concerns. First, if abated thermal technologies fail to scale as anticipated, Japan risks locking in assets that must then run unabated, exposing the system to significant emissions overshoot. Second, continued reliance on imported fuels raises persistent questions about affordability and energy independence, worries that recent global supply disruptions have only sharpened.
New modelling by TransitionZero and ClientEarth finds that a renewable-led net-zero power system, with renewables supplying 68% of generation by 2050, can reach net zero at 7% lower total system cost than the current roadmap. It also cuts an emissions-overshoot risk that could otherwise reach 25% of Japan's cumulative budget, should abated thermal technologies and carbon policy fail to scale. The renewable-led path delivers stronger economic returns for every dollar invested and more than halves import exposure, offering far greater resilience against the kind of gas price shock Japan endured after Russia's invasion of Ukraine in 2022.
Realising it, however, demands a step change in caapacity deployment: around 48% more renewables, 66% more storage, and 49% more interconnection than the current roadmap. The economics stack up: the additional capital more than pays for itself through lower import bills for coal, LNG, hydrogen, and ammonia, and avoided CO2 shipping costs. But delivery hinges on streamlined permitting, stronger grid regulation, and investment frameworks capable of unlocking deployment at scale.
Japan’s net zero bet on innovative thermal
Japan's 7th Strategic Energy Plan (SEP7), published in February 2025, sets a 2040 generation mix of 40 to 50% renewables, 20% nuclear, and 30 to 40% thermal. OCCTO's subsequent Future Demand and Supply Scenarios study, published in July 2025, translates this into more specific projections: in its 1,250 TWh highest-demand case, renewables reach 46%, thermal 34%, and nuclear 20% by 2040. By 2050, renewables hold at 46% while thermal could climb to 42% if nuclear slips back to 12%.
Japan's route to net zero therefore rests heavily on decarbonising its thermal fleet through abatement rather than phase-out. Current policy is, in effect, betting that it can retrofit existing coal and gas plants for CCS or for hydrogen and ammonia co-firing.
This raises serious questions about deliverability. Neither full ammonia nor hydrogen mono-firing has been demonstrated at commercial scale, and no real-world CCS project has consistently achieved capture rates above 80% at the point of combustion. Account for transport and storage leakage, and true sequestration rates could be lower still. Japan's domestic storage capacity is limited and heavily contested across non-power sectors; international storage is a viable alternative but remains costly and difficult to secure.
Modelling an alternative transition for Japan’s power system
Building on these concerns, TransitionZero and ClientEarth set out to quantify the emissions risks embedded in Japan's current net-zero roadmap for the power sector, stress-testing key assumptions about abated thermal performance and carbon policy delivery. The study then asks whether an alternative, lower-risk trajectory to net zero is achievable.
It builds on two earlier research streams: an investigation of renewable curtailment in high-renewable Japanese power systems and an assessment of hydrogen and ammonia delivery costs to Japan. The study employs a capacity expansion optimisation model to identify how the power system would evolve from today's grid through strategically sequenced investment pathways from 2025 to 2050, subject to constraints including net-zero emissions targets, government-announced generation-share targets, and technology cost assumptions.
Scenario 1: Policy Net Zero
A scenario closely representing Japan's current net-zero roadmap, in which the power system evolves in line with generation-share targets and the abated thermal performance assumed in current policy.
Scenario 2: Policy Derailment
A scenario that locks in the capacity mix of Policy Net Zero, but in which abated thermal technologies fail to scale as promised, and carbon policy stays too weak to shift the merit order towards abated generation. Abated plant then runs in unabated mode to meet demand, and unabated dispatch goes undiscouraged.
Scenario 3: Alternative Clean
A least-cost pathway to net zero, unconstrained by policy-implied generation-mix targets and free to expand interconnection. It keeps the same conservative assumptions on abated thermal performance as Policy Derailment, tracing a different route to decarbonisation..
Model set-up
This study uses a 9-node capacity expansion optimisation model of Japan's power system from 2023 to 2050, co-optimising investment and dispatch to find the least-cost mix of generation, storage, and transmission that meets demand in every modelled period.
Renewable potential ceilings, build-rate caps, and cost assumptions are held constant across all three scenarios, so that differences in the capacity mix come from each scenario's own constraints, not from the underlying resource limits.
For full details on the input data and assumptions, please visit the annex section in the report.
Japan can achieve net zero with lower cost
According to our modelling, Alternative Clean reaches net zero at a discounted total system cost of US$1,493 billion over the 2023 to 2050 horizon, 7% (US$119 billion) below Policy Net Zero's US$1,612 billion.
A closer look at the cost drivers shows Alternative Clean spending a net US$39 billion more on fixed costs (capital plus fixed operating and maintenance). This reflects roughly US$95 billion of extra investment in renewables, storage, and interconnection, partly offset by lower capital spending on innovative thermal assets.
That said, the main savings come from variable operating and fuel costs, around US$155 billion, driven by avoided imports of fossil commodities and of expensive hydrogen and ammonia, and by avoided costs of sequestering captured carbon at home and abroad.
Renewables create more value for the economy
However, total system cost savings are only part of the story. A renewable-heavy transition also returns more to Japan's economy for every dollar invested.
Batini et al. (2021), an IMF working paper, drew on historical IEA data linking GDP performance to energy-asset capital investment across several countries, including Japan. It found, with over 90% probability, that renewable capital investment generates a GDP return of 1.1 to 1.5x per dollar spent, against 0.5 to 0.6x for equivalent fossil fuel investment.
Applying those multipliers to our modelled capital expenditure is revealing. By 2050, Policy Net Zero requires about US$470 billion of cumulative capital but generates an estimated US$435 billion in implied GDP contribution, a net loss of US$35 billion that crowds out more productive investment.
Alternative Clean requires US$736 billion but generates US$871 billion, a net gain of US$135 billion, despite needing 57% more capital. The gap reflects the stronger per-dollar multiplier of renewable over thermal investment.
Renewables offer Japan insulation from external shocks
A renewable-led transition also offers far greater protection against gas price shocks of the kind Japan faced after Russia's invasion of Ukraine in 2022. That matters for an economy so dependent on imported fossil fuels, and thus so exposed to international price volatility.
Under Policy Net Zero, LNG consumption stays broadly flat to 2050 despite near- and medium-term dips. Under Alternative Clean, import volumes fall steadily as renewables scale, dropping 66% to around 13 million tonnes by 2050. Both scenarios show a large fall in LNG import spending by 2050, though this partly reflects our baseline gas price of around US$9/MMBtu from 2030, based on IEEJ projections.
To gauge the upside price risk, we apply 2022 LNG spot prices of US$16.86/MMBtu (US$18.55 in 2024 dollars) to our modelled 2050 import volumes as an indicative stress test. We use 2022 because it is a historically grounded, independently verifiable price during a major disruption, and it avoids any assumption about how long such conditions might last.
Under that stressed price, Alternative Clean cuts Japan's 2050 LNG import exposure by around US$44 billion, or 65%, relative to Policy Net Zero. This is the energy-independence dividend of scaling domestic renewables: insulation through self-sufficiency rather than through fuel switching.
Japan risks 25% more emissions if its net-zero policy derails
If Japan's power system evolves as current net-zero policy envisions, with the capacity mix locked in from Policy Net Zero, a derailment of abated thermal technologies and carbon policy could expose the system to around 25% more cumulative emissions. Total system emissions would rise from 5,882 MtCO₂ in Policy Net Zero to 7,330 MtCO₂ under Policy Derailment, and Japan would miss its net-zero target.
Two factors drive the leakage. First, co-firing fails to reach a higher clean-fuel share and CCS underperforms on capture; combined with the loss of access to international CO2 storage, emissions that would otherwise have been avoided or sequestered are released instead. Second, unabated thermal is dispatched ahead of abated thermal, because carbon prices never rise beyond IEEJ high-allowance levels to those a net-zero system would require to reward the switch.
Capacity build pace is the real bottleneck
The renewable-led transition carries its own trade-off. Its build-out is far more demanding, adding pressure on manufacturing capacity, policy frameworks, and grid regulation.
That extra US$39 billion in capital and fixed operating and maintenance costs translates into 128 GW more renewables, 36 GW more storage, and 45 GW more interconnection, partly offset by 26 GW of displaced thermal, for a net addition of 183 GW, or roughly 35% more than Policy Net Zero by 2050.
In particular, transmission bottlenecks could prove a significant barrier in the Alternative Clean scenario. Some of the highest renewable potentials in Japan are concentrated in the north (particularly Hokkaido for onshore and offshore wind) and south (notably Kyushu for solar). Therefore, planning and regulatory frameworks need to facilitate the transfer of excess renewable potential in high-supply, low-demand areas to the demand centres (e.g. Tokyo, Chubu, and Kansai).
Looking ahead
How Japan could realise net-zero by 2050
Our study points to three insights for decarbonising Japan's power system:
- A renewable-led transition is cheaper, delivers a higher return for the domestic economy, and offers far greater protection against volatile international fossil fuel markets.
- If thermal abatement falls short of policy expectations and carbon policy fails to materialise, Japan risks adding 25% to cumulative emissions and undermining its net-zero target.
- But a renewable-led transition demands a far more ambitious build-out, straining manufacturing, policy frameworks, and grid regulation; a thermal-heavy pathway would face less of that pressure.
Whichever path Japan takes, reaching carbon neutrality by 2050 requires a build-out of generation, storage, and grid infrastructure without historical precedent. The most pressing priority is serious policy commitment: streamlined permitting, stronger grid regulation, and investment frameworks able to unlock deployment at scale.
Better modelling of decarbonisation pathways
These findings are sensitive to assumptions on commodity prices, technology costs, generation-share targets, renewable build pace, and renewable profiles, among others. On cost, uncertainty in capital expenditure projections, particularly for less mature technologies, could widen or narrow the savings. On emissions, the risk gap between Policy Net Zero and Policy Derailment turns on the assumed performance differential of abated thermal, which is inherently hard to predict. A formal sensitivity analysis could map the full range of outcomes, but sits beyond this study's scope.
Explore the report and build your own scenario
The pathways modelled here and in the report reflect our view of what is plausible for Japan's power sector. Different assumptions on generation-share targets, technology cost trajectories, or transmission expansion among others could shift the results materially.
Access Scenario Builder today and explore alternative pathways yourself.
This blog is part of a series based on research by Dan Welsby, Joel Yap and Alex Luta for ClientEarth.
