Power line

Japan will need to attract foreign investors if it is to finance its transition to zero carbon emissions by 2050, but that will be difficult while it walks an ambiguous line on nuclear power.

Public opinion turned firmly against nuclear power following the Fukushima disaster in 2011, and many operations were wound down. There are now only seven plants operating in the whole country.

Opinion has changed somewhat since Russia invaded Ukraine, highlighting the need for energy security and sending fuel prices soaring. Last year, Japan bought about 9% of its LNG from Russia, so it has had to think of alternative energy supplies, even without considering environmental matters.

Nuclear energy certainly isn’t renewable, but the generation process emits even less carbon than those for solar and hydro energy, and elements of nuclear waste can be recycled. It’s the radioactive part that can’t be recycled that is the sticking point, however.

Japan estimates nuclear power plants will need to produce at least a fifth of the country’s power if it is to meet targets under the Paris Accord, up from about 8% currently. That implies that it will need to build more plants, and in recent months Prime Minister Kishida has hinted at plans to do so.

The European Union treats nuclear energy similar to natural gas in its soon-to-be-implemented green taxonomy – tolerable on the road to carbon neutrality, but undesirable in the long term.

It’s unclear even to those within Japan whether the country plans to use nuclear power as a stopgap while building up renewable energy capacity, or whether it is going to be a permanent part of the energy mix.

That means European asset managers, the biggest buyer base for ESG paper, might be reluctant to commit to Japan’s planned sovereign transition bonds until they know whether nuclear power is just a passing phase.