Japan is considering issuing its first transition bonds as early as this fall to finance the country’s energy shift to greener power sources, according to government officials.
While the central government has kept its language on this vague, it may find itself trying to fend off claims of “greenwashing” as it appears to be prioritizing emissions reduction over renewables.
Japan has long lagged behind European nations on green bonds. Among the Group of Seven nations, only the United States and Japan have not yet issued green bonds for developing electric cars and renewable energy sources.
But Finance Ministry officials are focusing their attention on transition bonds, which are used to finance reducing emissions, over green bonds, which are used to raise money for environmental projects.
The government is mulling transition bonds for funding key emissions-reduction priorities such as switching thermal plants from burning fossil fuels to hydrogen and ammonia, and supporting development of next-generation nuclear reactors to upgrade existing ones.
Officials have not found any cases abroad of green bonds being used to finance those kinds of projects.
They will need to thread the needle carefully.
Private companies are already issuing transition bonds to gradually reduce carbon dioxide emissions. But because projects covered by these bonds do not have to aim for zero greenhouse gas emissions, critics charge the move is nothing but greenwashing.
If the government does issue transition bonds, it will have to disclose how the funds are being used and what effect the bonds are having to counter that criticism.
The envisaged transition bonds would differ from the construction and deficit bonds the government issues, and would be certified by international organizations to make the difference clear to investors.
Finance Ministry officials who have reached out to institutional investors learned that there is intense demand for bonds scrutinized by international organizations that would gradually help move Japan toward becoming a decarbonized society.
The officials hope that means they can set the returns on the new bonds at a lower level than other government bonds to reduce their fiscal burden.
The bonds in question would be long-term ones of either 10 years or 20 years. The government plans to issue 1.6 trillion yen ($12.3 billion) in fiscal 2023 and a total of 20 trillion yen over the next decade.
The bonds would be repaid through a carbon pricing program that would combine surcharges on fossil fuel imports with emissions trading among corporations, including electric power companies.
Officials plan to touch base with the Canadian government because Ottawa is also reportedly considering issuing transition bonds for developing nuclear energy technology.
Source : Asahi