In 2020, then Prime Minister Yoshihide Suga declared that Japan would attempt to realize carbon neutrality or net-zero greenhouse gas emissions by 2050. Towards the 26th Conference of Parties to the United Nations Framework Convention on Climate Change, or COP26, held in Glasgow, the United Kingdom, in 2021, Japan raised the GHG emission reduction goal for FY2030 to 46% from the earlier FY2013 goal of 26%.
Under a long-term strategy for the carbon neutrality goal, the Japanese government will try to increase electrified vehicles’ share of new car sales to 100% by 2035, taking comprehensive measures to promote the development of relevant infrastructure including charging facilities. However, electrified vehicles as conceived by the Japanese government include hybrid vehicles, deviating from foreign definitions. The government is pursuing a society where electric vehicles (EVs), plug-in hybrid vehicles (PHEVs) or fuel-cell vehicles (FCVs) will become the first choice for regional automobility.
The number of electrified vehicles sold in Japan in 2021 amounted to 46,380 including 21,139 EVs, 22,777 PHEVs and 2,464 FCVs, according to the Japan Automobile Dealers Association. Electrified vehicles accounted for only about 1% of total passenger car sales at 4.45 million units, indicating that electrified vehicles have yet to be widely adopted by society.
Meanwhile, electrification has made faster progress in major foreign automobile markets. In 2021, global EV sales increased sharply from 3.07 million units in 2020 to 6.6 million units, boosting the EV share of new vehicle sales from 4% to 9%, according to the International Energy Agency (IEA). China and Europe led the EV sales expansion. In 2021, EV sales totaled 3.35 million units in China, 2.29 million units in Europe and 0.67 million units in the United States. These three markets, which capture two-thirds of the global automobile market, accounted for about 96% of global EV sales.
Vehicle electrification has been promoted by government policies in foreign countries. In China, the market share of electrified vehicles, called new energy vehicles, increased from 13.4% in 2021 to 19.2% in the first quarter of 2022, according to the China Association of Automobile Manufacturers. The Chinese government’s goal of increasing the share of new energy vehicles within new vehicle sales to 20% by 2025 may be accomplished ahead of schedule. While the Chinese government plans to terminate subsidies for new energy vehicle purchases in 2022, large cities will continue to give priority to new energy vehicles in allocating number plates. As charging infrastructure development progresses in rural regions, sales are expected to expand for the low-price zone of a widening range of electrified vehicles in China.
The European Commission has decided to ban the sale of internal combustion engines in 2035 and has taken advantage of a generous subsidy system to expand the share of electrified vehicles in the EU automobile market to 19% in 2021. While the share of electrified vehicles in the U.S. automobile market is only 4.5%, the Biden administration has come up with a goal of raising the share of EVs in new vehicle sales to at least 50% by 2030. California has indicated an exclusive policy of banning the sale of internal combustion engine vehicles by 2035.
In Japan, ceilings on subsidies for electrified vehicle purchases were raised in March 2022. The ceiling for EVs came to 850,000 yen. Vehicle electrification in Japan, which has lagged behind other major countries, may accelerate. In this regard, I would like to point out two matters of concern.
The first matter is the impact of vehicle electrification on employment. Vehicle electrification means that the power train, which consists of the engine, the transmission which transmits power to the tires, the propeller shaft, the differential and the drive shaft, is replaced with only the motor, the battery and the control panel.
The table shows employment at companies manufacturing powertrains to be phased out, as estimated from the Census of Manufactures by the Ministry of Economy, Trade and Industry.
As employment by product is not available in the Census of Manufacturers, I prorated employment for “motor vehicles parts and accessories” (industrial classification number: 3113) according to product-by-product shares of shipments for internal combustion engines and parts, and driving/transmission/control system parts (product classification numbers: 311311-311315). In a similar manner, I prorated employment for “auxiliary equipment for internal combustion engines” (industrial classification number: 2922) according to product-by-product shares of shipments for automotive parts (production classification numbers: 292219 and 292221).
Employment as estimated in this way for powertrain manufacturing came to about 310,000 jobs, accounting for about 30% of automotive manufacturing-related employment and for 4% of total manufacturing employment. By prefecture, the share of powertrain manufacturing employment in all manufacturing employment stood as high as 13% in Aichi Prefecture, 9% in Mie Prefecture and 8% in Shizuoka Prefecture. The three prefectures captured 53% of power manufacturing employment, indicating the concentration of such employment in these prefectures.
Although the reduction of GHG emissions naturally has social significance, consideration should be given to the fair transition of workers affected by the implemented policy. In seriously affected regions, priority should be given to measures such as vocational training, outplacement support, assistance for companies’ business transformation and diversification, and attracting new companies.
When coalmines were closed to advance the energy transition in the decade after 1955, the government provided benefits, technical training and support for employment, launching systems that have led to the present wide-area employment placement services and relocation benefits provided by Hello Work public employment security offices. In implementing such support measures for the automotive industry, the government should consider that the number of workers to be affected directly by vehicle electrification could be more than the 200,000 workers displaced by the energy transition.
The second matter of concern is the electrification policy’s overemphasis on EVs.
The GHG emission reduction effect of vehicle electrification must be estimated under the well-to-wheel standard. According to IEA-published global averages, emissions during a 1-kilometer drive are reduced from 202 grams for internal combustion engine vehicles to 83 grams for EVs. Given that massive amounts of electricity are consumed for battery production, however, some analysts argue that the emission reduction effect of the transition to EVs may be limited in Japan, which has increased dependence on fossil-fired power generation since the 2011 Great East Japan Earthquake.
Primary energy transition from fossil fuels to renewable energy must be promoted to substantiate the contributions of vehicle electrification to cutting GHG emissions.
In particular, great hopes are placed on green hydrogen production using renewable energy. Hydrogen may be used to generate electricity for EVs and directly power FCVs. If a hydrogen methanation technology that can chemically synthesize gasoline is commercialized, supply chains for internal combustion engine vehicles and gas station infrastructure may continue to be used as they currently are. Powertrain manufacturing may be consolidated in highly productive companies beyond our borders between groups led by automobile assemblers, continuing in a manner similar to the current semiconductor industry.
Hydrogen infrastructure development could pave the way for various emission reduction measures in addition to EV promotion. However, high hydrogen costs are still a tough hurdle.
Green hydrogen productivity is highest in depopulated regions that are rich in wind, light, heat and other natural energy sources. If costs for producing hydrogen and transporting hydrogen for interim energy storage are reduced, natural resources that are currently untapped due to their long distances from energy consumption sites may be utilized. In this way, it is desirable for Japan to maximally utilize domestic natural resources and take into account overseas sources for natural resources, and construct international supply chains for green hydrogen at the earliest possible opportunity.
* Translated by RIETI.