Japan to lead captured CO2 trade in Asia Pacific by 2050

Japan is projected to become the lead trade hub for captured carbon (CO2) by 2050 in the Asia-Pacific (APAC) region, according to Wood Mackenzie.

With its greenhouse gas emissions accounting for approximately 7% of Eastern Asia's emissions and 2.5% of the global total, Japan's focus on addressing hard-to-abate emissions is crucial. With high share of industrial and energy emissions the relevance of Carbon Capture, Utilization, and Storage (CCUS) for Japan is clear.

Capture capacity in Japan is expected to reach 55 Mtpa by 2050 in the base case. With limited storage availability, Wood Mackenzie believes nearly 80% of the captured carbon would cross borders for sequestration. This brings Japan at the forefront of the cross-border carbon transport opportunity of the region.  

“The Japanese government is taking action. Japan stands ahead of most APAC countries in Wood Mackenzie’s policy effectiveness index, ,” said Hetal Gandhi, CCUS Lead, APAC at Wood Mackenzie during Japan CCUS Sumit 2024.

Source: Wood Mackenzie

“While Japan, Australia, and South Korea have above-average policy effectiveness in our index score, they significantly lag behind many North American and European countries, with limited monetary incentives and evolving policy frameworks,” Gandhi highlighted. “The relatively early stage of the carbon price markets along with over 80% of the carbon captured need to be transported for sequestration adds to the problem,” Gandhi added.”

The importance of monetary investment support cannot be overstated for the development of CCUS technology, which is estimated to have a global investment potential of USD$1 trillion by 2050, with capture investments accounting for over 60% of this total. In line with capture capacity addition estimates, the Asia-Pacific region would require a cumulative investment of USD 484 billion by 2050.

Wood Mackenzie's assessment indicates that APAC will require government support of USD 150 billion for its current forecast of capture capacities until 2050, considering the carbon forecast of its key markets. This would mean supporting 30% of the investments until 2050. For Japan, this would mean the government spending at least USD 10 billion to support the implementation of CCUS in its key hard-to-abate sectors until 2050, assuming carbon prices reach USD 69 per unit (*in real terms) by 2050 for the country in the base case.

Due to its low upstream share and higher carbon capture needs in sectors such as steel and power, Japan's CCUS cost is expected to be one of the highest among all APAC countries. Additionally, the lack of domestic storage sites will further increase costs, as cross-border transport of CO2 is currently at least 25% more expensive than domestic storage in Japan.

“Apart from government monetary support, establishing an ecosystem conducive to cross-border carbon trade and collaborating with key countries such as Indonesia, Malaysia, and Australia to establish guidelines for CO2 trade will be crucial areas to focus on in the near term,” Gandhi concluded.