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.
The central government may be trying to fend off claims of greenwashing, as it appears to be prioritizing emissions reduction over renewables, while the central government has kept its language vague.
Japan has lagged behind European nations on green bonds. The United States and Japan have not yet issued green bonds for developing electric cars and renewable energy sources, according to the Group of Seven nations.
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 considering transition bonds for funding key emissions-reduction priorities, such as switching from burning fossil fuels to hydrogen and ammonia, and supporting development of next-generation nuclear reactors to upgrade existing ones.
Officials haven't found any cases of green bonds being used to finance such projects abroad.
They will need to thread the needle carefully.
Private companies are issuing transition bonds to reduce carbon dioxide emissions. Critics claim that the move is nothing but greenwashing because projects covered by these bonds don't have to aim for zero greenhouse gas emissions.
If the government does issue transition bonds, it's going to have to reveal how the funds are being used and what the bonds are having to counter that criticism.
The envisaged transition bonds would differ from the construction and deficit bonds that 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 have learned that there is an increasing demand for bonds scrutinized by international organizations that would help move Japan towards becoming a decarbonized society.
The officials hope that the returns on the new bonds will be lower than other government bonds to reduce their fiscal burden.
The bonds in question would be long-term bonds 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.
Ottawa is also considering issuing transition bonds for developing nuclear energy technology, which is something officials plan to touch with the Canadian government.