Japan's heavyweight trading houses have been limbering up to join the decarbonization race, spurred on by growing worldwide momentum for stricter environmental regulations. Subterranean CO2 sequestration and the use of ammonia as fuel have emerged as promising steps toward reaching the government's proclaimed goalpost of carbon neutrality by 2050. But there are still many hurdles to clear before these alternatives will be developed into sustainably profitable substitutes for coal.
In March, Mitsui & Co. announced that it would acquire a little over a 15% share in Storegga Geotechnologies Ltd., a British firm which has been spearheading an ambitious project to reduce the U.K.'s carbon footprint by capturing and sequestering CO2 emissions in depleted gas and oil reservoirs.
Although underground CO2 storage poses a litany of challenges -- not least of all its high costs -- that will require hammering out, the technology has emerged as one promising means toward achieving the Japanese government's pledge to go carbon neutral by 2050.
"We don't yet know what will end up being the decisive solution," said Tatsuo Yasunaga, Mitsui's President and Chief Executive Officer. "We intend to explore many possibilities on the table."
Ammonia fuel, which emits only nitrogen and water when combusted, is another candidate that has been gaining steam as a viable CO2-free energy source.
Itochu Corp. has announced that it will work together with Ube Industries Ltd., the nation's largest ammonia producer, and other companies to supply ammonia as a marine fuel that could help slash greenhouse gas emissions in the shipping industry. Sumitomo Corp. has also been conducting joint feasibility studies into ammonia's use as a marine fuel in partnership with Denmark's Maersk and other international shipping firms, with an eye for establishing a bunkering system, in which small ships would supply ammonia fuel to large ships in ports.
In March, Mitsubishi Corp. announced that it would conduct a study on sequestering CO2 emitted in process of producing ammonia to bury under the soil in Indonesia. The project aims to provide ammonia as a clean fuel for power generation in about five years' time.
For many years, Japanese trading companies have made energy -- namely coal and natural gas -- a core business pillar. However, in response to the global trend toward decarbonization, many companies have begun scaling back their stakes in coal. For example, Sojitz Corp. has decided to reduce its coking coal interests to zero by 2050.
Even so, decarbonization is not expected to become profitable any time soon. Last August, Warren Buffet's Berkshire Hathaway acquired more than 5% stakes in each of five major Japanese general trading companies, including Marubeni Corp. With a predilection for natural gas and other conventional energy positions, Buffet is likely to intervene in trading company plays on decarbonization projects.
"Major general trading companies are being asked to sell off their businesses with high CO2 emissions, while still maintaining or even expanding their profit in new businesses, from decarbonization to low-carbon projects," said Masayuki Nagano, an analyst at Daiwa Securities Co.
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