In the 21st Century, the environmental problem can be business opportunities.
Climate neutrality in 2050 is a common goal of Japan and the EU. It is becoming a reality, as the cost of solar power and batteries has decreased by more than 80 per cent in the last decade and the cost of renewable energy generation is being below that of fossil fuels.
To make renewable energy the main source of power in the future, we need to develop ICT technology, not only for batteries and motors but also for real-time controlling transmission and distribution of networked power grids. In other words, green and digital are closely related.
Linkage between industrial strategy, trade and partnership approach
In March 2020, the European Commission adopted a new industrial strategy with a new circular economy action plan to realise the European Green Deal. It is related to a new assertive trade policy and new forms of public-private partnership.
First, “twin ecological and digital transitions will take place in a time of moving geopolitical plates which affect the nature of competition. The need for Europe to affirm its voice, uphold its values and fight for a level playing field is more important than ever. This is about Europe’s sovereignty”. “The EU must leverage the impact, the size and the integration of its single market to set global standards” to strengthen industrial and strategic autonomy, adapting to the geopolitical changes symbolised by the US-China conflicts.
Therefore, in February 2021, the European Commission presented Trade Policy Review – An Open, Sustainable and Assertive Trade Policy, which emphasises Open Strategic Autonomy. The new industrial strategy 2020 was updated in May 2021. The disruption of global supply chains, which was caused by COVID-19, hit European industries. The Commission recognised the need to strengthen the trade policy. This is exactly the problem that Japan is also facing. Japan is dependent on China for many of the Critical Raw Materials (CRMs: Rare Earth Elements, Lithium, Cobalt, Graphite and so on) that are essential for the transition to a green, digital, and circular economy. The EU and China are the two major centres for both renewables and Electric Vehicles. For Europe, it is an urgent issue to secure CRMs and establish effective and fair global standards of trade.
Second, “the Commission will systematically analyse the different ecosystems and assess the different risks and needs of the industry as it embarks on the twin transitions in a more competitive world”. The “Commission will work closely with an inclusive and open Industrial Forum consisting of representatives from industry, including SMEs, big companies, social partners, researchers, as well as Member States and EU institutions”.
Co-creating the transition pathways and Open Strategic Autonomy
In May 2021, the new industrial strategy was updated based on the lessons learned from the COVID-19 crisis.
First, the resilience of the single market would be strengthened, monitoring 14 industrial ecosystems to ensure the free movement of goods, services and people even in times of crisis.
Second, it identified 137 products in sensitive ecosystems for which the EU is highly dependent on foreign suppliers. Most of these products are raw materials, active pharmaceutical ingredients, and other products relevant to support the green and digital transformation. More than half of them is dependent on China, followed by Vietnam and Brazil. The European Commission, emphasising “agile forms of public-private partnership”, ” will continue to support Member States’ efforts to pool public resources via Important Projects of Common European Interest (IPCEIs) in areas where the market alone cannot deliver breakthrough innovation”. Industrial alliances have already started in strategic areas – raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors and cloud and edge technologies.
Third, the European Commission pointed out a policy to “co-create, in partnership with industry, public authorities, social partners and other stakeholders, transition pathways for ecosystems”.
As mentioned above, the new industrial strategy of the EU is linked to its trade strategy and industry-government-academia collaboration.
The Japan-EU Green Alliance for effective and fair rules
Japan has signed EPA (Economic Partnership Agreement) and SPA (Strategic Partnership Agreement) between the EU. EPA includes cooperation in setting rules in areas such as intellectual property and regulation. Cooperation in energy and environmental policy is one of the most important issues in SPA.
In May 2021, Japan and the EU agreed on Green Alliance. Priority areas of cooperation include energy transition, environmental protection, regulatory and business cooperation, research and development, sustainable finance, and international cooperation, including support for climate-neutral policies in third countries and the development of global standards.
The EU’s efforts to build transition pathways will provide new business opportunities for Japanese companies. For example, clean hydrogen brings about businesses that convert energy forms such as electricity, gas, ammonia, and methanol, because it is a key element of sector coupling between renewable energy and various industries.
Japan has external vulnerabilities such as dependence on China for many of CRMs. The EU aims at the formation of effective and fair global standards by Open Strategic Autonomy and an innovation based on industry-government-academia collaboration in the new business areas of green, digital, and circular economy. Multifaceted dialogue and cooperation with the EU will facilitate the transition in Japan and improve the position of Japan in world trade.
Finally, to make effective and fair rules in the new business areas of green, digital, and circular economy, the cooperation between Japan and the EU is crucial in Open Strategic Autonomy.