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Editorial: Japanese companies must heed risks of not decarbonizing

Decarbonization and digitization have become major trends of the world economy. Will Japanese companies be able to handle this tide?

    Waves of electrification are rolling up against the automobile industry. But in Japan, electric vehicles (EV) have yet to spread widely.

    In April of 2021, the operation of fast chargers for electric vehicles at six roadside stations in the Wakayama Prefecture city of Tanabe in western Japan were halted, because there were not enough users to cover even the maintenance costs of the equipment. According to map company Zenrin Co. Ltd., the number of chargers across Japan at the end of fiscal 2020 dipped below that of the previous year for the first time.

    Just a decade ago, Japan had been at the cutting edge of electrification. Mitsubishi Motors Corp. and Nissan Motor Corp. were mass-producing electric vehicles ahead of the rest of the world, with the Japanese EV market taking up 30% of the world's EV market. Now, Japan is way behind China and the United States, comprising less than 1% of the world's EV market.

    Japan's auto industry settled for the EVs' state of affairs and let an opportunity to capture a major change in the market slip through its fingers even though it originally had a lead in the technology. But the way this unfolded is not limited to the issue of EVs.

    In the 1970s, when the oil crisis and pollution were serious problems, Japanese companies enhanced their environmental technology, and improved their international competitiveness in electric appliances and cars. A government-led initiative to develop solar cells blossomed at the end of the 20th century, and at one point, Japan led the world in manufacturing and installing solar cells.

    But when government support shrank out of consideration for the power industry, which was cautious toward expanded applications of renewable energy, Japan's solar cell industry immediately lost momentum. Today, the world market is dominated by Chinese companies. It was a gaffe made by the Japanese government and companies that couldn't get away from the fixed idea that "renewable energy plays second fiddle" to other sources of energy.

    In the digital field, Taiwanese and South Korean companies beat Japanese companies to the punch while the latter were having second thoughts about making large investments in semiconductors. Though Japan had a leg up with the i-Mode mobile internet service during the regular cell phone days, it lagged behind in smartphones, and lost its competitive edge in communication infrastructure.

    Management executives who clung on to their successes with television and cell phones and failed to envisage a new future that digitization could make possible bear a heavy responsibility. The electronics industry, which failed to invest in technology and human resources, lost its competitiveness, shaking even its employment foundations. This mistake must not be repeated.

    For the auto industry, which has become Japan's only breadwinner, decarbonization and digitization are truly like the "black ships" that came, led by U.S. Navy Commodore Matthew Perry at the end of the Edo period (1603-1867), to open Japan up to the rest of the world.

    Toyota Motor Corp., which had been hung up on hybrid cars, has shifted gears, announcing its plan to sell 3.5 million electric vehicles in 2030. That's a 1.5 million increase from its original plan, and is the equivalent of a mid-sized auto manufacturer switching to manufacturing only electric vehicles.

    Sony Corp. is also deliberating entering the EV business. Digitization has made the crossover easier, and it appears as though companies that had until now been protected by being a group company of a major auto company will be subject to fierce competition from companies from other industries.

    New technologies and services such as self-driving and car-sharing are closing in on auto companies to make changes to their business models. This is because there is a chance that the main battleground of the industry could shift from car manufacturing to the creation of services that are tied to moving from one place to the next.

    As the industrial world faces powerful waves, what is being sought from the Japanese government is the power to look into the future. The quality of the government's policies in steering companies through restrictions and incentives will be put to the test.

    We can lose no time in adopting carbon pricing, through which the burden of emitting greenhouse gasses is sought from companies and consumers, with the hope that that will change their behavior.

    "Exhaustive debate has been carried out, and now it's a matter of making a decision," says Kyoto University professor Toru Morotomi, who is well versed in decarbonization. "An arrangement that promotes a shift in corporate technological innovation and business structure is what we need."

    Discussion on the reinforcement of a carbon-emissions tax due to the restructuring of the energy tax system and on emission quota transactions should be accelerated. Allotting tax revenue to corporate research and development aimed for emissions reductions will lead to the rejuvenation of investments.

    In the process of changing the industrial structure, there are predicted to be companies that go out of business and people who lose their jobs. In order for people who lost their employment to gain the knowledge and technology they must have to start over, there is an urgent need to rebuild the social security system and employment policy.

    Standing paralyzed as changes unfold before us will not help us survive the decarbonization era. It will also be difficult to gain back our presence in the digital society.

    It is symbolic that U.S. IT giant Apple Inc. topped a market value of $3 trillion (approx. 3.4 trillion yen), the equivalent of nearly half of the First Section of the Tokyo Stock Exchange. The company is praised for its power to create a new tide -- providing services that apply digital technology and their products themselves.

    Companies' raison d'etre should lie in creating a positive economic cycle by boosting revenue to solve society's problems and generating employment, leading to more investment.

    As we think about how the future should look, we are being tested on our preparedness to make massive changes.

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