Incentives boost green steel in Japan

The Australasian Centre for Corporate Responsibility​ (ACCR)  is commenting on the Japanese government’s announcement last week that it is introducing generous tax breaks for companies producing green steel.

The new preferential tax system will particularly benefit steel makers converting from blast furnaces, which use metallurgical coal, to electric arc furnaces. The details include:

• companies producing green steel can claim a tax deduction of 20,000 yen (AUD$209.27) per tonne of production and sales, capped at 40% of corporate tax liability
• the deduction rate for green steel is up to 75% for the first eight years, 50% in the ninth year, and 25% in the tenth year
• to qualify for these tax incentives, companies must meet specific criteria including wage increases and capital investment, with the incentive period lasting 10 years from the plan's approval.

Commenting on the news, Executive Director of the Australasian Centre for Corporate Responsibility, Brynn O’Brien, said:

“This is a clear signal from the Japanese government that it sees enormous economic opportunity in being a frontrunner in the energy transition.

“These policy levers put Japanese steel makers in a strong position to accelerate their decarbonisation and meet the escalating global demand for green steel.

“This is an immense opportunity for the Japanese steel sector, and by extension, its investors. There is no doubt, investors will be looking to ensure these opportunities are maximised.

“With many blast furnaces nearing the end of their operating life, incentives which support the transition to electric arc furnaces are timely. The Japanese government clearly sees the opportunity for accelerating the transition of a nation-critical industry.

“Technological advancements mean steel is well on the way to getting rid of its coal problem - taking the additional step of dropping remaining tax exemptions for steelmaking using metallurgical coal would be another positive move for Japan to further incentivise emissions reductions in the steel sector.

“Significant investment in Japan’s renewable energy capacity is essential to support these green initiatives. We will be watching closely to see how the Japanese government plans to enhance its renewable energy infrastructure to meet these new industrial demands in its upcoming 7th Strategic Energy Plan.”