[Grandpa Saw It!] Part 2: The 1st Follow-up Meeting of the Study Group on Green Steel for GX Promotion!

I am Grandpa, supporting Generation Z and the future generation!

I am thinking about Japan's future strategy based on the "1st Follow-up Meeting of the Study Group on Green Steel for GX Promotion."

This is the second part. Part 1 will help you connect the dots.

4️⃣ The Importance of the Mass Balance Approach

You might have wondered, "What on earth is that?" when you heard the title "Mass Balance Approach."

To produce green steel that has effectively zero CO2 emissions, a long-term roadmap leading up to 2050 is necessary, and it cannot be solved immediately.

However, on the other hand, for Japanese steel to survive while clearing the jargon-filled regulations that the EU has been steadily preparing legislative measures for in international trade, a transition strategy within the framework of international rule-making is crucial.

Within that transition strategy, the Japan Iron and Steel Federation has been calling for the formation of rules and international standardization for green steel applying the mass balance approach.

In short, among the steel products manufactured at the entire steelworks, a method of allocating the results of emission reduction efforts to, for example, steel products used in automobile manufacturing, and certifying (guaranteeing) them as zero-carbon steel is called the mass balance approach.

If each company were to perform this allocation of zero-carbon steel using its own disparate rules, there would be a risk of it being seen as greenwashing, and it would not lead to a correct valuation.

Therefore, the Japan Iron and Steel Federation is trying to standardize the rules for the mass balance approach, formulate guidelines for green steel that apply them, and lead international standardization.

These guidelines are compliant with ISO standards and are designed to ensure reliability through reduction certificates and third-party certification. I want the government to assert this at international conferences instead of leaving such important international standard matters to the Iron and Steel Federation.

Because politics cannot provide this kind of covering fire, even the automotive industry, which is a backbone industry, is gasping for air.

5️⃣ Current International Trends

In the materials prepared by the administrative bureaucrats, what is recognized as international rule-making is EU rules.

In the international community, Japanese politicians praise themselves and have the media report as if Japan is demonstrating initiative at international conferences, but it is truly pathetic. The only cabinet minister who would go as far as visiting overseas NGO booths at COP was Shinjiro Koizumi when he was Minister of the Environment.

There was an instance where former Prime Minister Abe was told by former German Chancellor Merkel at a G7 meeting, "Please teach me how you communicate so well with President Trump," but the basic approach of the Japanese government, which is bad at making allies, is a follower strategy.

When it comes to green steel, it is an EU follower strategy.

The EU does not proceed by patching things up while reading the polls for the next election after a problem occurs, like Japanese politics, but rather proceeds by drawing a grand design, clarifying milestones, and demanding information disclosure from companies, as shown below.

To introduce some of the EU's policy packages filled with acronyms, the following laws, policies, and guidelines are being prepared that are also relevant to green steel.

1) EU Competitiveness Compass (January 2025)
A new policy framework for the EU's economic and regulatory agenda over the next five years. The main goal is to return to being a global leader in innovation, clean products, and service sectors by enhancing competitiveness, innovation, and resilience. It is currently being adjusted following the birth of the Trump administration.

2) EU-ETS (EU Emissions Trading System)

3) CBAM (Carbon Border Adjustment Mechanism)
The objectives of this are as follows:
• Prevention of carbon leakage: To prevent companies from relocating production bases to countries with lax regulations due to strict carbon regulations within the EU <ensuring products from lax countries pay a corresponding tariff>
• Ensuring a level playing field: To equalize competitive conditions between industries within and outside the EU
• Ensuring the effectiveness of EU climate policy: To contribute to achieving the EU's climate neutrality goals
• Promoting decarbonization in third countries: To encourage non-EU governments to introduce environmentally friendly policies and incentivize producers in non-EU countries to reduce emissions

4) CSRD (Corporate Sustainability Reporting Directive)
CSRD (Corporate Sustainability Reporting Directive) is a new non-financial reporting framework introduced by the EU. As part of the European Green Deal, it elevates corporate sustainability obligations and evaluations to the same level as financial statements. However, this reporting obligation is considered to be a heavy burden for steel manufacturers.
However, this is also slowing down as we watch developments following the birth of the Trump administration.

5) ESPR (Ecodesign for Sustainable Products Regulation)

6) CRM (EU Critical Raw Materials Act): 34 types designated.

7) EU Waste Shipment Regulation (Effective: May 20, 2024)

8) EU Proposal for a Regulation on End-of-Life Vehicles

The announcement of Trump tariffs is so extreme and has such a major impact on the world that it is attracting attention and being reported by the media, but apart from environmental experts, these EU tariff and non-tariff barriers have never been reported by the Japanese media (old media) until now.

6️⃣ Isn't the government's pace too slow?

The Japan Iron and Steel Federation, an association of private companies, even went to COP29 and advocated for the rule-making of the mass balance method as a transition measure for green steel, and carried out various activities.

• Consideration of Carbon Footprint (CFP) guidelines for steel products
• Consideration of the handling of non-fossil certificates in CFP calculation for steel products
• Reflection of the allocation method in green steel guidelines
• Cooperation with overseas organizations regarding the spread of green steel (including allocation methods, etc.) such as worldsteel • Exchange of opinions with overseas steel industry associations

In contrast, isn't the government's future policy far too slow?
• Promotion of further awareness-raising activities (for green steel)
• Outreach to overseas stakeholders regarding the allocation method, etc., and efforts to reflect it in GHG calculation rules
• Organizing rules and operational methods to avoid double counting of reduction achievements and ensure transparency regarding reduction projects
• Organizing methods for providing information to purchasers of GX steel materials
• Consideration of measures for the next fiscal year and beyond toward the market expansion of green steel

The reason we managed to get by even with 30 years of no growth was because the core industry of the automotive sector was solid (*support through consumption tax refunds for exporting companies was also effective), and there was a steel industry that could provide steel materials domestically.

*The amount of consumption tax refunded to exporting companies is not disclosed by either the government or companies, but it has resulted in a significant amount being returned to the automotive industry. The Trump administration intends to have the protected Japanese automotive industry pay it back all at once through Trump tariffs.

However, due to ruling party politics that only cares about elections, this core industry is facing a crisis. It was a meeting document that made me feel that strongly.

Reference materials URLs are also pasted in the underlined sections.

Oh, I can't wait for the House of Councillors election!

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