Recommendations for Transitioning Japan’s Chemical Industry to Sustainable Business Models

Introduction

Japan’s chemical industry is the country’s second-largest source of industrial greenhouse gas (GHG) emissions after steel. Emissions are difficult to curb because many chemical processes require high temperature and many chemical products contain carbon, which becomes a GHG if incinerated at end-of-life. Moreover, efforts to reduce GHGs must avoid shifting burdens onto other environmental challenges—such as plastic pollution and biodiversity loss—necessitating science-based pathways.

This recommendation integrates insights from a peer-reviewed quantitative study outlining net zero pathways for basic chemicals and knowledge of the Japanese chemical industry. It uses these insights to propose strategies and actions toward net zero, with particular emphasis on corporate decision-makers. The recommendations are broadly applicable to other regions facing similar constraints.

Key Recommendations

  1. Secure early access to critical resources. Biomass, recycled materials, and carbon capture and storage (CCS) capacity will be essential for net zero. As seen in the electric vehicle supply chain—where upstream access to lithium and cobalt determines competitiveness—a comparable resource race may emerge in chemicals.
  2. Build new supplier and customer ecosystems. Beyond traditional petroleum suppliers, partnerships will be needed to secure new resources such as biomass. Although the cost of basic chemicals may increase two- to threefold, downstream supply chains are long, so the cost impact on final consumer products is only about 1%. Accordingly, effective engagement with end-market actors (e.g. brand owners)—rather than direct customers—will be crucial for cultivating green markets.
  3. Industry reorganization to enable long-term investment. Achieving net zero will require substantial and sustained investment in new partnerships and technologies. But the scale of investment that a company can make is constrained by its financial capacity. This makes industry consolidation and reorganization a likely prerequisite for timely decision-making and investment at a scale that exceeds the critical mass. Strong leadership from chemical companies is essential.
  4. Coordinated action between government and industry. Policy support—standards for low-GHG products, regulatory frameworks, public procurement, and capital/operational subsidies—must be developed in close coordination with industry. As countries compete to establish new low-carbon industries amid the global “chicken-and-egg” problem of high costs and low demand,
    Japan cannot afford to repeat past delays seen during the market expansion in the electronics sector.
  5. Sustainability as a new growth engine. With domestic demand shrinking due to population decline and major client industries, such as automotives and electronics, shifting value creation from hardware to software, opportunities for value addition through material performance alone are limited. The future competitiveness of Japan’s chemical industry will depend on its ability to generate environmental value through GHG reduction, recycling, and prevention of plastic
    pollution.

Acknowledgement


This research was funded by Mitsubishi Chemical Corporation and conducted in collaboration with Systemiq.

The full report can be downloaded below.

Recommendation for Society(PDF)