Faced with the climate crisis, Japan is betting on its biggest strength — technology. The country is the first in the world to issue sovereign bonds aimed at funneling private money into the green transition.

Japan is selling climate bonds — last week saw the government auction off 800 billion yen ($5.33 billion, €4.95 billion) in 10-year bonds, with the next tranche planned for later this month. And that is only the beginning. The authorities hope to sell sovereign bonds worth 20 trillion yen in total to fund the country's green transition, which is often referred to in Japan as GX.

The Asian country is the first and so far the only country in the world to offer sovereign bonds for funding the reforms targeted toward tackling climate change. These government-issued debt securities are being sold to private investors. The investors are entitled to periodic interest payments and the full nominal value of the bond several years from now. 

In this way, the government can funnel private money into its climate goals without breaking its budget.

Some of the funds are set for projects such as low-cost wind power generators, carbon recycling technology and aircraft that utilize alternative fuels. A primary focus, however, will be the development of state-of-the-art batteries and microchips, designed to reduce emissions over the long term.

Ahead of the first sale, the chairman of the Japan Securities Dealers Association, Toshio Morita, emphasized that Japan lacks natural resources and is therefore vulnerable to energy shocks — but "exhibits technological strengths."

"The Green Transformation, which aims to shift the foundations of society and industry from one centered around fossil fuels to one based on clean energy, is a core initiative to transform industrial and energy policies and strengthen corporate and national competitiveness," he said.

Expectations too high?

The bonds are a key element of Prime Minister Fumio Kishida's plans to fund the transformation of Japanese industry and society. By the end of the decade, Japan hopes to cut its greenhouse gas emissions to less than half of what they were in 2013. By 2050, the country hopes to achieve zero emissions. An estimated 150 trillion yen in public and private GX-related investments are required over the next decade if Japan is to meet its declared targets.

The response to the climate bonds from the finance sector has been broadly positive.

Japan's Dai-Ichi Life Insurance Co came out strongly in support of the bonds on the day they were launched, confirming that it was investing to "encourage the transition of Japanese society to a decarbonized growth economic structure."

Others, however, were more cautious, with an official of Nikko Asset Management Co telling DW that the company would not comment on the climate bonds because it was "still a new instrument and our various experts are still analyzing it before they can answer any questions."

And this wariness is not limited to just one company. The demand for the bonds during the last week's sale was slightly below expectations, although the climate bonds were still doing better than the standard debt securities issued by the Japanese government.

"I would say expectations prior to the auction were too high," Keisuke Tsuruta, a fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, told the Reuters news agency.

Among rural communities, Grants Pass, Oregon, has notched an unlikely win: a sustainability plan. But lack of dedicated staff and resources to secure federal grant funds threaten its success.

One of the most iconic landmarks in downtown Grants Pass, Oregon, is a 100-year-old sign that arcs over the main street with the phrase “It’s the Climate” scrawled across it. 

To an outsider, it’s an odd slogan in this rural region, where comments about the climate – or rather, climate change – can be met with apprehension. But for locals, it’s a nod to an era when the “climate” only referred to Grants Pass’ warm, dry summers and mild winters when snow coats the surrounding mountains but rarely touches down in the city streets. 

Now, the slogan takes on a different meaning.

In May 2023, the Grants Pass City Council passed a one-of-a-kind sustainability plan that, if implemented, would transition publicly owned buildings and vehicles to renewable energy, diversifying their power sources in case of natural disaster.

While passing the sustainability plan in this largely Republican county was an enormous feat on its own, actually paying for the energy projects proves to be Grants Pass’ biggest challenge yet. 

“There are grants out there, but I don’t think we’re the only community out there looking for grants to help pay for some of these things,” said J.C. Rowley, finance director for the city of Grants Pass. Some project examples outlined in their sustainability plan include installing electric vehicle charging stations downtown and solar panels at two city-owned landfills, and converting park streetlights to LED. 

Rural communities face bigger hurdles when accessing grant funding because they don’t have the staff or budget that cities often do to produce competitive grant applications. This can slow down the implementation of projects like the ones laid out in the Grants Pass sustainability plan.