The Japanese market for environmental products and services has been growing steadily since the introduction of stricter legislation in the late 1990s. The 3Rs (reduce, recycle, reuse) now form the basis of all environmental policies. The country’s commitments under the Kyoto Protocol and a high level of public awareness of environmental issues also contribute to the growth in this sector.

According to the Ministry of Environment, Japan’s market for environmental products and services, valued at $267 billion in 2000, will grow to $418 billion in 2010. Waste management, recycling and energy conservation account for about half the size of the market. The Japanese environment sector is expected to provide employment to 1.1 million people by 2010.

It is very difficult to obtain an estimate of Japanese imports in this sector since environmental equipment is often shipped before final assembly and therefore each component enters the country under a different industrial classification. Moreover, a common business practice involves technical licensing which value is not reflected in the trade statistics.

Sector Challenges

Japan seeks to address many of its environmental problems through technological advancement. As a result of considerable public and private investments, Japanese companies have developed cutting edge environmental technology. They dominate the local market in traditional areas like waste disposal, air quality controls, energy conservation and recycling. While a growing number of Japanese companies specialize in the environment sector, almost all large integrated companies with a base in various industries (import-export, steel, construction, heavy machinery, etc) have an environmental division or subsidiary. Thus the Japanese market for environmental products and services is very competitive.

However, the expected growth in this sector is such that opportunities exist for overseas companies to compete or partner with Japanese firms. This is especially true in niche applications where foreign companies may have more advanced or cost-effective technology. A number of American or European environmental firms are already active in the market. Japanese companies have also established a strong foothold in emerging Asian economies and there may be partnership opportunities in third-country projects.

Public sector end-users such as central and prefecture governments account for a large share of the market for environmental products and services in Japan. It is, however, very difficult for a foreign company to win a bid for public contracts and registering an equipment supplier or installer with the public sector can be costly and time consuming. Therefore, it may be wiser to license the technology or form a partnership with a registered Japanese manufacturer or trading company that can assist in obtaining approvals and ensuring compliance with Japanese standards and regulations. Although the Private Finance Initiative (PFI) movement has not yet taken a firm root in the Japanese environmental sector, this business model is expected to increase in popularity in the future.

It is strongly recommended that Canadian companies ensure the intellectual property rights for their technology are protected before entering the Japanese market.

Renewable / Alternative Energy

Japan is seeking alternative sources of energy to reduce its dependence on increasingly expensive Middle Eastern oil while achieving its environmental objectives. To that end, the government has introduced well-funded, multi-year programs to stimulate technological development and production of new energy.

According to the Ministry of Environment, the Japanese renewable/alternative energy market, including energy conservation and management, will be valued at $53.4 billion in 2010.

Japan is an ardent promoter of fuel cells and is likely to become the world’s first mass-market for this technology. According to Fuji-Keizai, the value of the Japanese fuel cell market, estimated at $64.8 million in 2006, will grow to $11.4 billion by 2020. In the next few years, commercial sales should take off in residential cogeneration as well as early market applications such as materials handling and back-up power. By fiscal year 2008, a total of 2,257 residential fuel cell cogeneration systems will be installed in Japan as part of a large-scale demonstration project.

It will take more time, however, to open the most lucrative fuel cell market segments: portable electronics and vehicles. Many Japanese companies in the automotive (Honda, Nissan, Toyota), electronic (Kyocera, Panasonic, Sanyo, Toshiba) and environmental (Ebara, Toto) industries are making strategic investments in this promising technology. Since the market is still in its infancy, partnership opportunities exist in all areas for innovative foreign companies.

Japan is the number one producer of photovoltaic cells/modules and second largest solar power generator in the world. Kyocera and Sharp are dominant players in this industry. The Yano Research Institute estimates that the value of the Japanese market for solar photovoltaic power systems will be $7 billion in 2008. Thin film solar cells is an area where high growth is expected.

In wind power, the strongest demand is forecasted for small size systems ($147 million in 2008) while the Japanese market for medium and large size systems will only grow marginally. Although Mitsubishi Heavy Industries and Subaru are local manufacturers of wind turbines, leading European firms such as Vestas and Emergya continue to have the biggest share of the market.

Japan recently set ambitious objectives for a greater utilization of biomass, particularly for energy generation. According to Fuji-Keizai, the Japanese market for biomass technologies will be valued at $1.6 billion in 2012. Strong demand is expected in cellulosic ethanol fermentation, biodiesel production, and biomass and methane gasification technologies.