PRINT THIS PAGE Japan’s cleantech industry offers high potential10/01/2007. Source: IVCJ. Liron Neugarten, Reut Harari
Japan has risen to the forefront of countries developing environmental technologies, says the IVCJ. In this article, Harel-Hertz Investment House’s Manager of Business Development, Liron Neugarten, and Market Research Specialist, Reut Harari, examine the moves being made in Japan toward growing the clean technology market. A national mission Japan, known to many as a mass consumer and mass production market, is a clear leader in the field of environment technology. According to the Ministry of Environment, Japan's environment market is forecast to grow about 60 percent between 2000 and 2010, from $267 billion to $422 billion. In 1997, the environment business comprised two percent of GNP, and it is expected to grow to 3.7 percent by the year 2010.
Environment technologies are a high priority of the Japanese government. The Japanese Ministry of Environment is fully dedicated to achieving Japan’s obligations under the Kyoto Protocol, which was signed by 163 countries including Israel. The government formulated the Kyoto Protocol Target Achievement Plan in April, 2006, under which targets have been established for each sector, such as industry, transportation, households and commerce; and over 60 concrete measures have been set forth with numerical reduction targets.
Policies and measures are based on two key points:
1. Every citizen and business should take part in combating global warming.
2. Low emission technologies such as clean energy vehicles, photovoltaic power generation and light-emitting diodes should be promoted.
The first point includes government initiated programs such as Cool Biz/Warm Biz, which recommends that work organizations allow employees to arrive in lighter (more casual) clothes in the summer and warmer clothes in the winter in order to cut down on the use of air conditioners/ heaters.
Most large Japanese corporations are active in both key points defined by the government. For example, Toyota Motor Corp., Japan’s largest carmaker, is developing new eco-friendly technologies such as hybrid vehicles. Three years ago Toyota was the first in the field of hybrid cars; and today the market is still largely dominated by Japanese car manufacturers. In addition, Toyota is setting good examples in the everyday activities of the company, such as by reducing electricity and by recycling – even automotive parts. The market for "eco-friendly" vehicles in Japan is estimated at $1.15 billion, with hybrid cars accounting for 80 percent of that market. This market includes electrical, natural gas, methanol, hybrid and fuel cell-operated automobiles. By 2020, it is estimated that the market will reach $30.53 billion. Fuel cell cars are expected to surpass the hybrid car market, achieving a 65 percent market share.
A Growing Market
The Japanese environmental business market can be divided into three different fields: 1) Environmental Pollution Prevention, 2) Environmental Load Reduction, and 3) Recycling. Pollution Prevention includes three main areas – equipment and manufacturing (30 percent), service providers (49 percent) and facilities and construction (21 percent). Environmental load reduction includes resource conservation technology (30 percent) and resource conserving products (70 percent). The field of energy technology is expected to grow the most in the coming years – by 33 percent. A large number of environment- related patents in Japan (second only to the US), confirms the growing strength of the nation’s environmental technology. This field is expected to receive further stimulation with the help of recently enacted environment-related legislation.
Key Sectors
Environmental regulations by the Japanese government have opened up new market segments.
1. Clean Energy
According to the Ministry of Environment, the market for green energy will grow from $8.09 billion in 2000 (about 3 percent of environment businesses) to $52.82 billion in 2010 (a 550 percent increase) and $79.96 billion by 2020 (a 900 percent increase). This segment includes solar power energy, fuel cells and wind power. According to the Alternative Energy Use Act enacted in April, 2004, new power companies and power generating companies have the responsibility to use minimum levels of alternative energy.
2. Solar Power Generation
In 2004, Japan produced 51.8 percent (618,000 kilowatts) of the world’s power generated from solar cells. With the vast residential market as its focal point, the photovoltaic power generation market has enormous room to expand. According to the Minister of Economy, Trade and Industry, the goal for the generation of solar energy is 5,000 megawatts by 2010.
3. Fuel Cells
Fuel cell technology in Japan has been used in hybrid low-pollution cars with low carbon dioxide emissions since 2002. This sector has vast potential and therefore, infrastructure and introduction of related laws are required. Initiatives aimed at technological development and expansion of this field are being undertaken by the Japanese government.
4. Waste treatment
The Japanese waste treatment market is already large, and is expected to grow further. According to the Ministry of Environment, the market for waste disposal is expected to grow from $33 billion in 2000 to $70 billion in 2010 and $101 billion by 2020. Technologies sensing and processing toxic waste are highly popular.
5. Recycling
Recycling laws have been introduced in Japan in several sectors – containers and packaging, food, construction material, furniture and automobiles. New recycling technologies are being developed, creating new market opportunities:
- Conversion of organic waste to methane gas
- Application technologies for sewage
- Treatment technology for radioactive waste
- Bio-degradable plastics
- Extraction of usable materials from garbage
6. Soil and Water
It is projected that soil and water pollution controls in Japan will become stricter, and will drive growth of the market from $776 million in 2000 to $5.3 billion in 2010 (a 580 percent increase). In March, 2005, the Ministry of Economy, Trade and Industry and the Ministry of Environment announced a policy regarding the use of bioremediation technologies that utilize microorganisms to break up contaminants.
7. Air Quality
There is a growing number of business opportunities related to air pollution prevention, due to the introduction of a law in 2000 requiring use of exhaust purifiers in major Japanese cities. Just recently, the Ministry of Environment announced the development of a new technology that can measure the constituent substances of the exhaust gas emitted by vehicles while they are operating in traffic.
Green funding
In 2001, the Japanese government announced its Science & Technology Basic Plan, in which the environment was deemed to be one of Japan’s eight key business sectors. The Japanese government is investing heavily in R&D and seeking to patent its results.
One of the most recognized R&D programs in the field of environment technology is conducted by the government-funded NEDO (New Energy and Industrial Technology Development Organization). NEDO’s fiscal year 2005 budget was approximately $1.3 billion. It is Japan’s largest public R&D management organization for promoting development of the environment, new energy and energy conservation technologies. Many leading Japanese VCs are allocating funds to environment technologies and some are in the process of raising green funds.
Socially responsible investment (SRI) funds, focusing on corporate social responsibility (CSR), are capturing investor attention in Japan. SRIs traditionally focus on areas such as the environment. The first Japanese SRIs were launched in 1999. They heavily emphasized environmental issues, and were therefore known as Eco-Funds. Recent surveys show that although today these funds deal with other social issues, the most important for investors has remained the environment.
By 2004, there were 11 SRIs, managing assets of $1 billion. Japan offers many opportunities for cleantech companies due to greater awareness, market size, growth potential and the diversity of sub-sectors. Developments in alternate energy, pollution control, water purification, waste treatment, biodegradable materials, and other environmental areas have clearly led to an attractive growth market in Japan.
Harel-Hertz Investment House (HIH) Ltd. is a privately held investment and consulting boutique that specializes in the Japanese market. It offers across-the-board business consultation to foreign companies in Japan and to Japanese companies abroad. This article was prepared in cooperation with HIH’s Japanese partners.
This article appeared in the Israel Venture Capital & Private Equity Journal (IVCJ). IVC Research Center publishes the Israel Venture Capital & Private Equity Journal, a quarterly review of trends and developments in the Israeli-related venture capital industry. IVCJ, distributed worldwide, is dedicated to provide wide-range coverage of Israel's venture capital industry. For more information please visit www.ivc-online.com
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