Small- and Medium-sized Companies in Japan Struggle to Reduce Emissions

By Tomohiro Yamashita / Yomiuri Shimbun Staff Writer

11:03 JST, September 6, 2023

As global warming advances, there is a growing movement among small and medium-sized enterprises (SMEs) to reduce greenhouse gas emissions in their manufacturing processes.

These efforts have been driven by a growing interest in environmental problems, together with calls from their business partners to take steps. However, many managers of SMEs are concerned about a lack of know-how and funds.

The government has been offering a variety of support measures to mitigate such concerns, thereby helping them to decarbonize.

‘What do we have to do?’

“Our company cannot achieve the carbon neutrality target all by itself. We want you to be actively involved, too.”

Earlier this year, this request was made of Keiyo Seisa Co., a tire chain manufacturer based in Katsushika Ward, Tokyo, by one of its corporate customers, a leading steelmaker. But the president, Kiichiro Takeuchi, 50, could not hide his puzzlement. “I understand the importance of the global environment, but what specifically do we have to do?”

At the company’s plant, a heat treatment furnace is used in the process of strengthening tire chains. This burns a large amount of heavy oil, emitting a huge amount of greenhouse gases daily.

When the company sought advice from Resona Research Institute Co., with whom it regularly consults on corporate management, the Tokyo-based institute suggested that the maker electrify its new plant, which will be relocated to Yachimata, Chiba Prefecture, in autumn next year.

Taking the advice, the company decided to install an electric heat treatment furnace so that the plant will not need to burn any heavy oil. The company will also replace eight forklifts and one company car with electric vehicles.

To cover the large amount of electricity to be consumed, the company will have solar panels measuring approximately 1,700 square meters installed on the roof of the new plant. It is estimated that the new plant will enable the company to eliminate approximately 500 tons of carbon dioxide produced at its current plant.

Takeuchi said: “If Russia’s aggression against Ukraine is prolonged, there is a possibility that energy prices will remain high. Although the initial investment is high, we believe that it will lead to improved corporate management in the long run.”

Whole supply chain

The law concerning the promotion of measures to cope with global warming makes it mandatory for companies that emit 3,000 tons or more of greenhouse gases per year to report their emissions to the authorities concerned.

Many SMEs, which account for 99.7% of all companies in Japan, are exempt from this obligation, so their efforts to curb CO2 emissions have lagged behind large companies.

With extreme weather such as torrential rains and heat waves occurring frequently around the world, countries agreed to a global effort to reduce greenhouse gases under the Paris Agreement, an international treaty adopted at the U.N. Climate Change Conference (COP21) in Paris in 2015.

Global companies such as Toyota Motor Corp. and Apple Inc. are now aiming to reduce CO2 emissions throughout their entire supply chains, including SMEs that are responsible for the procurement, physical distribution and disposal of raw materials.

According to a survey of 1,666 SMEs conducted last August by the Japan Finance Corporation’s Research Institute, 44.9% responded that they are tackling a reduction in CO2 emissions. This is up 3 percentage points from three years earlier.

As to their emissions reduction policy for the next three years, more than 70% of them said they would push ahead with such efforts.

On the other hand, there are still deep-seated concerns among managers of SMEs, such as fears that costs will increase and not knowing how to tackle this issue.

Hikaru Fukanuma, the institute’s chief research fellow, thinks “there is a high degree of willingness [among SMEs] to decarbonize, so it’s highly likely that their efforts will accelerate should the obstacles of cost and know-how be cleared.”

Community-wide effort

The Economy, Trade and Industry Ministry has said that SMEs emit an estimated 120 million to 250 million tons of greenhouse gases annually, accounting for 10% to 20% of the country’s total emissions.

In a cabinet decision in 2021, the government set forth a policy of promoting carbon neutrality throughout supply chains and established a series of programs for subsidies and low-interest loans for businesses adopting equipment to reduce CO2 emissions.

In June this year, the Environment Ministry picked out 16 areas, including the city of Akita and the prefectures of Aichi and Kyoto, as model districts where local governments, financial institutions and chambers of commerce and industry are working together to support the carbon neutrality efforts of SMEs in their communities.

Under this program, the ministry encourages relevant local entities to come up with initiatives to help SMEs calculate CO2 emissions and take energy-saving measures. This fall, a new qualification of “decarbonization advisor” will be established to advise managers of SMEs on how to reduce emissions.

An assistant director of the ministry’s Climate Change Policy Division said: “As decarbonization efforts are not well advanced at SMEs, there is plenty of room to reduce emissions. Even if emissions at individual firms are small, the effect when combined should be great.”