This commentary is part of the Deepening U.S.-Japan Clean Energy Cooperation project, a CSIS initiative featuring analysis by leading Japanese and U.S. experts on the potential for enhanced coordination on energy strategy.
In their pursuit of energy security, decarbonization targets, and economic growth, countries like Japan and the United States have endeavored to drive innovation and resources towards the transition economy and clean industries of the future. While this shift in the global energy system towards zero and low-emission technologies remains complex and multidimensional, the sheer scale of funding necessary numbers in the trillions of dollars. According to UN estimates, it will cost over $6 trillion globally per year to reach net-zero by 2050. To put that in perspective, the International Energy Agency estimated $3 trillion was invested in clean energy in 2024—almost double the annual investment that went into fossil fuels but still far below what is required. It is clear that public funding alone will therefore be insufficient for the task, particularly given high levels of public debt and forecasts of accelerating energy demand. Mobilizing respective sources of private finance, therefore, remains critical to achieving the needed investment in the infrastructure, clean energy deployment, manufacturing, and research and development (R&D) of clean technologies. Moreover, as the global clean energy technology race accelerates, private finance can help bring the speed and innovation necessary for the United States and Japan to establish competitiveness in next-generation technologies in geothermal, nuclear, and hydrogen, and potentially leapfrog Chinese dominance in cleantech sectors.
In recent years, investment in the clean energy transition in the United States has taken off, largely propelled by federal initiatives, particularly under the Biden administration, aimed at driving a new U.S. green industrial strategy. According to the Rhodium Group’s Clean Investment Monitor, $289 billion was invested towards the manufacturing and deployment of clean technologies over the last two and a half years, with corporate commitments for billions more. The clean energy tax credits, cleantech purchase incentives, loans, and grants from the Inflation Reduction Act (IRA) and BUILD Act helped usher in a new era for the transition economy that is government-enabled but private sector-led. These investments saw tremendous success in sectors like battery manufacturing and utility-scale solar installations. Many similarities to this clean energy industrial strategy can be seen in Japan’s Green Transformation or “GX” strategy—a $1 trillion plan to channel public and private investment towards clean industries and technologies that will enhance Japan’s energy security and economic growth.
Beyond domestic efforts, both countries also play a global leadership role in financing the clean energy transition by leveraging their financial institutions, technology, and diplomatic influence to accelerate decarbonization globally and particularly in the Indo-Pacific region. U.S. and Japanese corporations are global leaders across new and renewable energy sectors, battery manufacturing, and electrification. Two-way energy investment is already in the tens of billions of dollars, and U.S. and Japanese financial institutions have played a central role in financing the energy transition.
Amid this progress, ensuring that U.S. and Japanese private finance is sufficiently mobilized and efficiently deployed for the energy transition through market incentives and mechanisms presents a challenge. This provides an important role for both governments in creating an enabling policy environment for clean energy investment, sending strong and clear demand signals and incentives, and creating opportunities for innovative financing and risk-sharing models. Concerted bilateral cooperation in this field can have an amplifying effect toward shared goals and ensure both countries are benefiting from best practices and lessons learned. This paper seeks to offer a few actionable areas where Japan and the United States can most effectively cooperate to unlock private finance for clean energy.
Aligning Policies and Regulatory Frameworks
As Washington and Tokyo continue to grapple with shared energy security and transition challenges, such as increasing power demand from data center growth and grid modernization, there is a clear need for mechanisms to facilitate dialogue on the policies and incentives to facilitate capital flows into priority energy transition sectors. Addressing the AI energy challenge will require large-scale financing in both countries as well as new financing models between utilities and project investors—an area where sharing lessons learned can accelerate each side’s efforts. Furthermore, commercialization and deployment of new clean technologies can benefit from maximizing policy synergies between the United States and Japan to create an ecosystem of policy incentives that enable the private sector to reinforce government objectives.
Effectively constructed bilateral dialogues are a valuable tool for increasing public-private communication on these issues, as well as clarity about the policy barriers for investment, attracting more private capital to clean energy projects by creating predictability for investors and reducing risk perceptions. For example, the annual Japan-U.S. Energy Security Dialogue launched in 2022 provided a useful new convening mechanism between the Department of State’s Bureau of Energy Resources and Japan’s Ministry of Foreign Affairs for strategic dialogue on priorities for increasing energy security and accelerating the energy transition. This was subsequently expanded to include a Track 1.5 dialogue, which brought private sector stakeholders from both countries into the conversation to share their perspective around key policy issues impacting sectors such as hydrogen and offshore wind. These proved to be productive dialogues for both sides to share strategic perspectives on the policies needed to achieve energy transition objectives and the role of public-private cooperation. Future iterations should build on this foundation to engage private sector perspectives and identify and pursue concrete policy outcomes that can reduce barriers to investment in clean energy.
In addition to broad mechanisms aimed at encompassing the bilateral energy agenda, policymakers should flexibly respond to emerging policy synergies when targeted dialogue can produce tangible results. This was the case with the establishment of the ministerial-level GX-IRA dialogue in 2023, which had the focused goal of aligning respective government tax incentives and subsidies for clean energy to create a more seamless and incentivized investment environment. This mechanism also included a Track 1.5 dialogue that brought together U.S. and Japanese companies and officials to discuss the optimal mix of demand and supply-side policies for creating a stronger hydrogen market.
Leveraging Development Finance Institutions and Blended Finance
Despite significant U.S. efforts over the last few years in building more diverse, resilient, and sustainable critical mineral supply chains to support clean energy technology, continued investment will be necessary to support this part of the energy transition. Given the costs and complex political economies associated with these types of projects, strategic public-private cooperation can help get deals off the ground. In particular, the United States and Japan have sought to leverage their development finance institutions as key tools for investing in emerging market energy sectors and have identified bilateral cooperation as a way to amplify our ability to invest at scale. Nascent cooperation on blended finance has also sought to de-risk projects and mobilize funding by leveraging public finance as a catalyst that lowers the cost of capital and the risk-return profile of clean energy investments.
Building on this work, close cooperation between our peer development finance institutions—the Japan Bank for International Cooperation (JBIC) and the U.S. International Development Finance Corporation (DFC)—can help prioritize investments in strategic domains of the transition economy. Over the last few years, DFC and the Export–Import Bank of the United States have taken initial steps towards a cooperative arrangement with JBIC through bilateral memorandum of understandings, though this has yet to lead to any cofinanced energy projects. Adopting a more outcome-oriented approach that focuses on tangible, strategic projects could help policymakers enhance bilateral coordination and overcome the institutions’ different approaches in identifying and vetting projects. For example, Tokyo and Washington could establish a bilateral platform between JBIC and DFC, similar to the DFC and IDB Invest platform, where they could actively share pipeline information and conduct joint business development missions that orient collaboration towards specific coinvestments. Regional representatives from each development finance institution (DFI) based in capitals like Jakarta and Hanoi could commit to monthly meetings to review prospective deals. Addressing other structural misalignments, such as DFC’s long due diligence process and JBIC’s limit on equity investments to the overseas operations of a Japanese firm, could also help enable more success.
Washington and Tokyo could also consider creating a coinvested fund from DFIs, philanthropy, and private investors to provide blended finance for energy transition projects in Southeast Asia. Amid rising energy demand in the region, joint investments in Southeast Asia would draw particularly well on JBIC and DFC’s experience in this strategically important region and demonstrate the two countries’ commitment to supporting the region’s energy transition while sharing U.S. and Japanese clean energy technologies and standards.
Scaling Emerging Clean Energy Technologies
Broader development and deployment of new and emerging clean energy technologies such as hydrogen, advanced nuclear, enhanced geothermal, carbon capture, and energy storage will be important to positioning U.S. and Japanese technologies at the forefront of the transition economy and sustainable energy security. Many of these technologies, however, require additional capital to scale and move further down the cost curve so that they become competitive.
The United States, in particular, has proven adept at fostering a robust start-up ecosystem for the energy sector and has many lessons it can share with Japan on how to scale start-ups and foster collaboration between entrepreneurial enterprises and large companies. Drawing on work being done by the Department of Commerce and the Department of Energy to support U.S. entrepreneurship and energy start-ups, Washington and Tokyo should consider establishing a bilateral task force on clean energy innovation. Japanese companies are already investors in cutting-edge U.S. clean tech companies in areas like small modular reactors, fusion, and enhanced geothermal. Washington and Tokyo can also work to develop and align the necessary policy frameworks to accelerate commercial deployment of these technologies, using these markets as a launchpad to the rest of the Indo-Pacific region.
Similarly, recent cooperation between the United States and Japan on new technology R&D for floating offshore wind has been a promising arena for collaboration to ensure that our companies remain at the forefront of tomorrow’s energy technologies. Offshore wind stakeholders in the United States should explore creative models for collaborating and partnering with Japan’s FLOWRA, such as through a parallel U.S. counterpart organization, to complement FLOWRA’s mission to create scale in the industry and improve economic fundamentals.
In Southeast Asia, the United States and Japan should fully leverage government tools for technical assistance and project preparation to lay a foundation for these technologies to be commercialized. For example, the United States and Japan are well-positioned to cooperate on creating a framework for regional carbon capture and storage (CCS) trade in the Indo-Pacific. Countries in Southeast Asia, like Indonesia and Malaysia, are keen to develop the legal framework for enabling CCS storage in their territories, while Japan is seeking to develop markets and policies to enable its export and sequestration of carbon. Technical assistance from the U.S. Department of State and Department of Energy, as well as industry expertise from U.S. and Japanese oil and gas companies, could be productively deployed to help governments develop the necessary regulatory framework to launch a major decarbonization effort.
Sending Clear Signals on Policies and Targets
Policy uncertainty remains a challenge for scaling clean energy finance, as investors often require greater clarity around government intention, objectives, and continued support in order to deploy capital. Sufficiently ambitious deployment targets, such as the global goal to triple deployment of nuclear power by 2050, which both the United States and Japan joined, send a clear message to the private sector about the direction and pace of travel. These goals can motivate the private sector to invest and build supply chains when they see that governments are committed to large-scale growth. In sectors such as offshore wind, clear signals that governments will tender projects at a sufficient size and frequency to develop the necessary supply chains at scale are critical. For its part, the U.S. government set a target of 30 gigawatts (GW) by 2030 and 15 GW of floating offshore wind by 2035 that effectively mobilized significant private investment in the sector before other challenges prevailed.
In addition to targets, binding offtake agreements for emerging clean power technologies in the future can create confidence in a sector and enable it to scale. This could be particularly useful for technologies such as fusion, which has raised over $7 billion in primarily private finance in the United States, where offtake agreements in the United States have started to shift the technology mindset from R&D to commercialization and growth. This could be a further area of collaboration, where the United States and Japan partner on innovative clean power offtake models and arrangements to incentivize technologies.
Conversely, policy uncertainty abounds regarding the future of the IRA tax credits. For Japan, there is particular concern over the future of the clean hydrogen production credit, given Japanese investments in the U.S. sector as well as their view that 45V plays an important supply-side role in helping create a global hydrogen market. Japan is counting on this technology to decarbonize its economy and will need to substantially reassess its energy planning should U.S. support for this sector be reversed.
Conclusion
The United States and Japan have a tremendous opportunity to demonstrate leadership in the clean energy technologies of the future and thereby strengthen and sustain our shared energy and economic security. Close and effective government coordination, including directly engaging private sector stakeholders, will be critical to creating the enabling policy environment and sending clear policy signals to mobilize private capital for the energy transition.
Jennifer Schuch-Page is a managing principal at the Asia Group in Washington, D.C.
