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.
Introduction
The clean energy transition requires large-scale investment, as does the entire energy supply chain, including production, transportation, generation, transmission, distribution, and end-use efficiency. According to the latest estimate by the International Energy Agency (IEA), global energy-related investment was set to exceed USD 3 trillion for the first time in 2024, with USD 2 trillion going to clean energy technologies.
Private finance plays a central role in the clean energy transition. However, the scale of investment required to achieve global and national climate goals depends on the presence of a supportive policy environment. In this context, governments act as the key enablers, providing strategic policy interventions, both financial and non-financial, to mobilize private capital. Japan’s Green Transformation (GX) initiative exemplifies this enabling role. Launched in response to then-Prime Minister Yoshihide Suga’s October 2020 commitment to achieve carbon neutrality by 2050, GX is a government-wide policy package aiming to unlock large-scale investment in clean energy and decarbonization, while ensuring economic and energy security and strengthening economic prosperity.
The central pillar of Japan’s GX is public investment, which helps overcome the substantial upfront costs of the clean energy transition. The Basic Policy for the Realization of GX (hereafter the basic policy), adopted by the cabinet in February 2023, allocates JPY 20 trillion (USD 140 billion) in government funds to leverage the remaining portion of private investment. The overall goal is to mobilize the JPY 150 trillion (USD 1 trillion) in private and public investments required to achieve decarbonization of the real economy. These upfront investments target various technologies in the clean energy transition, including renewable energy, nuclear energy, low-carbon fuel (hydrogen, ammonia, and e-methene), batteries, and energy storage.
Government investments are complemented by non-financial measures designed to create enabling environments that catalyze private finance for a clean energy transition. In line with the basic policy, Japan has actively developed and promoted the private capital market for the clean energy transition. In May 2021, the Financial Services Agency (FSA), the Ministry of Economy, Trade and Industry (METI), and the Ministry of Environment (MOE) jointly issued the Basic Guidance on Climate Transition Finance (hereafter the guidance). The guidance was designed to align with the internationally agreed-upon concept of transition finance developed by the International Capital Market Association (ICMA), while also advancing the Japan-specific approach. In particular, the guidance articulates the concept of dedicated transition financing for high-emitting sectors, enabling them to transform their assets and operations in line with the government’s long-term climate commitment of carbon neutrality by 2050.
The guidance has been supplemented by the technology roadmaps developed for 8 high-emitting sectors, including power, oil, gas, and iron and steel. These technology roadmaps were developed based on Japan’s nationally determined contribution (NDC) and articulate detailed clean technologies alongside an anticipated timeline of deployment up to 2050. Investors can assess the alignment of their transition investments with Japan’s NDC, while companies in high-emitting sectors can refer to these roadmaps to inform their investment strategies to seek to raise capital for transition.
Since the publication of the guidance and the technology roadmaps in 2022, many companies in high-emitting sectors have raised capital through dedicated transition finance instruments (bonds or loans).
Japan has also made a significant contribution to creating a capital market for transition finance. In February 2024, the government of Japan issued the world’s first sovereign transition bond to raise the capital for public investments outlined in the GX strategy. As of April 2025, the total market value of the transition bond has grown to USD 37.6 billion, or 0.7 percent of the total sustainable bond market, with Japan as the leading issuer, representing 71.5 percent of the total issuance amount.
GX and transition finance present significant opportunities in emerging economies, particularly in developing countries in Asia. These countries remain heavily reliant on fossil fuels, especially coal, while their energy demands are expected to rise due to continued population and economic growth. Recognizing this challenge, in its basic policy, Japan outlined a strategic partnership framework with Asian countries to promote GX at the regional level: the Asia Zero-Emissions Community (AZEC). In March 2023, a ministerial meeting with 11 partner countries affirmed the importance of pursuing transitions aligned with diverse and realistic trajectories reflecting each nation’s circumstances, while securing economic growth and energy security. At present, public-private projects under the AZEC include renewable energy, natural gas, hydrogen and ammonia, and the electricity network.
To further enhance activities in AZEC, Japan also established partnerships with financial authorities, development banks, and private financial institutions in Japan and Asia. The Asia GX Consortium, launched in October 2024 and led by the FSA, will develop practical approaches to promote the financing transition, particularly tailored to the needs of Asian countries. A priority of the consortium is ensuring the bankability of clean energy projects, as investments in these countries often face additional challenges such as technological uncertainty, limited policy guidance, and higher capital costs. In this context, public finance, such as development banks, plays a crucial role by providing risk-sharing mechanisms—for example, through blended finance, which can help de-risk private investments and thus mobilize capital at scale.
U.S.-Japan Relations in Clean Energy and Relevance to Finance
An orderly and effective transition to clean energy requires coordinated efforts across the entire value chain, including fuel production, transportation, and generation, as well as the supply of critical materials and equipment and the development of infrastructure and markets. In this context, the United States and Japan have a long-standing history of bilateral cooperation in the energy sector, reflecting the shifting priorities of each administration in the United States. Some of these cooperative efforts are relevant to enabling private finance for the clean energy transition.
During its first term, the Trump administration pursued energy dominance, and bilateral cooperation with Japan focused on developing open energy markets to promote access to affordable and reliable energy in countries in the Indo-Pacific region and sub-Saharan Africa. Under the Japan-U.S. Strategic Energy Partnership (JUSEP) established in November 2017, Japan and the United States set initial priorities to the following: (1) the promotion of advanced nuclear technologies; (2) the deployment of high-efficiency, low-emitting coal-fired technologies, including carbon capture, utilization, and storage (CCUS); (3) the acceleration of global LNG markets; and (4) the development of energy infrastructure to promote regional integration in developing economies.
A notable outcome from JUSEP was the development of liquified natural gas (LNG) markets. In November 2019, Japan further committed to facilitating high-standard investment in projects to supply LNG or build LNG infrastructure to scale up the LNG market. This aligns with the Japanese government’s target of USD 10 billion in public and private investments and capacity building. In April 2021, during the transition to the Biden administration, JUSEP was succeeded by the Japan U.S. Clean Energy Partnership (JUCEP). In October 2021, Japan and the United States jointly published a concrete policy package to support projects in the Indo-Pacific region. This includes a comprehensive set of mechanisms to promote private investments, including export loans and credit insurance for energy and infrastructure technologies, import loans for strategically important commodities such as LNG and critical minerals, and overseas investment support for LNG and resource development projects.
Policy developments under the Biden administration shifted toward accelerating the deployment of so-called “green” technologies, in line with the administration’s climate commitments at the time. Among them, the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) strongly influenced the development of Japan’s GX. The basic plan of Japan’s GX set out a public investment of JPY 20 trillion (USD 140 billion), which was partly motivated by the USD 500 billion in tax incentives and public spending from the IRA. While not the result of deliberate coordination, the initiatives taken by both countries have proven to be mutually reinforcing, as they align around shared goals of accelerating decarbonization and clean energy transition. As such, these parallel efforts are expected to foster a more favorable environment for mobilizing private capital toward clean energy in both countries and beyond.
Furthermore, the U.S.-Japan Clean Energy and Energy Security Initiative (CEESI), established in May 2022, served as a ministerial-level initiative to promote cooperation on clean technologies and energy security. Areas for cooperation under the CEESI included CCUS and carbon recycling, offshore wind, perovskite photovoltaics, geothermal energy, power grids, hydrogen and ammonia, nuclear, batteries, and zero-emission vehicles.
Opportunities for Bilateral Cooperation in Enabling Clean Energy Finance
Investing in the Natural Gas and Low-Carbon Fuel Supply Chain
The clean energy transition is a long-term journey that requires sustained access to a large volume of long-term capital. Accordingly, bilateral cooperation should prioritize areas where a stable investment environment can be maintained, irrespective of changes in administration.
Japan’s GX aligns with this approach. The strategy and policy measures outlined in GX include not only so-called “green” activities such as renewable energy, but also intermediate and transitional activities such as natural gas to replace old, inefficient coal-fired power plants, as well as research, development, and demonstration of emerging technologies such as low-carbon fuels (e.g., hydrogen, ammonia, and e-methane). In this context, natural gas and low-carbon fuels will be potential areas for immediate and emerging opportunities for bilateral cooperation to enable private finance for the clean energy transition.
In February 2025, in a joint statement by President Trump and Prime Minister Ishiba, the United States and Japan announced their intention to increase LNG exports to Japan in a “mutually beneficial manner.” President Trump’s executive order on unleashing American energy removed regulatory barriers and streamlined the permitting process to increase LNG production and exports to allied countries.
This development presents significant opportunities for clean energy finance in Japan. Given the outlook for continued dependency on fossil fuels, a stable, long-term supply of LNG can act as a crucial enabler for the clean energy transition while ensuring stable and affordable energy and energy security. Several new LNG power projects are being planned after the government included LNG-fired power plants in the eligible activities for the Long-Term Decarbonization Power Source Auction in 2023. The rationale behind the decision was to prevent a short-term power supply shortage in the aftermath of the Ukrainian crisis. Eligible projects must shift toward decarbonization 10 years after the initial supply of the power source and must be fully decarbonized by 2050, in line with GX and consistent with Japan’s long-term climate commitment.
While LNG serves as a critical enabler for the clean energy transition in the near term, its role is expected to evolve as energy systems progressively decarbonize. To ensure consistency with Japan’s long-term climate commitments, investments in low-carbon fuels will be essential to facilitate the transition from LNG to cleaner alternatives. This transition will require substantial upfront investment, which is expected to be supported by public investments from both the United States and Japan, spanning the fuel supply chain from production to end-use.
In the United States, tax incentives for CCUS under the IRA, combined with dedicated support for hydrogen development under both the IRA and the IIJA, are creating favorable conditions for investment in hydrogen and e-methane production. In Japan, those low-carbon fuels are eligible for price gap support under Japan’s GX.
Furthermore, these cooperative financial supports are strengthened by the outcomes of bilateral initiatives. Under the CEESI, U.S. and Japanese companies signed letters of intent to address key technical and regulatory challenges, including the double counting of carbon emissions associated with carbon dioxide capture in the United States and combustion in Japan. This cooperation aims to enable Japanese companies to invest in U.S.-based e-methane projects, with the imported e-methane qualifying for government support under Japan’s GX.
Promoting the Enabling Environment of Transition Finance in Asia via Multilateral Cooperation Frameworks
The United States and Japan have made significant contributions to various multilateral frameworks. This creates further opportunities for cooperation to broadly promote enabling environments for private finance in clean energy.
A particularly important channel for such cooperation is through multilateral development banks, notably the Asian Development Bank (ADB), where the United States and Japan jointly hold the largest voting share (25.5 percent combined). Japan has already partnered with the ADB to promote transition finance through the Asia GX Consortium. However, the ADB’s ability to support such initiatives has been constrained by its internal policy and conditions. The Energy Policy of the ADB, published in 2021, stipulates strict requirements for natural gas projects. There may be a timely opportunity to revisit and reform this policy to broaden the scope to include natural gas as an eligible transitional activity, thereby unlocking the ADB’s contributions to catalyze private finance for natural gas in the context of the clean energy transition. This also aligns with the current U.S. administration’s priority of increasing natural gas exports.
More broadly, strengthening the United States’ and Japan’s role in regional forums, including the Association of Southeast Asian Nations (ASEAN), could help advance the institutionalization of transition finance in Asia. Japan’s GX approach is particularly well suited to the region, as it recognizes that energy systems and economic structures vary widely across countries, and therefore, the pathways to achieve climate goals must also differ. Transition finance, as framed by Japan’s GX, builds upon national strategies and targets, including NDCs, respecting each country’s unique circumstances and development priorities and ensuring economic and energy security.
A potential area of work is encouraging and supporting Asian countries in developing technology roadmaps tailored to each country’s circumstances. This would support and enhance existing regional initiatives, namely the ASEAN Taxonomy, which is currently being developed under Singapore’s leadership with significant influence from the European Union. Building on the European Union’s “green” taxonomy, the ASEAN Taxonomy aims to mobilize capital toward the clean energy transition by establishing a common definition of “amber” activities, an intermediate step toward “green,” reflecting Asia’s regional circumstances. Technology roadmaps, as elaborated in Japan’s GX, could better guide capital flows by complementing the taxonomy with additional, country-specific contexts and detailed timelines aligned with each country’s respective NDCs.
Private Financial Institutions in the United States and Japan
Private financial institutions have their own priorities and associated policies and conditions. Despite the recent exodus from net-zero alliances, most major financial institutions in the United States and Japan have maintained their climate goals and targets and are working collectively to align their financing activities with the global climate goals of carbon neutrality by 2050.
At the same time, some institutions in the United States have considered adjusting their financing policies in response to changing political circumstances, allowing for continued support for fossil fuel–related projects under specific conditions, while still maintaining their overarching climate commitments. This could serve as a form of complementarity within the financial sector. However, a predictable policy environment will be essential to ensure coherence and sustained progress.
Japan’s GX can also serve as a useful reference point, offering a comprehensive approach to financing the clean energy transition that balances near-term economic and energy security needs with long-term climate goals. This framework can enable financial institutions to play a pivotal role in mobilizing private capital for the long journey toward a decarbonized future.
Motoshi Tomita is a research scientist at the Central Research Institute of Electric Power Industry.
