Carbon-neutral LPG faces uncertain future in Japan

Wavering legal support and doubt over the value of carbon credit schemes are casting a cloud over the use of carbon-neutral LPG, write Reina Maeda and Nanami Oki

Japan's LPG industry expects demand for "carbon-neutral LPG" to increase along with the environmental awareness of consumers. But a lack of legal support for the product and growing scepticism about the effectiveness of the utilised carbon credit schemes still make its future uncertain.

Carbon-neutral LPG, which has had its life-cycle carbon emissions offset through carbon credits, does not fall under Japan's nationally determined contributions (NDCs). Economy, trade and industry ministry Meti says it would support carbon-neutral LPG under the NDCs. But an uncertain regulatory future for a fossil fuel with its carbon offset, and the debatable value of the offsets, could derail such attempts.

The market for carbon-neutral LPG in Japan has expanded rapidly after Japanese importer Astomos received its first 47,000t cargo from Shell from Ruwais, Abu Dhabi, in August 2021. Shell offset the cargo's CO2 emissions through US non-profit group Verra's voluntary Verified Carbon Standard (VCS) scheme from credits acquired from its investment in environmental conservation projects. Astomos also bought the product from Japanese upstream firm Inpex from its 8.9mn t/yr Ichthys LNG plant in Darwin, Australia. Again, the accreditation came from the VCS.

Japanese LPG companies including Eneos Globe, Gyxis, Itochu Enex, Japan Gas Energy and Iwatani have started offering carbon-neutral LPG in the country, either purchasing carbon credits from the VCS to offset LPG emissions themselves, or purchasing the offset product. Astomos has supplied the product to more than 40 domestic suppliers since it received its first cargo. Demand for carbon-neutral LPG is expected to increase in line with stronger environmental awareness, but regulatory support is also required, Astomos says.

Yet the companies and Meti face accusations of greenwashing during fierce debate over the effectiveness of Verra's VCS and other carbon credit schemes. A recent investigation carried out by UK and German newspapers The Guardian and Die Zeit, and non-profit organisation SourceMaterial, found that Verra's VCS credits "are largely worthless and could make global heating worse". The research found that 90pc of their rainforest offset credits are likely to be "phantom credits". Verra has refuted these claims and questions the methodology used in the investigation, saying billions of dollars have been channelled to vital forest preservation work.

Japanese importers have mainly used the VCS' voluntary credits, which are not included in Japan's NDCs. Importers say they chose overseas carbon credit schemes because Japan's own scheme, J-Credit, is unable to generate sufficient credits to cover LPG's CO2 emissions owing to limited forestation opportunities.

Credit where it's due

Japan's J-Credit scheme is designed to certify greenhouse gas emission reductions in Japan through energy saving measures and forestation. The country has also established the joint crediting mechanism (JCM), aimed at promoting investment and use of decarbonising technologies, products, systems, services and infrastructure in partner countries to generate carbon credits together. The JCM and J-Credit schemes are included in the NDCs. But it is unclear whether carbon-offset LPG will qualify as contribution to NDCs even if it is included in the schemes because of its uncertain legal status, according to Meti.

J-Credit encourages switching from heavy oil to LPG at industrial plants, possibly supporting future LPG demand. But the scheme could be a double-edged sword for LPG suppliers, as it promotes switching from LPG to biomass and city gas. It also supports energy efficiency measures, which could pare LPG consumption. Japan's LPG importers plan to end carbon-neutral LPG sales by 2050 when the industry moves to domestically produced renewable LPG. They are investing in projects to develop with this goal in mind.