Following the tightening of Liquefied Natural Gas (LNG) supplies due to tensions in the Strait of Hormuz, the Japanese government has decided to temporarily lift operation restrictions on coal-fired power plants,. While Japanese coal-related companies are maintaining strong business performance due to this emergency measure, their results in the second half of 2026 will reach a major turning point depending on government regulatory policies, such as the full-scale introduction of the mandatory GX-ETS (Green Transformation Emissions Trading Scheme),.

LNG Supply Disruption Risks and the Security Value of Coal in Japan

In 2026, the de facto blockade of the Strait of Hormuz—resulting from the conflict involving the U.S., Israel, and Iran—has forced a major shift in Japan’s energy policy. With approximately 20% of the world’s daily LNG transport passing through this choke point, supplies from Qatar and the UAE have become uncertain, causing LNG spot prices in the Asian market to exceed US\$20 per mmBtu,. Although Japan secures routes that do not pass through the Strait of Hormuz for its largest suppliers, such as Australia (39.7%) and Malaysia (14.8%), a supply shortage of even 6% can severely tighten the market for a country with no domestic natural gas resources.

Under these circumstances, coal is being re-evaluated as a safer short-term fuel option for Japan. Import routes from Australia and Indonesia, which supply about 80% of Japan’s coal demand, completely bypass the Strait of Hormuz, offering high supply stability. Consequently, the Japanese government decided to suspend the obligation to keep the utilization rate of aging, inefficient coal-fired power plants below 50% for one year starting in April 2026,. These idle facilities are now expected to restart at full capacity as a primary power source to compensate for the LNG shortage,.

Market Environment Supporting the Growth of Japanese Coal Companies

Following the government’s lifting of operational restrictions, demand for thermal coal (general coal) for power generation has expanded rapidly. Japan’s thermal coal imports reached approximately 120.3 million tons in 2025, marking the second consecutive year of increase. This trend has accelerated into 2026, with coal companies’ strong performance bolstered by moves to prepare for peak summer cooling demand and winter cold waves,. Coal prices at Newcastle, Australia, have remained at levels between \$100 and \$110, ensuring stable profit margins amid tightening supply.

The full operation of coal-fired power plants has provided a strong tailwind for Japanese general trading companies and power utilities. For operators with a high dependency on coal, this regulatory relaxation directly translates into improved profitability,. For example, approximately 79% of the domestic electricity sales volume of J-POWER (Electric Power Development Co., Ltd.) comes from coal-fired power,. While the company faces risks from fluctuating electricity prices, the shift to coal during a period of soaring LNG prices has temporarily enhanced its competitive advantage,. Please refer to the following chart for changes in Japan’s power mix and the role of coal.

Structural Risks in the Supply Chain and Declining Profitability

Supply Uncertainty for Australian Coal and the Royalty Issue

Structural anxieties are emerging in the supply chain for Australian thermal coal, which serves as a “lifeline” for Japan,. Australian coal, accounting for approximately 62.3% of Japan’s thermal coal imports, is essential as “high-grade coal” suited for Japanese power generation facilities due to its high calorific value,. However, mining conditions in Australia are becoming increasingly difficult each year. In addition to rising production costs associated with deeper mining, increases in resource extraction fees (royalties) by local governments, such as that of Queensland, are significantly squeezing operator profits.

Furthermore, driven by heightened global environmental awareness, European and American resource majors are accelerating “divestment” by letting go of coal interests,. This has led to stagnation in permit procedures for new coal mine developments, increasing uncertainty regarding future supply capacity,. Existing mines are also aging, making it difficult for Japanese companies to maintain their autonomous development interest ratio (with a target of 60% by 2040). Despite the current surge in demand, Japanese coal companies face the long-term challenge of rising procurement costs.

Aging Coal Carriers and the Shipping Capacity Crisis in Japan

Beyond supply issues, serious risks are surfacing in maritime transport infrastructure. Coal transport to Japan frequently utilizes specialized “wide-width vessels” designed to navigate the shallow depths of Japanese ports. However, global investment in coal carriers has stagnated due to decarbonization trends, leading to the rapid aging of the current fleet,. Analysis by the shipping industry suggests that if investment remains stagnant, Japan’s transport capacity could plummet to only 20% or 30% of its current level by the 2030s.

A shortage of transport vessels not only drives up freight rates but also severely diminishes emergency procurement capabilities during crises. While the Japanese government’s 7th Strategic Energy Plan positions coal as an important energy source for “stable supply and economic efficiency,” this policy could become a mere formality if physical means of transport cannot be secured. Consequently, Japanese coal companies are beginning to view rising logistics costs as a factor that could erode profits in the second half of the year.

Decarbonization Regulations and Government Policy Uncertainty

Impact of Mandatory GX-ETS on Coal Utilization Costs in Japan

The second phase of the “GX-ETS (Green Transformation Emissions Trading Scheme),” scheduled to begin in April 2026, represents the greatest institutional risk for coal-related companies in Japan,. The system will transition from voluntary participation to a “mandatory” one for corporations with annual emissions of 100,000 tons or more, affecting between 300 and 400 major companies,. Since coal produces more CO2 emissions than natural gas, an increase in operational rates directly leads to a shortage of emission allowances and the incurrence of additional costs,.

The Japanese government initially adopted a system of free allocation for emission allowances, but it plans to transition to “auctions (paid allocation)” for the power generation sector starting in fiscal 2033,. With this roadmap in place, investors and financial institutions are further tightening long-term lending for coal-fired power. Japanese coal companies are now forced to make difficult decisions on how to redirect current strong profits toward future decarbonization investments, such as CCS (Carbon Capture and Storage) or ammonia co-firing,. The details of these regulations are shown in the table below.

• GX-ETS Phase 2 (Starting FY2026): Mandatory for corporations with emissions of 100,000 tons or more,.

• Fossil Fuel Surcharge (Starting FY2028): Commencement of taxation on fossil fuel importers,.

• Power Generation Sector Auction (Starting FY2033): Full transition to paid emission allowances,.

The 7th Strategic Energy Plan and the Positioning of Coal

The “7th Strategic Energy Plan,” currently under formulation by the Japanese government, will be the most critical guideline for determining the business strategies of coal companies from the second half of the year onward. Previous plans aimed to reduce coal’s share of the power mix to 19% by 2030, but the 2026 LNG crisis has shaken that premise,. While there are discussions about returning to a “realist route” that recognizes the maintenance of a certain percentage of coal for national security, its consistency with international decarbonization commitments is being questioned,.

Of particular note is the schedule for decommissioning inefficient coal-fired power plants. The asset value of coal facilities will fluctuate greatly depending on whether the lifting of operational restrictions is viewed as a “one-year emergency measure” or a permanent positioning for stable supply,. Furthermore, the level of government support for CCS and ammonia co-firing technologies—pursued by companies such as J-POWER—will be key to whether Japanese coal companies can avoid their facilities becoming “stranded assets”,.

Energy Strategy Returning to “Realism” and “Security”

Slowdown of Decarbonization Trends and the Shift to Realism in Japan

The “Green Bubble” observed between 2020 and 2021 is coming to an end due to inflation and the manifestation of geopolitical risks,. Globally, doubts are spreading regarding the feasibility of 2050 carbon neutrality goals, leading to a return from idealism to a realism that emphasizes “utility, security, and adaptation”,. In Japan as well, the current LNG crisis has provided a powerful lesson to the government and businesses: “decarbonization alone cannot protect the lives of the citizens”,.

This trend is leading to the selection and elimination (bipolarization) of decarbonization projects,. While radical projects with low economic rationality are being cancelled, funds are beginning to be redistributed toward “low-reduction-cost technologies,” such as combining existing coal power with CCS, and practical projects that contribute to energy self-sufficiency,. In this “correction phase,” Japanese coal companies are being tested on how they can redefine their assets in a way that balances environmental goals with economic efficiency.

Future Outlook: Three Focal Points Influencing Second-Half Performance

The performance of Japanese coal companies in the second half of 2026 will depend on three main factors. First is the trend of international energy prices from autumn 2026 onward,. If the blockade of the Strait of Hormuz is prolonged and LNG spot prices remain high in the \$20 range, the period of full-capacity coal operation may be extended, further boosting the earnings of coal companies,.

Second is the trend of “emission allowance prices” accompanying the mandatory GX-ETS. If credit trading on the Tokyo Stock Exchange becomes active and the cost of procuring emission allowances rises, the economic advantage of coal-fired power will be rapidly lost,. Third is the final draft of the “7th Strategic Energy Plan,” scheduled for publication between March 2025 and 2026,. If coal-fired power is clearly redefined here as a “stable power source for the transition period,” it will provide predictability for the long-term business continuity of the involved Japanese companies,.

Reference Pages

• 【Study Group on Emissions Trading System for Achieving GX (Ministry of Economy, Trade and Industry)】https://www.meti.go.jp/shingikai/energy_ichiba/gx_haishutsu_torihiki/index.html

• 【Formulation of the 7th Strategic Energy Plan (Agency for Natural Resources and Energy)】https://www.enecho.meti.go.jp/committee/council/basic_policy_subcommittee/

• 【J-Credit Scheme (J-Credit Scheme Secretariat)】https://japancredit.go.jp/

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