There was much warmth on display at the official leaders’ meeting between Australia and Japan on Monday. Australian Prime Minister Anthony Albanese gave his Japanese counterpart Senae Takaichi an AC/DC drum skin signed by the band members, while receiving new vinyl records for his DJ collection. Both leaders famously love rock music.
But there was also national business at stake. The pair signed a joint declaration on economic security, outlining a broad agenda to align policies across trade, energy and critical minerals and new technologies such as quantum computing.
It’s not all been smooth sailing. Japan has been vocal in speaking out against proposals for higher taxes on Australia’s gas exports, and over domestic climate policies. To overcome this turbulence, a long-term vision for the Australia-Japan energy relationship is needed in a decarbonising world.
There are three distinct ways in which Japan and Australia’s interests are intertwined: how we tax companies that extract our resources, how we ensure energy security, and how we cooperate on climate change.
Taxing resources
In recent months, calls to raise taxes on Australia’s LNG exports have grown louder. A number of proposals have been made to secure a greater share of income from Australia’s domestic gas resources, including a “windfall tax” on gas exports.
With limited energy reserves of its own, Japan has been a major driver in the growth of Australia’s liquefied natural gas industry. And it has been blunt in its opposition to calls for new taxes. Japanese Ambassador Kazuhiro Suzuki said any imposition of a windfall tax would be regarded by Tokyo as a “bad surprise” that could deter future investment.
Darren England/AAP
Energy security
Energy security is a second link between the two countries.
Australia’s reserves of oil and oil products are limited. In responding to the current crisis Australian leaders, including Prime Minister Albanese, have visited several Asian nations in an attempt to shore up our supplies.
In contrast, Japan holds 142 days of oil and oil products in addition to private inventories. Japan could help Australia manage any risk of fuel shortages by providing supply commitments.
But the role of energy security in the Australia-Japan relationship is more complicated than guaranteeing fuel supplies.
Japanese officials have expressed concern, for example, about Australia’s incoming domestic gas reservation policy, whereby east coast LNG exporters will be required to hold back 20% of new production for the domestic market from 2027.
Japan has also expressed concern about Australia’s Safeguard Mechanism, a carbon-pricing scheme that places caps on Australia’s greenhouse gas emitting facilities.
The Albanese government has increased the stringency of the Safeguard Mechanism as a way to meet Australia’s climate commitments. Crucially, it covers existing and new gas production, linking Australia’s domestic emissions reduction policies with fossil fuel exports. The review of the Safeguard Mechanism during 2026-27 is sure to draw renewed attention from Japan and elsewhere.
Climate change
Climate change is the third – and perhaps most important – issue linking Australia and Japan. Both countries have committed to achieving net zero emissions by 2050. But there’s uncertainty about the technology mix they will use to get there, including the residual role for gas.
For both Australia and Japan, rapid electrification of transport, heating and other sectors are key, alongside the shift to renewables and storage for power.
Japan’s most recent medium-term energy strategy positions gas as less environmentally damaging than coal as the country moves towards net zero emissions. Japan proposes gradually reducing greenhouse emissions from gas generation through the use of technologies such as mixing hydrogen with gas to generate electricity, and storing carbon dioxide underground, including in Australia. But there is scepticism within Japan about the costs and feasibility of this approach to decarbonisation.
Where to now?
Japan and Australia’s joint declaration is a strong signal both governments want to deepen ties, including in critical minerals and energy.
It is a welcome step forward. There is a large shared agenda between the two countries. Japan’s Green Transformation, a suite of green industrial policies, and Australia’s Future Made in Australia initiative, overlap across green metals, hydrogen and ammonia, low-carbon liquid fuels, critical minerals, renewable technology manufacturing and other areas.
So how to build on the opportunity from here?
Australia’s Climate Change Authority offers a useful way forward, proposing bilateral Decarbonisation Deals as a way of coordinating emissions reduction, trade, investment and industrial policy.
Australia and Japan could develop a roadmap for a shared decarbonisation agenda through a bilateral energy transition council, with industry as delivery partner, and informed by research.
Australia and Japan’s joint agreement offers an opportunity to create a new energy partnership, based on our shared commitment to reaching net zero by mid-century, and our interests in open trade and investment.
