New government policies rattle corporate Japan

By Nobuhiro Kubo - Analysis

TOKYO (Reuters) - Proposals by Japan's new ruling party to slash greenhouse gas emissions may trigger a shake-out in smokestack industries like paper, cement and steel, but boost firms investing in solar and other green technologies.

A Democratic Party (DPJ) pledge to cut emissions by 25 percent from 1990 levels by 2020 is one of several proposals causing a stir across businesses.

Another is a plan aimed at banning most temporary factory workers. Corporate executives say that could hit profits and push more investment overseas.

The emissions target, reiterated by DPJ leader Yukio Hatoyama this week, is more ambitious than other industrialized nations, which are aiming for average cuts of 10-14 percent.

Hatoyama said it was premised on other major nations agreeing ambitious goals, but it may still be difficult to get industry buy-in as businesses fear it could dent Japan's corporate competitiveness.

"Japanese manufacturers would need to cut back their production activity," said Hanako Mizuguchi, strategist at Daiwa Research Institute. "The burden could be especially heavy for manufacturers that consume a lot of energy such as cement and paper."

Mizuguchi said the plan, if approved, could trigger consolidation in fuel-guzzling industries, where major players include Nippon Steel Corp (5401.T), Taiheiyo Cement Corp (5233.T) and Oji Paper Co (3861.T).

The Institute of Energy Economics, a Japanese research firm, estimates steel output would be 18 percent lower in 2020 than it has forecast based on existing emissions cuts targets, while cement and paper production would fall 25 percent and 29 percent, respectively.

Although the ambitious target could help nurture technology such as the solar power panels being made by electronics group Sharp Corp (6753.T) and oil refiner Showa Shell Sekiyu KK (5002.T), it could cost Japan more than $2 trillion by 2020, based on government estimates.

Keio University Associate Professor Koji Nomura added it could reduce Japan's GDP by about 5.6 percent in the next 10 years.

Industry opposition has spread, and even automakers, whose hybrid vehicles and electric cars stand to benefit from the tough regulation, have expressed concern.

"It would be difficult to reach the target with our current business plans," said Honda Motor Co (7267.T) President Takanobu Ito.

TEMPORARY WORKERS

The DPJ's proposed ban on sending temporary workers to manufacturing jobs is an added concern.

The system has been criticized as adding to instability in the workforce, and runs counter to DPJ policy to stimulate domestic consumption by putting more money in the hands of consumers.