Japan could require up to 22 million tonnes of wood pellets every year by 2040, according to new data published by Drax, which projects that it could make up five to six per cent of Japan’s energy mix, up from 4.1 per cent in 2024.
But soaring fuel costs, tightening emissions rules, and the phaseout of subsidies are raising serious doubts about whether the sector can sustain that level of investment, even as the Japanese government has ended support for new biomass power plants above 10 megawatts and introduced stricter lifecycle emissions verification requirements.
A government official, speaking to the Financial Times, said the shift was intentional, noting that “the real intention is quite simple: no new government support, phasing out. We don’t see any clear path to bringing down costs in the foreseeable future.” The official added that “existing projects might survive, but no new projects are coming.”
In 2024, Japan imported more than 12 million tonnes of wood pellets and palm kernel shell, making it the world’s second‑largest biomass fuel market. But average fuel prices have climbed 50 per cent since 2020 to ¥28,885 (A$194) per tonne, according to the Japan Woody Bioenergy Association.
Biomass plants are now running at just 63 per cent capacity, well below the 78 per cent needed to break even, according to data from the Ministry of Economy, Trade and Industry. So far, at least six plants have ceased operations, as operators warn that the economics have become increasingly difficult.
Drax, which exported 1.2 million tonnes of pellets to Japan in 2024, said in its most recent trading update that it had suspended new investments in pellet production in the “short to medium term.” The company said its Canadian business supplying Asia “is expected to be more challenged.”
Drax had been targeting £250mn in core earnings from its pellet division by 2027 and is exploring a move into sustainable aviation fuel in the 2030s. Yasuhisa Okamoto, managing director for Drax Asia, told the Financial Times he still sees potential in Japan’s coal‑fired power sector. “I still have a good expectation about the future demand in Japan,” he said. “If you do some comparison between ammonia and biomass, it’s a totally different world.”
And the 2024 bankruptcy of Enviva, the world’s largest pellet producer, has further shaken confidence in the sector, with Erex, one of Japan’s major biomass power producers, shifting toward developing biomass projects and pellet factories in Vietnam, which is emerging as the epicentre of woody biomass.
These projects generate carbon credits that count toward Japan’s emissions‑reduction goals under a joint crediting mechanism. Erex president Hitoshi Honna told the Financial Times that “South‑east Asia will consume the necessary biomass fuel domestically. Even if supplies come to Japan, prices will stay high,” he said before adding that it would be difficult to achieve at scale for imports.
It comes as Wood Central reported last week that Vietnam has emerged as Asia’s pellet powerhouse, with new data from Vietnam Customs showing the country exported more than US$1.08 billion in the 11 months to December 2025, up 52% from 2024, 94% going to Japan and South Korea.
However, Forest Trends, an international non‑profit that monitors global supply chains, has warned that the current boom is masking key structural weaknesses in the Vietnamese pellet supply chain. That’s because the country’s supply chain relies on “secondary raw materials,” including waste from secondary wood‑processing facilities, creating a total dependence that “fluctuates in availability, pricing and season constraints.”
According to Professor To Xuan Phuc, a senior policy analyst at Forest Trends, forest businesses “must invest in developing dedicated raw material zones to reduce the Vietnamese wood pellet industry’s reliance on secondary supply sources and ensure compliance with legality and sustainability standards,” warning that growth could outpace capacity to secure stable, certified feedstock.
