Firm hopes to start carbon credit exchange in Japan

by Siti Rahil

SINGAPORE (Kyodo) Japan’s first carbon dioxide credit exchange is being planned to start in the middle of the year to help achieve the greenhouse gas emission cuts promised under the Kyoto Protocol.

Netherlands-based Asia Carbon International B.V., which last year set up Asia’s first offshore carbon exchange, in Singapore, is planning to set up an exchange in Japan with Japanese partners, said Kesava Shotam, the firm’s managing director.

“We’re looking at setting up an exchange in Japan. We are at the moment in a very exploratory stage and looking for a good partner in Japan,” Shotam said in an interview at the firm’s Singapore office.

“We would like a partner who can aggregate buyers. Those who have the right understanding of carbon trading would be the right partner for us.”

The proposed exchange, to be established in Tokyo, would trade carbon credits under the Clean Development Mechanism of the Kyoto Protocol.

The mechanism allows rich nations to meet their Kyoto goals to reduce greenhouse gas emissions by buying or swapping credits with countries that have exceeded their targets.

Under the pact, Japan is required to reduce its greenhouse-gas emissions between 2008 and 2012 by 6 percent from the level in the base year of 1990.

But Japan already is facing difficulties. By fiscal 2004, it had increased its greenhouse emissions by more than 7 percent above the level in 1990, meaning it now must make a cut of more than 13 percent.

Analysts say Japan likely will use carbon dioxide credit trading to achieve its target.

Since the Kyoto pact came into force last February, there has been a scramble among developed countries for emission rights, resulting in a booming market for carbon dioxide credits.

Carbon dioxide exchanges have mushroomed in Europe, where credits already had been trading on several exchanges. Exchanges have also sprouted up in the United States, where some states have set their own targets even though Washington has refused to sign the Kyoto agreement.

Japanese companies, which boast some of the world’s most environmentally friendly technologies, are already stretched to the limit trying to curb carbon dioxide emissions, making it necessary for them to look outside the country to gain emission rights.

A senior official at Hitachi Ltd. said recently that after two major oil shocks Japan cannot improve further in energy conservation as there is little in can do in its policymaking.

The Japanese carbon dioxide exchange aims to bring together buyers in Japan with carbon-credit sellers, mainly from the least developed countries in Asia.

Asia Carbon International is currently negotiating with several Japanese trading companies and steel mills that have expressed interest in setting up the exchange.

There is a high possibility the exchange will be launched by midyear, managing director Shotam said.

“We will work together with any government, wherever we have a platform to comply with the rules and regulations of that country,” Shotam said.

An Environment Ministry official said last week, “The new exchange could assist Japan in its efforts to reduce carbon emissions.”

Asia Carbon International set up Asia’s first offshore carbon exchange in Singapore in May with some financial incentives for software development from the Singaporean government. However, the exchange has not started trading because Singapore has not acceded to the Kyoto Protocol.

The company held the world’s first online auction of forward carbon-credit contracts in November. The auctions on forward contracts for projects are expected to come onstream in 2007, when spot trading is expected to flourish.

Since November, it has held three auctions, with a combined 1.63 million carbon credits traded.