DPJ’s emission goals seen leading to carbon tax

Bloomberg

The new government’s pledge to accelerate reductions in greenhouse gas emissions may lead to higher subsidies for makers of solar cells, including Sharp Corp. and Kyocera Corp., while forcing utilities to pay premiums for solar power generated by consumers.

The Democratic Party of Japan’s proposal to double the emissions cuts outlined by the ousted Liberal Democratic Party could lead to a carbon tax that has a severe impact on automakers, oil refiners and power producers, analysts and industry groups say.

The DPJ, which defeated the LDP in a landslide victory in Sunday’s Lower House election, may boost incentives for renewable energy and penalize polluting industries to achieve its goal, analysts at Goldman Sachs Group Inc. and Deutsche Securities Inc. said.

“The DPJ’s target is far more ambitious than the one set by the LDP,” said Tomohiro Jikihara, an energy analyst at Deutsche Securities. “They will more proactively consider levying a carbon tax on use of fossil fuels when Japan’s economy gets back in a recovery phase.”

Utilities and automakers fear a “severe impact” from the DPJ’s plan to slash emissions 25 percent by 2020 from the 1990 level and claim it would hurt economic growth and jobs, groups including Tokyo Electric Power Co., Toyota Motor Corp. and Honda Motor Co. said in separate statements Aug. 31.

Refiners, grappling with falling domestic demand, called the goal “a very high hurdle” and sought details on how it will be implemented.

“The DPJ’s policies are unrealistic and place a burden on those industries,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. “It would cost a huge amount of money to switch all cars into electric vehicles or put solar panels on homes.”

Toyota, Honda, Nissan Motor Co. and the other members of the Japan Automobile Manufacturers Association said the government should take the opinions of industry groups and consider the impact on the economy before implementing policies.

The DPJ’s emissions target is in line with the EU’s goal of a 30 percent cut by rich countries as a whole. If the new government makes good on its promise, Japan could help break the international deadlock over climate change, the European Union said Tuesday.

Incentives for the industry may result in a 20-fold surge in Japanese solar-cell sales by 2020, Goldman analysts Hiroyuki Sakaida and Ikuo Matsuhashi said in an Aug. 17 report.

To meet its goal of supplying 10 percent of the country’s needs with renewable energy, the DPJ government needs to add another 4,500 megawatts of solar capacity a year until 2020, equivalent to 80 percent of global demand, the analysts said.

Japan supplied 3.2 percent of its needs from renewables in 2006, according to the International Energy Agency. U.S. President Barack Obama wants 25 percent of U.S. electricity to come from renewable sources by 2025, the Energy Department says.

Although the DPJ’s campaign platform is unclear about what steps it will take to increase solar power generation, a party policy paper in April called for 50 percent subsidies to customers for installing solar panels, compared with the LDP’s 10 percent, the Goldman report said.

The recovery in domestic solar power demand is “a potential boon” for solar-cell makers such as Sharp and Kyocera and will help them ride out a likely shakeout in the industry in 2010 and 2011 brought about by global oversupply, Goldman said.

The DPJ paper also called for expanding the so-called feed-in tariff system, due to start in November, which requires utilities to buy surplus solar power generated by households and businesses, and pay as much as double the rate they usually pay for solar.

The DPJ platform calls for utilities to buy all power, not just the surplus, according to Goldman analysts.

The DPJ likely will extend the feed-in tariff system to cover all forms of renewable energy, benefiting wind-power developers, including Japan Wind Development.

Meeting the stricter emissions target would require an extra 10,000 megawatts of wind generation capacity by 2020 — an increase of 680 megawatts a year, Goldman said. That’s 445 megawatts more than the average increase over the last five years.

Utilities, led by Tepco, could see earnings per share shrink by more than half by 2020 as a carbon tax curbs demand, the analysts wrote. Builders of thermal power plants, including Toshiba Corp. and Hitachi Corp., could see sales decline if less oil and coal is used to produce electricity and utilities are urged to ramp up nuclear power generation.

Japan’s 10 regional utilities need to raise their nuclear operating rates, and regulations requiring frequent inspections and extended shutdowns after earthquakes may be amended to attain that goal, Jikihara of Deutsche Securities said.

Nobuo Tanaka, executive director of the International Energy Agency, urged Japan last year to relax its “hyper cautious” atomic safety standards to increase output.

The country’s operating rate averaged 59 percent in 2008, compared with 90 percent in the U.S. and 76 percent in France, according to industry group the Japan Atomic Industrial Forum Inc.