Tokyo’s CO2 cap-and-trade may set national standard

by Maya Kaneko

Kyodo News

Asia’s first mandatory program to cut greenhouse gas emissions, launched last week by the Tokyo Metropolitan Government, could provide a much-needed model for the central government, which is struggling to design a nationwide emissions trading system this year.

Under the leadership of Gov. Shintaro Ishihara, Tokyo aims to slash its carbon dioxide and other heat-trapping gas emissions by 25 percent compared with 2000 levels by 2020. The program caps energy-related carbon dioxide emissions from some 1,330 offices and factories in the capital and allows for trading of emissions credits.

The move by Tokyo, whose energy consumption is about the same as that of Sweden or Norway, offers a case study for the central government that urgently needs to draw up a blueprint for its cap-and-trade system to achieve a 25 percent cut in emissions by 2020 and keep up with global efforts to set up carbon markets.

Teruyuki Ono, director general for climate strategy at the metropolitan government’s Environment Bureau, said becoming a front-runner in shifting to a low-carbon economy will benefit the city.

“Sooner or later, we will no longer be able to emit massive amounts of carbon dioxide without any restrictions,” Ono said. “Transforming economic activities and facilities into low-carbon models will help Tokyo continue to develop in a sustainable manner and provide incentives to companies willing to do business here.”

About 1,330 offices, commercial buildings and factories that annually consume the crude oil equivalent of more than 1,500 kiloliters of energy will be required to cut total carbon dioxide emissions over the fiscal 2010-2014 period by 6 percent to 8 percent from base-year levels.

Base-year levels are calculated from average emissions over a past period of three consecutive years between fiscal 2002 and 2007. Office buildings face an 8 percent target and factories are subject to a 6 percent goal.

In the fiscal 2015-2019 second phase, they will be required to slash emissions by 17 percent from their base-year levels.

Even though the high energy-consuming facilities account for only around 0.2 percent of some 700,000 industrial and commercial institutions in Tokyo, their carbon dioxide emissions in 2007 stood at roughly 20 percent of total metropolitan emissions of some 60 million tons.

To meet the targets, offices and factories can either make efforts on their own, such as updating to energy-saving equipment, or purchase emissions credits from other entities that have reduced their carbon dioxide output by more than the obligated levels in a system known as cap and trade.

They can also buy credits earned through reduction efforts by small and medium-size companies in Tokyo and the entities’ large-scale branch offices outside the capital. Renewable energy certificates issued by power generators can be also purchased.

But the credits from outside Tokyo should not exceed one-third of the required cuts.

Actual trading under the mandatory system is set to begin in fiscal 2011 after data on reduction efforts in fiscal 2010 are finalized.

Any entity that fails to attain its reduction goal will be ordered by the metropolitan government to cut emissions by 1.3 times the amount it failed to slash. Violators of such orders will have their names published and face fines of up to ¥500,000.

Ono pointed out that Tokyo’s cap-and-trade system has prompted companies to implement serious steps to trim emissions.

For example, Mitsubishi Estate Co. this month started acquiring all the electricity to be consumed at its 38-story Shin Marunouchi Building from renewable energy sources. Energy providers include a wind power station in Aomori Prefecture.

Ono emphasized that setting voluntary caps for companies would not lead to drastic cuts, as Tokyo’s policy to promote reductions through nonbinding targets since 2002 appeared to be insufficient to achieve the 25 percent emissions cut goal by 2020.

Last May, the Tokyo government joined the International Carbon Action Partnership, an open forum comprised of about 30 countries and regions that have implemented or are actively pursuing the launch of carbon markets through mandatory cap and emissions trading systems.

The ICAP members are sharing their experiences and knowledge and exploring the future possibility of linking regional emissions-trading programs.

The 27-nation European Union and 10 Northeastern and mid-Atlantic U.S. states, including New York and Massachusetts, operate the scheme mainly targeted at such high energy-consuming facilities as thermal power and steel plants.

The mandatory program is also scheduled to be launched in New Zealand in July and an alliance of regional governments in the United States and Canada, including California and British Columbia in 2012, while similar steps have been proposed in Australia and the United States at the federal level.

“Only programs that set an overall ceiling for emissions are recognized as effective cap-and-trade schemes,” Ono said. “Frameworks that lack the absolute caps will have no chance to be connected to other carbon markets in the future to form a global trading system.”

Japanese businesses such as steelmakers and power companies as well as labor unions are calling for an emissions ceiling based on units of production.

In a bill submitted to the Diet in March, the central government left room for allowing a ceiling to be set per unit of production, or energy intensity target, for some industries in designing an emissions trading scheme over the next year.

The approach has been criticized by environmental groups because it could theoretically allow emissions to increase as long as production volumes grow.

“If the intensity target is introduced for some sectors, the entire system will be unfair,” Ono said. “Such a scheme will be absolutely insufficient in trying to achieve the ultimate goal of slashing the total volume of greenhouse gases on Earth.”

The metro government officially proposed to the central government in November to design the nationwide emissions trading program with absolute caps on total volume of emissions and make it fit for global standards so it can be linked with other carbon markets in the future.