The introduction of an emissions trading system and a carbon tax would be effective in reducing Japan’s greenhouse gas emissions, an Environment Ministry panel said in an interim report released Friday.

Under the 1997 Kyoto Protocol, Japan pledged to slash its its greenhouse gas emissions by 6 percent from 1990 levels by 2012. But Tokyo is falling behind on this promise; fiscal 2002 emissions were 7.6 percent higher than in 1990.

Friday’s interim report by the Central Environment Council is the first of two reviews of the nation’s global warming policies to check the progress being made toward achieving the Kyoto Protocol target. A final report is to be compiled by the end of March.

Although the ministry hopes to launch the emissions trading framework on a voluntary basis in fiscal 2005, experts said it was unlikely that a carbon tax would be introduced anytime soon because of stiff resistance from business circles.

The industrial sectors remain adamantly opposed to such measures as a carbon tax and emissions trading, arguing that they would dampen corporate activity and reduce competitiveness.

In addition to these steps, the council also suggested the introduction of a system to force companies and public sectors to measure and make public the emission levels of their factories and offices by reporting the data to the government.

Environment Ministry officials claimed they have high hopes for voluntary emissions trading, which has already been introduced in Britain. In January, the European Union will launch an emissions trading system that firms in certain industries will be obliged to join.

“Emissions trading is advantageous in cutting the emissions efficiently through the use of market mechanisms,” said Yasushi Ogasawara of the ministry’s Climate Change Policy Division.

Under the system envisioned by the ministry, participating companies would be obliged to cut their greenhouse gas emissions to self-imposed maximum emission levels. In return, they will receive government subsidies to install such energy-saving equipment as cogeneration systems to achieve their targets, Ogasawara said.

Firms that succeed in cutting more emissions than their targets can sell the extra emissions on the emissions-trading market to firms that failed to meet their reduction goals. If companies fail to meet their targets even through use of the trading system, they must return the subsidies to the government, he said.

The voluntary system envisioned by Japan would begin in fiscal 2006 after preparations start in fiscal 2005, the ministry said.

The ministry feels such a trading system is necessary due to the increased likelihood of Russia’s ratification of the Kyoto Protocol, which would put the treaty into effect, he said.

But Japanese businesses say they fear that voluntary emissions trading will open the door to the introduction of obligatory trading.

Satoshi Mukuta, director of the Environment, Science and Technology Bureau of the Japan Business Federation (Nippon Keidanren), the nation’s most powerful business lobby, said setting maximum emissions by companies will restrict the amount of energy they expend while also limiting output.

But Akihiro Amano, vice president of the University of Hyogo and member of the ministry panel, said Japan should introduce obligatory emissions trading in the future.

“We must change the current situation where companies are allowed to emit carbon dioxide without any cost burden,” he said.

As for the introduction of a new tax on carbon dioxide emissions, the council’s report says it would help reduce energy consumption, because it would drive the message home to consumers of the urgency of reducing emissions.

The tax would also provide revenue to fund other measures to counter global warming, the report says.

But the council did not give details, saying only that specifics on the levy were being discussed by a panel subcommittee.

The subcommittee has been discussing the tax since December, based on a proposal hammered out by a separate committee of the council.

According to the committee’s proposal, a tax of 3,400 yen per ton of carbon, equivalent to 2 yen per liter of gasoline, would result in revenue of 950 billion yen. If this money is used to finance measures to counter climate change, Japan would be able to achieve its Kyoto Protocol target, the committee said.

Takamitsu Sawa, director of the Institute of Economic Research of Kyoto University and member of both the the Central Environment Council and the subcommittee, said that no specifics for a carbon tax have been decided yet, partly due to the resistance of businesses.

Teruaki Masumoto, a council member and chairman of Keidanren’s subcommittee on global environment, said, “We strongly oppose the carbon tax and any other measure that restricts economic activity, as they undermine the vitality of industry.”

He said industry is striving to develop energy-saving technologies, but such a tax would impose a heavy burden on companies, effectively preventing them from making investments in such research.

Although the ministry hopes to introduce the tax as swiftly as possible, Sawa of Kyoto University said this will be difficult as the ministry has not gained industry support.

The government could entice businesses to agree to a new tax by offering tax breaks, said Mie Asaoka, a council member and head of Kiko Network, a nongovernmental organization studying global warming issues.

In Britain, for example, companies that achieve their emission reduction pledges are exempt of 80 percent of the carbon tax, Asaoka said.

Another way to find some middle ground on the issue would be to impose the tax on end users rather than businesses, experts said.

Masumoto of Keidanren said industries might be able to make concessions if the tax is not levied on importers and processors of fossil fuels, but on consumers. Kyoto University’s Sawa said such taxation can also have an educational effect.

“If people buy gasoline and see the carbon tax on receipts, it will be more effective in bringing the issue home to the public,” he figured.

But Sawa said that in such a case, the cost of tax collection would be greater than taxing importers and processors.

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