Positive Environment News

Japan Seen Shelving Carbon Emission Trading Scheme

Date: 23-Dec-10
Country: JAPAN
Author: Kiyoshi Takenaka

Japan is likely to shelve a plan to introduce carbon emissions trading as the troubled ruling Democratic Party bows to powerful business groups still recovering from a costly downturn.

If confirmed, it would be a massive reversal by the party, which has backed one of the toughest emissions reduction targets of any major economy and said emissions trading was a key way to achieve that goal and drive greater energy efficiency at home.

It would also be a blow to hopes more top greenhouse gas polluting nations outside the European Union would usher in emissions trading, after efforts in the United States and Australia were shelved.

The party said last week the scheme, supposed to be introduced into parliament early next year, could hamper investments in key industries and that the government needed to carefully study it further. A Cabinet Office official also told Reuters on Tuesday the government would look carefully at the issue.

Analysts said this is tantamount to recommending the plan be frozen. The government, which aims to decide its stance by the end of this month, is expected to follow the Democratic Party's proposal.

"The Democratic Party is a ruling party. If the party makes such a decision, the government cannot help respecting it," said Kazuo Matsushita, professor of the Graduate School of Global Environmental Studies at Kyoto University.

"So far I have not seen any strong leadership from Prime Minister (Naoto) Kan on the environmental front."

The party pledged in an election last year to set up a carbon trading market to help the nation meet a target to cut greenhouse gas emissions by 25 percent from 1990 levels by 2020.

But Kan, who is struggling with plunging popularity, faces a weak economy, public debt twice the size of Japan's $5 trillion economy, territorial disputes with China and Russia, and a divided parliament.

Even if the carbon emissions trading scheme is approved by the government, it would need opposition help to pass the bills in parliament. And the government's top priority is to have budget-related bills passed by the end of the current fiscal year to March 31.


Some powerful business groups have said a tough emissions reduction target and a trading scheme could increase costs, hurting the competitiveness of big exporting firms when competitors such as the United States have so far failed to win agreement on trading schemes of their own.

Naoyuki Yamagishi, WWF Japan's head of climate change, said a narrowing distance between the Democratic Party and Japanese businesses has something to do with the expected about-face.

"Negative impacts of the economic crisis are still being felt in many fields, Japanese industries in particular. That's one reason," Yamaguchi said.

"People in the industries are beginning gain access to the Democratic Party. That's the other reason. These two factors, as a result, seem to have helped the party produce an outcome that is considerate to the business sector."

Japan's already efficient economy emits only half as much carbon dioxide (CO2), the main greenhouse gas blamed for global warming, as the EU or the United States per unit of economic output.

The powerful Nippon Keidanren business lobby insists any new scheme in Japan, the world's fifth-biggest emitter, allows caps on emissions per unit of production, which it says would encourage companies to invest in renewable energy and energy conservation while still allowing them to increase output.

The lobby includes steelmakers and power firms and accounts for half the nation's greenhouse gas emissions. Some big polluting sectors have argued that an emissions cut target of more than minus-8 percent from 1990 levels by 2020 would force energy-intensive industries offshore, driving up unemployment.

In a recent business-friendly policy step, the Democratic Party-led government cut the effective corporate tax rate by 5 percentage points to 35 percent, despite Japan's massive public debt.

Under emissions trading, a price is placed on carbon dioxide emissions from industry through the issuance of tradable pollution permits tied to emissions reduction targets. The idea is to drive investment in cleaner energy generation or energy efficiency.

Over time, the number of permits per tonne of emissions declines, driving up the price and acting as a reward for polluters that beat their targets, which can then sell excess permits to firms that fail to meet their mandatory cuts.

(Editing by David Fogarty)

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