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Japan to test carbon credit market feasibility in 2022
06 August 2021
Japan's Ministry of Economy, Trade and Industry (METI) is
planning to test the feasibility of a nationwide carbon credit
market from 2022 as part of efforts to achieve carbon neutrality by
2050, according to an interim report from a ministerial study group
published 5 August.
Under this proposal, which is yet to be adopted, a Carbon Credit
Market (CCM) would be formed. Companies would participate on a
voluntary basis.
Japan's capital city of Tokyo introduced a regional emissions
trading scheme in 2010, the first such cap-and-trade scheme in
Asia, but a non-localized emissions trading program has so far
eluded the country.
Under a national trading program, participants would be able to
trade carbon credits to achieve their emissions targets or monetize
unused quotas. Transaction prices for the carbon credits would be
published by an exchange.
Setting a price on carbon and launching an emissions trading
program is part of Japan's push to decarbonize its economy to
net-zero levels by mid-century. The country has an interim goal of
a 46% CO2 emissions reduction by 2030.
According to the METI report, the group of participating
companies, tentatively named as the "Carbon Neutral Top League,"
would be required to pledge and disclose their emissions reduction
targets in accordance with methodology set by the government. And
their performance would be reviewed by the authorities
annually.
The tradable carbon credits would be created from either emissions
reductions by participants or projects that generate carbon
credits, including existing domestic credit schemes or overseas
voluntary credits that meet recognized international
standards.
The study group also identified the need to accelerate growth in
existing private sector carbon markets, including the non-fossil
fuel value trading market, J-Credit scheme, and the Joint Crediting
Mechanism (JCM).
The non-fossil fuel value trading market allows companies to trade
certificates that were originally issued by the government for
electricity generated from renewable energy sources. The J-Credit
scheme is for GHG emissions reduced or removed by forestry projects
or energy-saving devices. The JCM covers carbon credits generated
by Japanese companies from overseas initiatives.
To realize its interim goal, "the Government of Japan will work
to maximize utilization of decarbonized power sources, such as
renewable energy, and take incentive measures sufficient for
inducing investment by companies," Prime Minister Yoshihide Suga said<span/> at the Leaders Summit on Climate in
April.
In a 19 May online discussion with
investors, Suga administration officials recognized the
difficulties sectors like steel and power generation face in
shifting to a business model that relies on clean sources of
energy. Japan was the world's fifth-largest consumer of energy in
2019, with fossil fuels—petroleum, natural gas, and
coal—contributing 87% to the mix, the US Energy Information
Administration reported in November 2020.
During the same discussion, Fumihiro Kajikawa, director of
METI's environmental economy office, said a carbon price would be a
disincentive for companies with a heavy carbon footprint, while
recognizing that the challenge of decarbonizing is particularly
hard for hard-to-abate sectors.
Japan has had a carbon tax for the fossil fuel industry since
2012 of about ¥289 per metric ton of carbon ($2.62/mt) in addition
to separate taxes that the country imposes on the coal, oil, and
gas sectors, according to an April 2021 paper examining the
impact of Japan's taxes on product prices. Other sectors of the
economy are not similarly taxed.
Meanwhile, the government-study group also acknowledged the
importance of carbon footprint tracking technology. Development in
this area is necessary to enhance the country's international
competitiveness.
The study group said it would proceed next with the design of the
carbon credit trading system and development of a carbon footprint
infrastructure, among other concerns.
--Original reporting by Lujia Wang, OPIS; contributions by
Amena Saiyid, Net-Zero Business Daily.