Oct. 21 (Bloomberg) -- Prime Minister Taro Aso's government today approved a carbon-trading trial in Japan, the world's fourth-largest polluter, allowing companies to set their own emission-reduction targets.

Once companies announce emission targets, they must open transaction accounts that can be accessed by the government. They are then free to start trading on a negotiated basis, according to a statement released in Tokyo. The government will hold seminars nationwide to explain the trial.

The plan contrasts to the cap-and-trade system now used in Europe, where governments impose a mandatory ceiling and companies that pollute too much must then buy credits or allowances to offset the difference. In Japan, there will be no penalties if companies don't meet their targets.

Nippon Steel Corp., Japan's largest maker of the alloy, and Tokyo Electric Power Co., its biggest generator, said they have not decided whether to participate in the trial yet.

``We still don't believe emission trading will necessarily lead to a reduction of global-warming gases,'' Nippon Steel spokesman Masato Suzuki said. ``We will look into the trial- trading rules.''

Japanese heavy industries have already set voluntary targets for reducing emissions. Power utilities have pledged to cut the carbon they produce to generate a kilowatt hour of electricity by 20 percent from the 1990 level by 2012, and steelmakers have pledged to cut emissions by at least 30 percent in 10 years.

Industry Opposition

Leaders of both industries oppose a mandatory cap-and-trade mechanism, which they say would saddle them with most of the bill for the government's climate-change proposals.

Participants in the trial can buy allowances from companies that emit less carbon than their ceiling. They can also buy and sell United Nation certified emission credits. Under the UN's Clean Development Mechanism, polluters can invest in projects that reduce carbon in poorer countries to offset their own emissions. The so-called CER's are already tradable in Europe.

Japan emitted 6.2 percent more greenhouse gases in the year ended March 2007 than in 1990. Under the Kyoto climate-change pact, the nation pledged to cut emissions by 6 percent from the 1990 level by the end of 2012.

The U.S., China and Russia are the three biggest emitters of carbon dioxide, according to the International Energy Agency.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net.

Last Updated: October 21, 2008 01:39 EDT