Tokyo Carbon Trading Market Likely to Become National Model, Broker Says
Tokyo’s carbon trading market, the first of its kind in Asia, could be a model for a national system as local governments show interest in the program, said Masanori Eto, a director at Japan Climate Exchange Corp.
The first carbon credits in Tokyo’s system were sold in August on an online marketplace operated by Japan Climate Exchange, a joint venture between Smart Energy Co. and CoalinQ Corp., a subsidiary of trading house Sojitz Corp.
The adjoining prefectures of Saitama, Chiba and Kanagawa are discussing how to participate in Tokyo’s carbon market, suggesting nationwide trade will develop, Eto said in an interview this week. Europe’s cap-and-trade system is the world’s largest, covering 12,000 installations, and the cornerstone of the European Union’s plan to reduce emissions this decade by 20 percent from 1990 levels.
“Tokyo is ahead of Japan’s government and as more regions join, it becomes more likely that the Tokyo program is adopted as the national system,” Eto said. “Eventually we anticipate the creation of an Asian and American market to match Europe, but it will take time,” Eto said.
Cap-and-trade puts a price on carbon by setting limits on the amount of emissions polluters can produce. Those producing more than the limit must buy credits to offset their emissions, while those that emit less can sell their balance in the carbon market.
Japan’s capital started its cap-and-trade program in April as national government talks on a countrywide carbon trading program bogged down. The resignation of Prime Minister Yukio Hatoyama in June further delayed progress.
Prime Minister Naoto Kan told parliament today he plans to submit a new climate change bill this session. He didn’t say whether it would include national emissions trading.
Price on Carbon
As part of Tokyo Governor Shintaro Ishihara’s plan to cut the capital’s greenhouse gas emissions by 25 percent this decade, the program requires 1,400 companies to reduce emissions by 6 percent by the end of 2014 in the initial compliance phase.
Saitama has expressed its intention to join the system, while the prefectures of Kanagawa and Chiba, as well as cities around the capital including Kawasaki, will meet Tokyo officials in November to discuss a single carbon market, Kouji Miyazawa, director of cap-and-trade at Tokyo’s Metropolitan Government, said in a telephone interview.
If those prefectures and cities join, the Tokyo system would cover the world’s largest urban area with more than 31 million people, official statistics show.
The Tokyo market had its first trade in August when Ginga Energy Japan Co. bought 22 tons of carbon dioxide units backed by an energy-saving project for 12,000 yen ($142) a ton, Sojitz said in a statement. That compares with a spot price of 15.32 euros ($20.62) a ton for United Nations-backed carbon offsets on the European Climate Exchange in London, according to Bloomberg data.
The cost difference between London and Tokyo stems from lack of market liquidity as well as a “Japan price” for reducing emissions, Eto said.
The so-called Japan price reflects that the country has already invested heavily in energy efficiency, so future emission reductions will be more expensive than in less efficient countries, he said.
Tokyo credits are likely to sell from 10,000 yen to 15,000 yen, Eto said.
“If the city needs to cut emissions by 6 or 8 percent, that is going to require a lot of investment,” Eto said. “If carbon traded units only cost 1,000 yen, companies aren’t going to take it seriously.”
Japan’s energy intensity, or energy consumed per unit of GDP, has decreased 65 percent since 1973 as Japan invested in energy-saving technologies following the global oil crisis that year, according to Japan’s Institute of Energy Economics.
Japan Climate Exchange aims to handle 800,000 tons of domestic carbon dioxide by 2015 and 1.3 million tons by 2020 for a 33 percent market share in the country, Eto said. Demand is expected to be light before spiking near the end of the first compliance period in the Tokyo program in 2014.
“For two years, companies will try to reduce emissions by themselves, and then they’ll consider whether to buy credits,” he said. “So trade volumes will probably increase.”
Offsets backed by domestic projects that reduce emissions are eligible under the Tokyo system, while foreign projects, including those earning UN Certified Emissions Reduction credits, aren’t included. All Tokyo businesses that use energy equivalent to 1,500 kiloliters (400,000 gallons) of oil a year must participate or face fines of 500,000 yen per facility.
Former Prime Minister Hatoyama pledged to cut Japan’s emissions of greenhouse gases by 25 percent from 1990 levels by 2020, before his resignation ended deliberations on a bill that would have introduced a national cap-and-trade system.
A panel under the Ministry of Environment last month recommended starting national emissions trading in 2013.
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