Carbon Trades of Up to $212 Billion Opposed by Japan, South Korea Firms

Japanese and South Korean companies, adopting arguments that helped block carbon trading in the U.S., are opposing government plans to set up emission markets worth a potential $212 billion by 2020.

The Federation of Korean Industries said Jan. 11 that starting emissions trading in 2013 would add to the cost of doing business and put the country at a disadvantage unless Japan and China do the same. Keidanren, Japan’s largest business lobby, said 61 of 64 companies that responded to a survey in September opposed introducing carbon trading.

Japan and South Korea, Asia’s third- and-fourth-biggest polluters, would be critical to the United Nations plan to make carbon trading a “pillar” of the global effort to slow climate change. Concerns about costs and competition derailed national carbon markets in the U.S. and Australia and raised doubts about so-called cap and trade catching on outside Europe.

“The U.S. reluctance to embrace emissions trading might easily spread to Asia,” said Georgina Edwards, an analyst at Bloomberg New Energy Finance in London. “They’re almost like dominos at this stage.”

The U.S. and China, the world’s largest emitters, balked at legally binding emission targets at last month’s climate summit in Cancun, Mexico. The U.S. won’t commit unless China, India and Brazil are willing to do the same, U.S. negotiator Todd Stern said last month.

‘Reflection Period’

The European Union, which started its cap-and-trade program in 2005, said yesterday it may need a “reflection period” on continued participation in the 1997 Kyoto Protocol. Its emissions market was valued at about 80 billion euros ($104 billion) last year, or 81 percent of the global total, New Energy Finance said in a Jan. 6 report.

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 market.

The worldwide market could reach 1.7 trillion euros by the end of the decade if the U.S., Japan and other countries started “meaningful” cap-and-trade programs, New Energy Finance said.

The Japanese carbon market may be worth 106 billion euros in 2020, while South Korea’s could reach 56 billion euros, New Energy Finance estimated. The forecasts assume their programs start in 2013, which is “ambitious,” Edwards said.

Japan’s Environment Minister Ryu Matsumoto declined to commit to the 2013 date in a press conference in December after a meeting to discuss the nation’s emissions trading plans. In August, an environment ministry panel had recommended starting emission trading in fiscal 2013.

‘Extra Burdens’

Japanese companies are more focused on economic recovery than fighting climate change, said Satoshi Hashimoto, a senior researcher at the Mitsubishi Research Institute in Tokyo.

“The economic situation has drastically changed and businesses are strongly opposed to policies that would add extra burdens on them,” Hashimoto said in an interview yesterday. “There is intensifying competition from emerging countries. Environment policies had to take a step back.”

In the U.S., cap-and-trade opponents stopped President Barack Obama’s proposal for a national carbon market from passing Congress.

Republicans, who won control of the U.S. House of Representatives and narrowed Democrats’ majority in the Senate in elections last year, say they will now try to thwart Obama’s back-up plan to use Environmental Protection Agency regulations to curb greenhouse gases.

Ishihara Leads

Tokyo started a cap-and-trade program confined to the capital last April as part of Governor Shintaro Ishihara’s plan to cut greenhouse gas emissions by 25 percent this decade. The Tokyo market had its first emissions trade in August.

In South Korea, the Chamber of Commerce & Industry said carbon emissions trading will increase costs for domestic companies and make them less competitive than rivals from Japan and China.

South Korea’s government plans to present its emissions trading law to parliament next month, according to Jung Do Hyun, an official on the Presidential Committee on Green Growth, which oversees climate change policy. The proposal will first be reviewed by the Regulatory Reform Committee composed of academics and business groups that can request more lenient regulations.

Korea may seek to use carbon trading to win a competitive advantage, said Emmanuel Fages, the Paris-based head of carbon research at Orbeo, the emissions-trading venture of Societe Generale SA and Rhodia SA. “Korean manufacturers are partly convinced that being green is one way they will manage to compete,” he said yesterday by phone. “They want it to be a distinctive feature in their products.”

Ignoring China

The argument that businesses will face unfair competition ignores measures China is taking, according to Roger Raufer, an independent emissions and energy consultant in New Jersey. “It’s hard to make an argument that China is dragging its feet,” Raufer said in a phone interview.

China’s government plans pilot programs to cap and trade emissions in five provinces including Guangdong and Shaanxi, as well as eight cities including Tianjin, Xiamen and Shenzhen, Anthony Bailey, a Hong Kong-based China carbon analyst at New Energy Finance, said in a phone interview.

It also introduced a law in January requiring utilities to reinvest a percentage of profit into projects to improve energy efficiency, he said.

“South Korea is looking at China as more of the issue because a lot of their industry would be at a disadvantage,” Trevor Sikorski, a London-based analyst at Barclays Capital, said in a telephone interview. “For Japan, the real issue is probably not so much China as the U.S.,” he said.

“If you saw a robust North American trading scheme, and if you saw what China’s pledging to do brought into a legal framework, that’d probably be enough for most countries.”

To contact the reporters on this story: Stuart Biggs in Tokyo at sbiggs3@bloomberg.net; Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net; Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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