Japan May Revive Carbon Trading Discussion After Election

The Japanese government may revive discussions about a carbon market that would reduce pollution levels after elections for the Upper House of parliament due in July, a government adviser said.

Takashi Hongo, a senior fellow at Mitsui Global Strategic Studies Institute and a delegate for Japan at United Nations climate talks, said ministers are likely to consider building a market for carbon dioxide emissions credits later this year.

The market would cap emissions from utilities and industry and allow companies to trade the rights to pollute, mirroring markets established in Europe and New Zealand. Hongo said that structure would be more effective in limiting fossil fuels than a tax, since it would give companies the flexibility on how they would meet obligations.

“The Japanese government has the option to increase the tax, but sooner or later the industry will oppose that,” Hongo said in an interview at his office in Tokyo. “Taxes have some limitations. Taxes would be recognized as general government revenue. If the tax went up, it might not be devoted to the environment. It could go to reduce the deficit.”

In December 2010, Japan took a step back from plans to start carbon trading in 2013 as the industry opposed emission- trading rules that would add to costs and reduce competitiveness against countries such as India and China not bound by similar restrictions.

Economic Stimulation

Hongo, a former official with Japan Bank for International Cooperation, said that for now Prime Minister Shinzo Abe’s government is focused on stimulating the economy and consolidating its grip on power.

Abe’s Liberal Democratic Party retook power in December from the Democratic Party of Japan. The LDP has control of the lower house of the Diet but the party and its junior coalition partner are 20 seats short of a majority in the 242-seat upper house. Half the members of the upper house are up for election in July.

The Ministry of Economy, Trade and Industry also has put off until the end of the year putting together its Basic Energy Plan. Japan’s energy policies will feed into the UN’s annual round of talks on how to limit global warming, which happen this year in Warsaw.

Carbon Trading

“Now is not the time to talk about the environment,” Hongo said. “Now is the time to talk about growth. After the Upper House election, more initiatives to discuss our long term energy structure are possible.”

Hongo, who advised on the design of the UN Clean Development Mechanism, has long been a proponent of carbon trading and said he sees a “large global market” as an important tool for limiting emissions.

To contact the reporter on this story: Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net

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

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