Tokyo Notes

Japan Drops Cap and Trade

Naoto Kan bows to industry pressure and drops proposals for a nationwide cap and trade scheme.

Bowing to pressure from industry, the Japanese government has dropped a plan to launch a proposed nationwide cap and trade scheme for greenhouse gases emissions from April 2013.

In a global warming policy document approved by the Cabinet on Tuesday, no mention was made of such a scheme to trade quotas of carbon dioxide and other greenhouse gas emissions. The document merely stated (typically vaguely) that the government would 'carefully examine' such a scheme.

Such carbon trading systems cap the amount of pollutants that firms may emit at a specific level and make heavy polluters purchase credits from low emitters.

The government's global warming policy is aimed at cutting emissions by 25 percent from 1990 levels by 2020, a target that was widely seen as ambitious and that was announced by former Prime Minister Yukio Hatoyama in September 2009.

The opposition from business is no surprise. Companies are concerned that a cap and trade scheme would weigh them down as they struggle to find their feet in the current harsh economic climate. They also say that a scheme would enable the government to meddle in their business by setting their emission caps. A September survey by the Nippon Keidanren, Japan's most influential business lobby, found that 61 of 64 firms were against the scheme.

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The government, however, should have worked harder to convince industry that cap and trade schemes are an excellent means of cutting emissions. As I have mentioned before, a well-thought out system would provide financial incentives for firms to cut emissions and develop green technologies. Japan is a nation with a first-rate reputation for environmentally friendly technologies (look at the success of Japanese hybrid cars) and the introduction of a national cap-and-trade could further enhance the nation's green credentials, while also boosting corporate profits. This makes the government’s decision to kowtow to business seem short-sighted at best.

Another example of the Cabinet’s myopia is the example set by the Tokyo metropolitan government. Before Tokyo introduced its own scheme for the metropolitan area in April, it held a series of stakeholder meetings attended by academics, environmental NGOs, consumer groups, business groups (including Keidanren) and companies. Officials from the Environment Ministry and the Economy, Trade and Industry Ministry (between which there was a feud over the central government's decision to drop the cap-and-trade scheme) were also present.

During these meetings, opponents of the Tokyo scheme cited the failings (such as purported government interference) of an EU carbon-trading scheme (EU-ETS), but proponents reportedly pointed out flaws in their arguments and won the sceptics over.

The Environment Ministry should have held such hearings to put forward its case for a nationwide scheme more rigorously to the business world – a sector that will always listen if a buck is to be made.

In the Cabinet meeting on Tuesday, ministers decided to introduce an environmental tax during fiscal 2011 (which starts on April 1). Specifically, this involves higher taxes on fossil fuels, increasing the price of a litre of petrol by 0.76 yen – an annual outlay of little more than 1,000 yen per household.

The Asahi Shimbun, Japan's second largest daily, was highly critical of the tax, stating in an editorial last week: 'While its effects on the economy and people's livelihoods may be limited, the tax still won't do much to curb greenhouse emissions…The administration has introduced the new tax in such a rash manner that many people may suspect the real aim is to plug the hole in the budget that will be created by the planned cut in corporate taxes.'

The Asahi is right to make these points as the tax merely tweaks up the tax rate on fossil fuel products. It appears to be window dressing for a tax policy that the government can’t seem to settle on.

The nation did, however, receive some good green news on Monday, when the Environment Ministry announced that emissions fell by 5.7 percent in fiscal 2009 from the previous year. This puts Japan on track to meet its Kyoto Protocol target of cutting emissions by an annual average of 6 percent from 1990 levels in the 2008-2012 commitment period.

Yet it appears that this good news came from bad. The reduction stemmed largely from the economic slowdown, and experts forecast that emissions will increase once more in fiscal 2010 in line with the economic recovery.

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Japan can still be proud it should be able to meet its target. But this is nonetheless a relatively minor success in the grand scheme of things, especially since the world's two largest emitters – China (which is not obliged to make cuts under the pact) and the United States (which refused to ratify the pact) – have no requirement to make emission cuts in line with the protocol.

Resistance to across-the-board mandatory reductions also prevented any specific targets being applied to a 'post-Kyoto' protocol at the recent Cancun climate conference. And it’s also obvious that a country such as Japan can’t effect positive change on an increasingly warming world on its own.

Kan, though, has an idea for getting other nations on board the international green train.

According to the Nikkei, an influential financial daily, Kan said at the same Cabinet meeting on Tuesday that he was considering a plan to encourage the international community to support a per-capita target for CO2 emissions. He reportedly proposed the setting of a goal such as halving emissions to 2.2 tons per head by 2050. Japan emits 9 tons per capita, with the global average at 4.4 tons.

Such a target could persuade major so-called developing nations such as China and India to sign up to a pact and help prevent temperatures rising more than 2C from pre-industrial levels (a target that climate scientists say would restrict ecological damage).

Kan would be wise, though, to remember that real change must start at home.