Japan: Greenhouse gas emissions trading schemes | White & Case LLP International Law Firm, Global Law Practice

Japan: Greenhouse gas emissions trading schemes

Tokyo Metropolitan Government's and Saitama Prefecture's schemes are connected as Japan considers a national scheme

Similar in some ways to regional emissions trading schemes in the US and Canada, Japan has locally connected emissions trading regimes in the Tokyo Metropolitan Government and Saitama Prefecture. On the national level, although Japan’s Voluntary Emissions Trading Scheme has existed since 2005, after efforts to implement a mandatory national emissions trading system were postponed in December 2010, the stance of Japan’s government has been to carefully consider an emissions trading scheme, evaluating its burden on Japanese industry, associated impacts on employment, developments and effects of emissions trading schemes in other countries, and global warming countermeasures that are already implemented in Japan (e.g., voluntary actions by industry).

 

Emissions trading launched in April 2010, when the registry started to manage emissions trading records.

 

TOKYO METROPOLITAN GOVERNMENT

The Tokyo Metropolitan Government started the "Mandatory CO2 Reduction and Emissions Trading Program" in April 2010. It requires mandatory reduction of absolute carbon dioxide (CO2) emissions and implements a cap-and-trade program by amending the Tokyo Metropolitan Environmental Security Ordinance.

What is covered

The cap applies to large-scale facilities (buildings and factories) with a total consumption of fuels, heat and electricity of 1,500 kiloliters or larger per year in crude oil-equivalent. These facilities include large CO2 emitters such as offce buildings and factories. The program targets only energy-related CO2 in the frst stage; other gases will be added sequentially as necessary. The program covers approximately 1,300 facilities in Tokyo including 1,100 business facilities and 200 factories, and it covers approximately 40 percent of the total volume of greenhouse gas (GHG) emissions by industrial and commercial facilities in Tokyo. The program differs from that of its EU ETS and US RGGI counterparts since it also includes within its scope large-scale offce buildings.

What is required

The program sets five-year compliance periods and targets for total emissions over each five-year period. The first compliance period covered fiscal year 2010 through fiscal year 2014; the second compliance period covers fiscal year 2015 to fiscal year 2019. Covered facilities in the program must reduce energy-related CO2 emissions (i.e., consumption of fuels, heat and electricity).

During the first compliance period, 8 percent reductions were required for business facilities such as offce buildings, and 6 percent reductions were required for industrial facilities such as factories. The percentage of reductions are calculated using base-year emissions, which are the average emissions of three consecutive fiscal years selected between fiscal year 2002 and fiscal year 2007. Total emissions of the covered facilities for the fiscal year 2014 were reduced by 25 percent from base-year emissions, amounting to a 14 million ton reduction in the frst compliance period. For the second compliance period, the target has increased to a 17 percent reduction for business facilities and a 15 percent reduction for industrial facilities. Owners of covered facilities must report the previous fiscal year's emissions to the Tokyo Metropolitan Government by the end of November every year.

Emissions trading launched in April 2010, when the registry started to manage emissions trading records. A filing must be made with the registry when acquiring, transferring or using excess reduction or offset credits to fulfill the reduction obligation. Five types of credits—Excess Credits (excess emission reductions), Small and Midsize Facility Credits (emission reductions from small and midsize facilities in Tokyo), Renewable Energy Credits, Outside Tokyo Credits (emission reductions outside Tokyo area) and Saitama Credits—are under the cap-and-trade program. Of those credits, Small and Midsize Facility Credits, Renewable Energy Credits, Outside Tokyo Credits and Saitama Credits are offset credits, which may be used to fulfill obligations under the program.

Future outlook

Looking forward to the Tokyo 2020 Olympic and Paralympic Games and beyond, the Tokyo Metropolitan Government set up a new Environmental Master Plan in 2016 that showcases the environmental policies to be implemented by 2030, which include the target of reducing greenhouse gas emissions by 30 percent below 2000 levels.

Connections

Tokyo Metropolitan Government and Saitama Prefecture signed the agreement to connect their emissions trading programs in September 2010. Since April 2011, Tokyo Metropolitan Government’s cap-and-trade system has been connected to a similar reduction scheme in Saitama Prefecture. Excess Credits and Small and Midsize Facilities Credits issued by Saitama Prefecture are tradable under the Tokyo system.

 

SAITAMA PREFECTURE

One year after Tokyo, Saitama Prefecture established and started the "Target-Setting Emissions Trading Program," in which the prefecture sets reduction targets of covered facilities and allows them to trade allowances, in accordance with the Saitama Prefecture Global Warming Strategy Promoting Ordinance of April 2011.

What is covered

The coverage is basically the same as Tokyo's. It covers large-scale facilities (buildings and factories) with total consumption of fuels, heat and electricity of 1,500 kiloliters or more per year in crude oil-equivalent. Approximately 600 facilities are covered.

What is required

The frst compliance period was a four-year term starting from fiscal year 2011 to fiscal year 2014 and now is in the middle of the fve-year second compliance period starting from fiscal year 2015 to fiscal year 2019. For the frst compliance period, an 8 percent reduction below base-year emissions was required for business facilities such as offce buildings and commercial facilities and a 6 percent reduction was required for industrial facilities such as factories. As for the second compliance period, the target has increased to 15 percent for offce buildings and commercial facilities and 13 percent for factories. Unlike the Tokyo scheme, there is no penalty for unachieved facilities.

Six types of credits—Excess Credits (excess emission reductions), Small and Midsize Facility Credits (emission reductions from small and midsize facilities in Saitama), Renewable Energy Credits, Outside Saitama Credits (emission reductions outside Saitama Prefecture), Forest Absorption Credits (credits from forests inside the Saitama Prefecture) and Tokyo Credits—are tradable under the cap-and-trade program. The five credits other than Excess Credits are offset credits to be used to fulfill reduction obligations under the program.

Future outlook

Saitama Prefecture revised its global warming strategy action plan—Stop Global Warming Saitama Navigation 2050—in 2015 and set a target greenhouse gas reduction of 21 percent below 2005 levels by 2020.

Connections

Saitama's cap-and-trade program is connected to the Tokyo Metropolitan Government's program. Excess Credits from Tokyo Metropolitan Government's emissions trading system and Small and Midsize Facility Credits issued by Tokyo Metropolitan Government are offcially eligible as offset credits.

 

KYOTO PREFECTURE

The Kyoto Prefecture has a "Kyoto Verifed Emission Reduction" scheme managed by the "Kyoto CO2 Reduction Bank," whose members are Kyoto Prefecture, Kyoto City, Kyoto Chamber of Commerce and Industry, The Kansai Electric Power Co., Inc., Osaka Gas, Co., Ltd., and four other industry associations and one environmental non-proft organization. It started in October 2011 and offers a unique credit system and emissions trading system. However, it does not impose any reduction obligation on facilities in Kyoto, like Tokyo, or set targeted reduction percentages on facilities in Kyoto, like Saitama, although the Kyoto Prefecture does have a target of 25 percent reduction below fiscal year 1990 levels by the fiscal year 2020.

 

FULL MAGAZINE
Greenhouse gas emissions trading schemes: A global perspective

 

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