The Japanese Carbon Market Alternative

As the international community seems to be somewhat hesitant about climate action after 2012, the country which once hosted the most significant and productive climate change conference up to date might have an alternative in store. The Japanese government has been exploring the opportunities for bilateral agreements with Asian countries from 2013, as a supplement to the efforts within the UN climate change framework. However, as carbon markets have been experiencing historically low prices and some carbon offset units under the Clean Development Mechanism (CDM) are being criticised, it is worth considering whether the Japanese approach can provide a viable environmental alternative in the uncertain post-Kyoto future.

Currently, the main instrument for greenhouse gas emission reduction in Japan is the Japan Verified Emission Reduction (J-VER) Scheme. The J-VER scheme was launched in November 2008 by the Japanese Ministry of the Environment in order to facilitate the generation of carbon credits  gossip lanka  through the reduction or removal of greenhouse gases carried out by domestic projects. In principle, the J-VER scheme enables large Japanese companies to offset their emissions by paying for projects helping smaller enterprises to reduce their emissions.

Unlike the EU Emission Trading System (EU ETS), which is the most developed among the compliance carbon markets, the J-VER scheme is voluntary and relies on the nation’s efforts to reduce emissions. Such an approach is hardly surprising, considering that according to a Gallup poll made before the March tsunami and the Fukushima nuclear crisis, nearly all Japanese adults (98 percent) said they knew something about climate change. Moreover, 77 percent perceived global warming as a serious personal threat and 88 percent attributed it at least partly to human factors.

The Kyoto Protocol target for Japan is cutting emissions with 6 percent by 2012 compared to 1990 levels. In addition, the Japanese government has set the ambitious goal of cutting greenhouse gas emissions by 25 percent from 1990 levels by 2020. This position has been confirmed despite the devastating earthquake which occurred in March 2011 and the worst nuclear crisis in the world since Chernobyl.

This ambitious goal has prompted Japan to look for ways to offset greenhouse gas emissions outside the Kyoto Protocol framework. Therefore, Japan has been exploring alternative ways for climate change mitigation and currently the focus is on bilateral agreements. According to a Reuters article published in October 2011, Japan has held bilateral talks with eight countries in Asia on offset schemes aimed at generating a new type of carbon credits. In addition, according to Reuters the country plans to distribute 2.5 billion yen ($32 million) in subsidies between the 40 groups to test low carbon technology in 18 developing countries.

This new approach is also a result from the dissatisfaction of Japan with the Kyoto Protocol and its present state. The Japanese Government has not spared criticism toward the Kyoto Protocol, regardless of the fact that it bears the name of the former Japanese imperial capital. In December 2010, the Ministry of Foreign Affairs of Japan released a statement, clearly opposing the 2nd Kyoto Protocol commitment period. According to the statement, the current framework is neither fair nor effective. This in turn has provoked the Japanese government to look for an alternative emission reduction approach, especially in view of the yet unclear future of the international action on climate change.

The new Japanese bilateral agreement system might also be regarded as a solution to the existing unresolved issues with the Kyoto Protocol’s CDM. Recently, a study by the Stockholm Environment Institute (SEI) detected problems with the CDM additionality principle for higher-efficiency coal power plants, as well as with one of the methodologies which could lead to the over-crediting of approximately 250 percent for coal plants. These findings are piling up to the already existing doubts whether all the projects implemented under the CDM actually deliver net reductions in greenhouse gas emissions. Therefore, Japan’s shift from one of the compliance carbon markets and its flaws might turn out to be environmentally beneficial, depending on the proper functioning of the methodologies applied under the bilateral agreements.

The Japanese approach is worth exploring since developed countries seem to become increasingly hesitant with regards to future commitments on a large international scale. In the case of an absence of a post-Kyoto agreement, such a functional approach might serve as a substitute at least until a global solution is reached. What still remains to be seen, however, is if this Japanese system will adequately address developing countries that are largely dependent on the CDM and compliance carbon markets.

It is still unclear whether the Japanese approach will complement the existing climate change framework and carbon markets or if it will be the foundation of a new functional approach. In any case, it is the environmental “safety net” in the Land of the Rising Sun.


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