www.sceptreinternational.com – Sceptre International Group Limited – How can Japan achieve its tough CO2 cut pledge?

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TOKYO Dec 9 (Reuters) – A Japanese panel finalised proposals for an emissions trading scheme this week, but the government could make further changes given an uncertain outlook for U.N. climate talks and political developments at home.

Binding companies to caps on carbon emissions is a key part of a climate bill aiming to enshrine the government’s pledge to cut greenhouse gas emissions by 25 percent from 1990 levels by 2020.

But the ambitious goal, estimated to cost at least 30 percent more than pledges by the European Union or the United States if met with domestic emission cuts only, is facing stiff opposition from powerful industries.

Japan’s emissions per unit of economic output are half those of the EU or the United States, so unless there is a major breakthrough in its clean-energy sector, the marginal costs relative to emission cuts will remain much higher than those of global rivals.

Tokyo has been holding bilateral talks with developing nations to transfer Japan’s existing clean-energy technology and receive emissions offsets to meet its 2020 goal.

Following are possible scenarios on how Japan could meet the pledged emission cuts by 2020:

DOMESTIC CUTS BY 15 PCT FROM 1990, REST FROM ABROAD

The toughest option. It would mean Japan, the world’s fifth-biggest emitter, committing to making the majority of emissions cuts at home, rather than abroad from clean-energy or forestry projects in poorer nations. For example, Japan would need to install more than 20 times as much solar power capacity as now.

Some money might come from a planned new tax on fossil fuel users from next year, with the revenue of 240 billion yen ($2.9 billion) spent on the clean-energy sector.

But without a strong economic recovery, Japan can hardly afford to pay an estimated 5.8 trillion yen per year over the next decade for additional investment by both public and private sectors to meet the minus-15 percent goal.

Subsidies are a key incentive for consumers to buy low-carbon products, but there are concerns over how such subsidies can be financed without worsening a ballooning fiscal deficit.

A report by the Institute of Energy Economics Japan released this week showed subsidies of 535.6 billion yen in the fiscal year that ended in March to support household buying of “green” vehicles, meaning it cost a hefty 63,000 yen to cut one tonne of carbon dioxide (CO2), the main greenhouse gas.

DOMESTIC CUTS BY 7-8 PCT, REST FROM ABROAD

This is in line with the minus-8 percent goal that former Prime Minister Taro Aso announced in June 2009.

The goal is supported by industries because it would be met by applying each industry’s best available technology and would require neither compulsory emissions trading nor a new CO2 tax.

Industries argue a cut deeper than 8 percent would force energy-intensive industries, such as steel, cement, paper and chemicals, to move offshore, driving up unemployment at home.

Hiroshi Hamasaki, a research fellow at the Economic Research Centre of Fujitsu Research Institute, said a 7 percent share for domestic cuts in 2020 would be the most cost-effective for Japan in meeting the minus-25 percent goal.

But the more slowly regulations are introduced, the more difficult it is for Japan to meet a longer-term target to cut CO2 emissions from burning fuels by 30 percent by 2030 from 1990 levels, which industries say could be achieved only if the government supports innovation in the clean-energy sector.

It is also still unclear whether and how Japan will be able to secure the remaining 17-18 percent of emissions offsets from abroad, either via the U.N.’s global emissions market or bilateral negotiations.

REVISE 2020 PLEDGE IN CLIMATE BILL

Japan’s minus-25 percent target is contingent on the United States, China and other big greenhouse gas polluters agreeing to tougher steps to curb emissions as part of a new climate pact.

Failure at U.N. climate talks to clinch agreement on tougher action could lead to the Japanese government weakening its target.

The current round of climate talks being held in Cancun, Mexico, and ending this week, are still split between rich and poor nations on steps to fight global warming.

Japan wants a new pact to broaden the pledges by big emitting nations under the non-binding Copenhagen Accord agreed last year.

The government, which doesn’t have a majority in the upper house, will also need to rely on other parties to pass the climate bill next year.

If the ruling Democratic Party has to seek cooperation from the pro-industry LDP, the bill could be watered down, particularly if U.N. climate talks in Mexico are judged a failure. ($1 = 83.7 yen)

Sceptre Group Limited is a specialist investment firm focused in low carbon financial investments such as sustainable biofuel plantations, agricultural farmland and green technologies.  For more information on Biofuel Investments, please visit Sceptre Group’s website at www.sceptreinternational.com.

Source: reuters.com (Editing by David Fogarty)

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