Trading and Voluntary Action Plan
What is Emissions Trading?
Emissions trading scheme is a climate policy instrument that
can be established at international, national and regional
levels. It allows parties that have emission units to spare--emissions
permitted them but not “used”-- to sell this excess capacity
to parties that are over their targets.
European Union emissions trading scheme is the largest in
operation. Countries including France, China and Korea are
also examining the possibility of introducing emissions trading
scheme on the national level. In the United States, some states
are also considering the use of emissions trading scheme to
address climate change.
Japan has recently
started a trial run of the domestic emissions trading scheme.
Of the participating companies, some set their own reduction
targets, and some reduce emissions based on the domestic cap-and-trade
system introduced by the government.
Action Plan (VAP) under the Emissions Trading Scheme
Federation (Japan Keidanren) in 1997 produced the "Keidanren
Voluntary Action Plan on the Environment," a program
in which 43 industries currently participate. Keidanren has
adopted as a common goal "to endeavor to reduce CO2 emissions
from the industrial and energy-converting sectors in fiscal
2010 to below the levels of fiscal 1990."
Under the Emissions
Trading Scheme, member firms of the Voluntary Action Plan
(VAP) set their emission targets consistent with the VAP,
while non-members of the VAP set their own targets based on
target setting methods established by the government.
Under the domestic
emissions trading scheme, each company sets their own target
(with the exception of the steel and automobile industries),
whereas under the VAP, each industry sets their target as
a whole. Thus the domestic emissions trading scheme now not
only includes companies that didn’t join the VAP before, but
also leads each company to specify their target.
Also thanks to
the forming of the integrated domestic market, companies are
now able to use both the Kyoto mechanism credits and the domestic
the current scheme
Some cast doubts
on the effectiveness of Japan’s domestic emissions trading
scheme. It is urgent to assess the trial run and strengthen
the emissions trading scheme. It is necessary for LDP to consider
the following issues to further improve the emissions trading
scheme in Japan:
The steel and electric power industries that bought overseas
emissions credits have complained that they were unable to
meet the domestic restrictions, especially the steel industry
that is exposed to fierce international competition.
On the one hand, stricter targets and broader participation
are needed. On the other hand, in order to gain more international
understanding, it might be necessary to redefine voluntary
action plan as an official agreement between the government
proposed by DPJ
manifesto, the Democratic Party of Japan (DPJ) pledged to “establish
an effective domestic emissions trading market using the cap-and-trade
formula”, which means that the voluntary setting of reduction
targets in the current trial run will no longer be used. The
DPJ also specifies in the Global Warming Countermeasure Basic
Bill that the domestic emissions trading scheme will begin in
The DPJ hasn’t yet unveiled the details of the cap-and-trade
emissions trading scheme. However, there are a few problems
to consider, in order to construct a fair and effective system.
If the Japanese government makes companies set stricter reduction
goals than foreign countries, then the burden could impair
the international competitiveness of Japan’s businesses.
Excessive money game and speculation
In the face of the financial crisis, not only is there threat
of speculation in emissions trading, it is also likely that
developers of environmental technologies face big loss in
the competitive market.
Grandfathering is hard to ensure the fairness among domestic
businesses. However, auctioning permits involves concerns
of international competitiveness. Moreover, auctioning permits
would add burdens to energy-intensive industries. The threat
of speculation and inflation of emission credit price are
also problems to consider.
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