Tokyo Report: Japan Eager to Buy Carbon Credits Directly

Tokyo, Nov. 10 (Jiji Press)--Japan is in negotiations with a number of foreign governments for direct purchases of greenhouse gas emission credits, in a bid to meet its commitments under the Kyoto Protocol on combating global warming.

Talks on details, such as purchase volumes and prices, are already
under way with Hungary, Ukraine, the Czech Republic and Poland. Japan has
signed memorandums of understanding with the four countries since December
last year.
The 1997 Kyoto Protocol, an international environmental treaty,
requires Japan to cut its greenhouse gas emissions by an average 6 pct in
fiscal 2008-2012 from the fiscal 1999 level. Japan plans to buy emission
credits from other countries to cover 1.6 percentage points of the targeted
reduction. The figure is equivalent to an annual average of 20 million tons
in terms of carbon dioxide.
The Clean Development Mechanism, or CDM, is a standard system for
acquiring carbon credits under the Kyoto Protocol, allowing industrialized
countries and private companies to receive credits in return for funds and
technologies they provide to developing nations for greenhouse gas
reductions.
CDM carbon credits are traded like securities. Prices rose from
less than 20 euros per ton until the middle of 2007 to nearly 30 euros in
July this year as the commitment period to comply with Kyoto Protocol
reduction targets started.
An inflow of investment funds into the carbon credit market is said
to be a contributor to rising prices.
Financial institutions in Britain, which has substantially reduced
emissions, are buying credits for resale "as an investment target," says a
senior official at the Japanese Ministry of Finance.
Japan acquired carbon credits for 24.07 million tons by the end of
September under the CDM system. As only 20 pct or so of them came from
actual reduction projects in developing countries, Japan purchased the rest
from the CDM credit trading market.
The MOF estimates that some 310 billion yen will be needed to meet
Japan's commitment if carbon credit prices stay at the current level. But if
the price rises further, Japan may have to spend more than 500 billion yen,
according to ministry sources.
In the face of rising costs, the Japanese government has turned to
the Green Investment Scheme, or GIS, a newly developed mechanism that allows
a party to the Kyoto Protocol to buy credits directly from another party
that has not exhausted its Kyoto quota and so can sell the rest of it.
The four countries in negotiations with Japan are former communist
nations. All have experienced substantial economic slowdowns amid chaotic
developments since the fall of the Berlin Wall in 1989. As a result, their
greenhouse gas emissions have stayed at low levels.
For example, Hungary's greenhouse gas emissions in 2005 were 34.5%
below its 1999 level, compared with its commitment to a 6% reduction under
the protocol.
The World Bank expects the four countries to sell GIS credits
totaling 1.1 billion to 1.9 billion tons by the end of fiscal 2012.
The MOF considers it possible for Japan to save more than 90
billion yen if it buys all the carbon credits it needs through the GIS
mechanism from now on.
Belgium reportedly bought credits from Hungary at a GIS unit price
nearly 50 pct lower than the CDM price, an informed source said.
But the outlook for Japan's negotiations is unclear. The senior MOF
official says carbon credits are a key tool for central and eastern European
countries to acquire foreign currencies to support their economies,
indicating that they may be unlikely to sell their credits on terms
favorable to Japan.
The Hungary-Belgium deal is the only one concluded so far through
direct government-to-government negotiations. If Japan's negotiations drag
on and the commitment period of the Kyoto Protocol nears its expiration, the
four countries may well propose higher sales prices.