Emission Trading Systems
Summary
These are market-oriented systems intended to efficiently reduce emissions. They work by allocating a maximum amount (determined by local government) of allowable CO2 emissions (the cap) among large businesses with factories and offices, and permitting the trading of emission quotas among businesses that have surplus quota and businesses that have exceeded their quota. It is generally thought that emission trading is a more efficient way to minimize the total cost of CO2 emission reductions, rather than having all businesses separately implement their own measures in response to government-set total emission limits.
Nevertheless, the systems introduced by local governments still involve some unresolved issues, such as compatibility with the national government's trial version of a unified system for emission trading in the domestic market, and the standardization of calculation methodologies and units relating to CO2 emissions from individual businesses. The only local government currently implementing a system is Tokyo, but a number of other local governments are planning systems for emission trading among businesses and with citizen participation, and so on.
Examples
Tokyo Metropolitan Government
The Tokyo Metropolitan Government (TMG) has declared a target of cutting GHG emissions by 25% from base year 2000 by 2020, and when amending the Tokyo Metropolitan Environmental Security Ordinance in 2008, decided to introduce its own cap-and-trade emission trading system, moving more quickly than the national government. Businesses that use more than 1,500 kiloliters per year of fuel, heat, and electricity (crude oil equivalent) are required to cut their total CO2 emissions, determined from the businesses’ own calculated actual emissions (baseline emissions) and the TMG’s “emission reduction rate.” The emission trading system is treated as one measure to achieve those reductions. Credits (emission reductions purchasable through emission trading) that businesses can use to offset the excess emissions include (1) emission reductions of other large businesses, (2) emission reductions made by small and medium-sized businesses in the metropolitan region, (3) emission reductions of business establishments outside the region, and (4) environmental value of renewable energy such as green energy certificates. The TMG plans to implement this system in a first phase lasting five years from fiscal 2010, and then a second phase from 2015 onward.
