Japan is brewing a national carbon trading market

Aug 30, 2021

Recently, the Ministry of Economy, Trade and Industry of Japan proposed to launch a national demonstration carbon credit trading market in fiscal year 2022-2023, but it and the Ministry of Environment of Japan have always been in disagreement on how to price carbon. The industry generally believes that Japan has not yet figured out an optimal path to achieve large-scale emission reductions without adding additional economic burdens to enterprises.

Plan to start between 2022-2023

The Ministry of Economy, Trade and Industry of Japan stated that as part of achieving the goal of carbon neutrality by 2050, it plans to launch a national demonstration carbon credit trading market between April 2022 and March 2023 to vigorously promote the monetization of carbon emission reductions. Encourage more local companies to reduce emissions independently, and at the same time open up to multinational companies, it is expected that 400-500 companies will participate.

This carbon credit trading market will also be open to ASEAN countries, and companies from other countries such as Europe and the United States are also welcome. Participants can purchase carbon credits to complete their emission reduction tasks, and they can also sell unused credits. However, participating companies must disclose their emissions and allow the government to review them annually.

It is reported that Japan plans to design a carbon credit trading system and develop carbon footprint monitoring infrastructure under the framework of this carbon credit trading market to better manage and process carbon credit trading.

Fumhiro Kajigawa, director of the Environmental Economic Office of the Ministry of Economy, Trade and Industry of Japan, said that further discussions are needed to clarify the overall structure and implementation details of the carbon credit trading market, which may involve carbon neutral products. "We will introduce carbon-neutral products on a voluntary basis, such as the increasingly popular carbon-neutral LNG." He said, "However, this requires several stages of discussion before we can reach a conclusion."

Energy consulting agency Argus pointed out that Japan is brewing a carbon credit trading market, hoping to reduce greenhouse gas emissions through an appropriate domestic carbon pricing mechanism, and at the same time promote Japan to become one of the important carbon emission trading centers in Asia.

Many Japanese companies have tested their own carbon prices

The industry generally believes that Japan must start from companies to achieve its emission reduction targets, especially those that are carbon-intensive or high-emission companies. In fact, more and more Japanese companies have begun to implement internal carbon pricing or introduce carbon neutral products, which provides support for the establishment of Japan's national carbon credit trading market.

Japan’s Kyodo News recently reported that more and more Japanese companies have introduced internal carbon pricing mechanisms as part of their decarbonization measures. This is a measure of cost conversion of carbon dioxide emissions from business activities. It is also becoming more common for Japanese companies to use this measure to judge investment standards, which laid the foundation for the full roll out of Japan's carbon mechanism.

It is understood that Japan’s Teijin Co., Ltd., the world’s second-largest carbon fiber producer, introduced internal carbon pricing earlier this year. The company’s corporate social responsibility planning and promotion director Osaki Shuichi said: “We set the price per ton of carbon dioxide emissions at 6,000 yen ( (About 54 U.S. dollars), as a reference for investment decisions. Even if the initial investment is small, if the carbon dioxide emissions are large, the cost will increase exponentially in the future, which will affect the investment."

Japan's comprehensive chemical industry group Kuraray Co., Ltd. plans to introduce internal carbon pricing in March next year. The international non-profit organization "Carbon Information Disclosure Project" surveyed more than 300 major Japanese companies and found that 31% of the surveyed companies have introduced internal carbon pricing, and 33% of the surveyed companies plan to introduce it within two years.

Obstacles to implementation

S&P Global Platts pointed out that Japan’s brewing national demonstration carbon credit trading market requires trading volume and liquidity the most, although the country said it will take advantage of existing carbon tax, carbon pricing, carbon trading and other mechanisms. Gaining experience, but considering that the effectiveness of Japan's operation of such mechanisms has been unsatisfactory, the implementation of the carbon credit trading market is still facing numerous obstacles.

It is understood that Japan has repeated its carbon pricing mechanism. Currently, it has implemented nationwide carbon tax measures, and has experimented with carbon emissions trading and carbon offset project systems led by various institutions at the national level, but the effects have been mixed, including Voluntary Carbon Emissions Trading System JVETS, Emissions Credit and Carbon Utilization System J-Credit, Joint Credit Mechanism, etc.

Among them, JVETS was born in 2005. The system is based on the principle of total volume control trading, covering all direct carbon dioxide emissions and indirect emissions from power companies. Due to low participation, low transaction volume and frequency, transaction prices have also fallen year by year. Eventually ended operations in 2012.

It is worth noting that industry groups such as the Japan Federation of Economic Organizations and the Japan Petroleum Association generally question the effectiveness of the carbon mechanism. They regard emissions trading or carbon tax as a single mitigation tool, saying that both are based on the polluter pays principle. Shifting the cost of pollution to polluters increases the burden on enterprises and indirectly reduces the global competitiveness of Japanese industrial manufacturing.

In addition, Japan began to impose a carbon tax on the oil and gas industry in 2012. Crude oil and petroleum products are taxed at 2,800 yen (approximately US$25) per ton, and liquefied natural gas and liquefied petroleum gas are taxed at 1,370 yen per ton (approximately 12 Dollar). Some Japanese tax and energy experts pointed out that Japan needs to substantially increase its carbon pricing, otherwise it will be difficult to achieve its medium-term emission reduction targets. The carbon tax level alone needs to be increased by at least 30 times.

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