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Trading Carbon : November 2011
time and momentum to drive real reductions out of the global economy." But for all that backing, there is no guarantee that Japan's proposals will be accepted at UN level. If that was to be the case, what would the future hold for the bilateral offset crediting proposals? "Japan would probably go ahead on a voluntary basis," said Masato Masuda, a senior advisor in the emissions reduction business unit of Mitsubishi Corp in Tokyo, although he added that he expects bilateral crediting to be accepted by the UNFCCC in some form in the future. 21st Century Public Policy's Sawa agreed. "If it is not accepted (by the UNFCCC), there will be domestic pressure from Japanese industry mounting on the government to go it alone, even on a voluntary basis," he said. According to Junji Hatano, head of boutique environmental consultancy Carbon Partners (CP) Asiatica in Tokyo, without UNFCCC backing the future of the bilateral mechanism will depend on whether or not the government has the funds to assist project development. "If not, most of them will die after the feasibility study," he said. But, if Japan was able to go ahead with the crediting mechanism outside of the auspices of the UNFCCC after 2012, it could have "far reaching consequences" if the subsequent reductions were used to help meet UN emissions reduction pledges, according to a September report on new market mechanisms by the Swiss National Centre of Competence in Research. "The proliferation of units with differing quality and environmental integrity can substantially affect the integrity of the post-2012 climate architecture and render any meaningful comparison between pledges ... nearly impossible," the report said. 14 COVER STORY The notion of a bilateral offset crediting mechanism was frst proposed by Japan in 2009. It arose because the country was frustrated with the bureaucratic approval process under the Kyoto Protocol’s project-based fexible mechanisms – namely the Clean Development Mechanism (CDM). Japan was also concerned that the CDM restricted the use of some technologies that have a high potential for emission reductions, such as nuclear power and carbon capture and storage (CCS). Therefore, Japan proposed an offset mechanism established by bilateral agreements between itself and countries hosting the projects. Under the agreements, the countries would explore the use of a variety of technologies in various industry sectors to reduce greenhouse gas (GHG) emissions. If a project comes to fruition, it would generate carbon credits that could be used by Japan to help meet its 2020 GHG cap. The country has put on the table a target of reducing its emissions 25 percent below 1990 levels by 2020, but only if there is a global agreement that includes all big emitters. It does not support a second Kyoto Protocol commitment period from 2013. This is because the protocol only sets emissions caps on developed countries, which represents about 27 percent of global GHG emissions, Japan has said. The country’s target under the frst commitment period is to reduce its emissions by 6 percent below 1990 levels during 2008–2012. About 90 feasibility studies into potential bilateral projects proposed by Japanese companies are currently being conducted through two government ministries – environment and economy, trade and industry. Project types include: energy effciency, nuclear, CCS, reducing emissions from deforestation and forest degradation and transport (see table 1). There are currently no details on the volumes of emissions reductions that eventual projects could deliver. Japan also considers the CDM to have a future if it is reformed, despite its concerns with the UN offset scheme that spawned the bilateral approach in the frst place. “We support the continuation of the CDM," said Yuji Mizuno, senior planning offcer in the offce of market mechanisms at the climate change policy division of the Ministry of Environment in Japan. “The (bilateral offset crediting mechanism) should complement the CDM," he said, adding that the ministry would like to contribute to improving the latter. No indications were given for how the CDM could be improved to work alongside the bilateral proposal. Why did Japan propose a bilateral offset crediting mechanism? reported a government official in Thailand as saying the country would be "quite open" to Japan's bilateral mechanism, although more details would need to be provided before it moved forward. Akhira Saito, a manager in the renewable energy and carbon business team at Mizuho Corporate Bank in Tokyo, told Trading Carbon that officials in Thailand and India had both shown interest in Japan's bilateral crediting. Mizuho is one of many companies in Japan that has had proposals accepted by the government to undergo studies to assess project feasibility. And it is not just Japan or host countries that see the potential of bilateral offset crediting. In a September 14 blog, entitled "Japan: the rising sun for carbon markets", Jonathan Shopley, UK-based managing director of voluntary market project developer The Carbon Neutral Company, said: "it's good to know that the Japanese have a plan to ensure that capital for reductions programmes in those parts of the world where GHG emissions are growing fastest continues to flow."* He added: "It's encouraging that the Japanese look set to pick up the slack. This is vitally important because a period of several years without either CDM or new mechanisms would mean market-based activities to c ut carbon emissions will scale down instead of up, losing vital At the moment, the bilateral programme is nothing but a sales promotion effort for Japanese technologies Junji Hatano, Carbon Partners Asiatica November 2011 www.pointcarbon.com
December - January 2011