Concerns mount over vague Japanese climate bill

Carbon traders and green businesses are increasingly concerned that Japan's planned emissions trading scheme could be watered down after the government released a draft climate bill that provided few details of how the proposed initiative would work.

The bill, which was released last week, would enshrine the Japanese government's high-profile commitment to cut emissions 25 per cent on 1990 levels by 2020 in the event of an international climate change deal being reached.

It would also provide the legal framework for a possible carbon tax to be introduced from next year, allow for the introduction of a renewable energy feed-in tariff, and set a binding target for Japan to increase its reliance on renewable energy to 10 per cent of total capacity by 2020.

However, the bill defied expectations by providing no fresh details on the government's proposed emissions trading scheme and even jettisoned any reference to a cap-and-trade scheme, sparking speculation that fierce industry lobbying had led the government to ditch plans for a binding cap on greenhouse gas emissions.

The Environment Ministry and the Ministry of Economy, Trade and Industry (METI) are believed to be split on how to manage the scheme, with environment officials pushing for an absolute cap on the emissions of those firms included in the scheme and those from METI arguing that any cap should be based on carbon intensity, making it possible for emissions to rise as business output increases.

"We are not ruling out volume caps, but considering the need for economic growth, carbon-intensity targets should also be included in the scheme," METI minister Masayuki Naoshima told reporters on Friday.

The draft bill said the government would implement separate legislation to implement an emissions trading scheme, further reducing the likelihood of the scheme coming into effect next year.

The climate bill is now expected to be approved by the cabinet later this month and clear parliament ahead of elections this summer. Critics said that the government was guilty of postponing a potentially controversial battle with carbon-intensive industries until after the election.

The lack of clarity surrounding the proposed emissions trading scheme is expected to be a blow to carbon traders who, in response to a recent survey, said that Japan represented the most promising market for expansion.

Carina Heimdal, analyst at research firm Point Carbon, attempted to downplay the implications of the new bill, arguing that the market was well used to the Japanese government's equivocation over cap-and-trade.

"The bill says there will be a Japanese emissions trading scheme some time in the future, but it does not say anything more," she said. "There are no specifics and this is the way it has been for several years – it's a case of no change here."

She added that expectations surrounding the development of a Japanese carbon market have already been downgraded after a number of pilot schemes in the country suggested any national market would be relatively illiquid.