Asia's First Cap and Trade Scheme Launched in Tokyo

Posted on April 12, 2010 by Santiago Cueto

Demand for Carbon Credit Trading is Expected to Skyrocket

The Tokyo Metropolitan Government recently launched Asia's first mandatory program to cut carbon emissions. The program will cover approximately 1,400 industries, commercial buildings and large office buildings within Tokyo. According to the Sustainability and Climate Change Reporter, “the Tokyo program is being touted as a potential model that could spread throughout Japan and other cities in Asia.”     

The program is also noteworthy because it's the world’s first urban cap and trade program to cover office buildings as emissions reduction targets.  

Tokyo’s ground-breaking initiative echoes Arnold Schwarzenegger’s efforts as governor of California to push carbon emissions cuts on a state basis ahead of national US action.

The program will be rolled-out in two phases. In the fiscal 2010-2014 first phase of the scheme, the targeted entities will be required to cut carbon dioxide emissions by either 6 percent or 8 percent from base-year levels that are calculated from average emissions over a period of three consecutive years between fiscal 2002 and 2007.

In the fiscal 2015-2019 second phase, they will be required to slash emissions by 17 percent from their base-year levels.

To meet the emissions-cut targets, offices and factories in the capital can either make efforts on their own, such as updating to energy-saving equipment, or purchase carbon emissions credits from other entities that have reduced carbon emissions.

Actual trading under the mandatory system in Tokyo is set to begin in fiscal 2011 after data on reduction efforts in fiscal 2010 are finalized.

Tokyo Cap and Trade Program

 

Interestingly, Tokyo's CO2 trading scheme was launched just as Japan's Sony Corporation announced its Road to Zero global environmental plan. The plan is a long-term goal of achieving a zero environmental footprint by 2050.

Zero by 2050? Now that's a worthy goal.  I'm not aware of any company in the U.S. having established a similar program. Does anyone out there know of one?

I'd hate to see another country take the lead on this.

  -Santiago

P.S.  My interest in international cap and trade systems stems from an innovative program my firm launched to accept carbon offset credits as partial payment for legal fees. Our firm’s program was the subject of a Wall Street Journal article, which you can read about here.

Be sure to read my two previous posts on the subject:

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Are Carbon Credits the New Global Currency?

Posted on December 17, 2009 by Santiago Cueto

In response to the Copenhagen Climate Summit’s call for innovative environmental solutions,  my law firm launched a groundbreaking program today to allow law firm clients to pay legal fees with carbon credits. The initiative is the first of its kind in the professional services industry. You can read more about my firm’s initiative in the Wall Street Journal article Will Work For Carbon Credits!’ says Florida Lawyer written by Ashby Jones.

Carbon credits are units that can offset a company’s carbon footprint. One carbon credit is equal to one ton of carbon dioxide. The credits, which can be bought and sold in international markets, have gained significant traction as a legitimate currency to transact business.

I’ve been closely tracking the Copenhagen Climate Conference currently underway in the Danish capital. Over 100 heads of State and government including President Barack Obama and Chinese Premier Wen Jiabao, as well as more than 15,000 participants, have gathered at the Conference to come up with innovative ways to address climate change.

One of the most promising solutions are carbon credits, which hold immense promise to radically change the world energy system and the way business is transacted.

My research on carbon credits as a currency to transact business led me to a groundbreaking article published several years ago in the Harvard International Review. The article, A New Currency: Climate Change and Carbon Credits was written by David Victor Joshua House of the Stanford University Institute of International Studies. The Authors presented a fascinating thesis on the power of carbon credits to transform the world energy system:

A new currency is emerging in world markets. Unlike the dollars, euros and yen that trade for tangible goods and human services, money exchanges hands for pollution - particularly emissions of carbon dioxide, which are caused by burning fossil fuels and are the leading cause of global climate change. Carbon credits, as they are called, are poised to transform the world energy system and thus the world economy.

The thesis, written in 2004, was prescient in its prediction of how the market for carbon credits would skyrocket. The global carbon credit market was worth $126 Billion in 2008. The World Bank estimates that the market could grow up to $150 billion by the end of this year.

Of course, the creation of a new global currency implies the need for coordination on a scale unprecedented in history, as Mr. Victor and Mr. House point out in their article. While the task may be daunting, it’s important to keep in mind that historically, the strongest currencies have emerged “bottom-up” from the initial efforts of a committed few.  

If carbon credits were to gain global consensus, the benefits to the atmosphere and to the world economy could be enormous.

Trend to Watch: Look for More Industries to Transact Business With Carbon Credits.

   -Santiago 

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