July 13, 2010


Tokyo Metropolitan Government Leads Japan, Launches Own GHG Emissions Cap-and-Trade Program

Keywords: Newsletter 

JFS Newsletter No.94 (June 2010)
"Initiatives and Achievements of Local Governments in Japan" (No. 29)

The megacity of Tokyo is like a country in many ways. It consumes as much energy as entire countries in Northern Europe, and its production matches the GNP of the world's 16th largest country. And even before the national government of Japan took action, the Tokyo Metropolitan Government (TMG) has made major changes to steer Tokyo toward being a low-carbon city. It has made steadily progress in achieving results by designing and implementing effective measures, including the launch of a made-in-Tokyo emissions cap-and-trade program in April 2010. In this article, we introduce the measures that the TMG has implemented to address climate change, the results, and prospects for the future.

In June 2007, the TMG formulated the Tokyo Climate Change Strategy as a basic plan for the "10-Year Project for a Carbon-Minus Tokyo," one of the measures aimed at realizing "Tokyo's Big Change -- The 10-year Plan," formulated in December 2006. This strategy clarifies Tokyo's basic policy on measures against climate change in the next decade and introduces major initiatives. The TMG says it "formulated this strategy in order to pose leading measures instead of depending on the national government -- which has not yet been able to produce effective and workable plans -- and take the lead in taking action on climate change."

Tokyo Climate Change Strategy

The main points of the strategy are: (1) creation of a mechanism to bring Japan's environmental technologies into full play; (2) creation of a mechanism to encourage large businesses, smaller businesses, and households to achieve carbon dioxide (CO2) emissions reduction in accordance within their own capacities and on their own; (3) implementation of strategic and intensive measures during the first three to four years as an initial period of the shift towards a low-carbon society; and (4) the use of private and public funds, tax incentives, and bold implementation of the investments needed to achieve CO2 emissions reduction.

About half Tokyo's total greenhouse gas (GHG) emissions come from the commercial and industrial sectors, and the other half is from the household and transportation sectors. Forty percent of emissions from the commercial and industrial sectors are emitted by large establishments, which the TMG set as the main target of its initiatives.

Tokyo set up five policies and major initiatives, including one to "powerfully advance CO2 reduction measures by companies." Above all, defining the responsibility of large CO2 emitters to reduce their emissions and introducing the cap-and-trade scheme stirred considerable controversy, since the national government was far behind schedule with full-scale introduction of emissions trading; it was still at the level of discussing and testing a voluntary national emissions trading system.

About three years have passed since the Tokyo Climate Strategy was launched. So what has been achieved so far?

One of the TMG's major achievements is the pioneering approach it has used to establish new initiatives, such as the cap-and-trade program it implemented in collaboration with companies and business groups in Tokyo. As part of the introduction of new initiatives for companies, households, and city planning in the Tokyo Climate Change Policy, it started various programs in accordance with the strategy within three years of its launch, including the cap-and-trade program which requires mandatory CO2 reductions from CO2 emitters that are large establishments and sets up an emissions trading system, a reporting program that requires small and medium-sized companies to report on their efforts to save energy, and enhancing a series of measures for sustainable urban development. These are pioneering efforts in Japan, and also represent some of the most leading-edge initiatives in the world.

In particular, Tokyo's cap-and-trade program, launched in April 2010, was the world's third such initiative, following the European Union Greenhouse Gas Emission Trading System (EU-ETS) launched in 2005, and the Regional Greenhouse Gas Initiative (RGGI) in the United States in 2009, the first mandatory, market-based initiative implemented by ten American Northwest and mid-Atlantic states to reduce their GHG emissions. It should be noted that the TMG's program (Tokyo-ETS) is the first among these to set targets for business sectors.

The establishment of its systems was made possible by cooperation between the TMG and other entities, including companies and business groups in Tokyo, specialists and research institutes in various areas, and non-governmental organizations (NGOs). After releasing its Climate Change Strategy in June 2007, the TMG held several stakeholder meetings up to January 2008. Furthermore, it seized as many opportunities as possible to discuss new measures with relevant companies and business groups in the design of the new systems. When determining the required reduction rates and preparing various types of guidance and guidelines, it conducted experimental operations in cooperation with many companies. And components of the systems were designed with input from NGOs and the expertise of specialists and think tanks in various areas, including those involved in energy conservation, law, finance, accounting, construction, and design.

Now, let us explain the requirements to reduce GHG emissions and the emissions trading system, both which were introduced as a result of an amendment to Tokyo's Environment Protection Ordinance. Under the revised ordinance, large businesses (those that consumed 1,500 kiloliters crude oil equivalent or more energy annually in the previous three consecutive fiscal years) are required to reduce the amount of CO2 emissions resulting from their fuel, heat, and electricity use. About 1,300 establishments are covered, with those in the commercial sector accounting for 80 percent and factories 20 percent. Targeted establishments in the commercial and industry sectors account for less than 1 percent of the total in Tokyo, but their CO2 emissions account for 40 percent of the city's emissions. The program dictates that in a five-year period, the relevant establishments are obliged to reduce their CO2 emissions by 8 percent (or 6 percent for factories as well as office buildings and various facilities that have a specified level of energy supply from district heating and cooling systems).

The TMG came up with a unique way to determine the baseline emissions levels through many discussions with companies. The baseline for an establishment is set as the average emissions in any three consecutive years between 2002 and 2007. This is intended to reward corporations that started their efforts to save energy and tackle global warming earlier, by allowing them to choose their most favorable years in the period.

There are no penalties for failure to achieve the goals of Japan's Voluntary Emissions Trading Scheme, which was launched in fiscal 2005 by the Ministry of the Environment, in the Domestic Credit System started by the Ministry of Economy, Trade and Industry in 2008, or in the Voluntary Action Plan on the Environment set out by the Japan Business Federation (Nippon Keidanren). Under the TMG's Tokyo-ETS system, however, those who fail to meet their reduction obligation must offset the shortage by buying 1.3 times the actual amount of the shortage from the emissions trading market. Otherwise, the governor will conduct the transaction for non-performers, and then charge them for the expenses.

When voluntary efforts to reduce their emissions fail to meet the requirements, the targeted companies can compensate for the shortage by purchasing any of the emission credits listed below.

  1. Credits from other targeted establishments: Establishments that reduce their emissions more than the required level can sell the excess credits to others that fail to meet their reduction obligation.
  2. Credits from small and medium-sized companies (SMEs): The TMG has an anti-global warming program specifically for SMEs. When they participate in this program and implement the specified energy-saving measures, their reduced emissions are certified as tradable credits.
  3. Renewable energy credits: These are generated from the use of renewable energy, an example of which is green energy certificates. Emission reductions made through the use of key renewable energy sources (solar, wind, geothermal, and micro-hydroelectric) are counted as 1.5 times as much as the actual reduction.
  4. Credits from companies outside of Tokyo: Companies consuming more than the equivalent of 1,500 kiloliters of fuel annually and emitting less than 150,000 tons of CO2 can engage in emissions trading, even if they are located outside of Tokyo. When their emissions reduction exceeds the TMG's requirement, the reduced emissions are certified as credits. Targeted establishments in Tokyo are allowed to buy these credits up to one-third of their reduction obligation.

In Japan, some business sectors oppose an emissions trading system, and one of the major reasons for this is concern that it could lead to a money game (speculation for profit). Under the EU-ETS, for example, emission reduction efforts by participating establishments are evaluated annually, and some critics say that this makes them rely more on emissions trading, thereby increasing the risk of a speculative money game developing. In the TMG's scheme, on the other hand, the implementation period is five years rather than one year. By setting a longer term, the TMG expects that companies will be able to fulfill their obligation in a planned manner over five years, with less dependency on emissions trading.

Since the introduction of the Tokyo-ETS, companies and office buildings in Tokyo appear to be encouraged to step up their efforts to reduce CO2 emissions, as seen in the establishments subject to the requirements that started to review/update their facilities, introduce LED (light- emitting diode) lamps, and encourage employees to undertake every effort possible.

As for the office buildings that have scarcely reduced their CO2 emissions so far, the building owners are still subject to the obligations but the tenants of a certain scale of building or larger are required to submit their own emission reduction plans to comply with the emission reduction measures. Some building owners are in support because they say that they can finally urge their tenants to tackle this problem.

As JFS reported before, Mitsubishi Estate Co., based in the Otemachi, Marunouchi and Yurakucho districts, which are often considered to be the face of Tokyo, embarked on a unique challenge: the company decided to cover all the energy demands of its Shin-Marunouchi Building using 100 percent renewable energy. The annual electricity consumption for offices and commercial facilities in the building is equivalent to 20,000 tons of CO2 emissions.

Based on the interregional cooperation structure to promote renewable energy established by Tokyo and Aomori Prefecture, Mitsubishi Estate initiated an innovative system to supply electricity generated at wind power stations in Aomori Prefecture through electrical grids owned by the electric power company. Generally, many companies use the Green Power Certification System, in which those who purchase the certificates are considered to be buying electricity generated by a natural energy source. The price of green power certificates, however, could easily skyrocket because of its affordability, and the company worried about the unavailability of the certificates when actually needed.

Shin-Marunouchi Building to Utilize 100% Green Energy

The TMG is aiming to steadily reduce CO2 emissions from large establishments through the proper operation of the Tokyo-ETS. To smoothly prepare for the start of emissions trading in 2011, the city will compile operational guidelines and establish a registry, which will be used as the basis for trading.

Coincidentally, in order to promote voluntary reduction among the targeted establishments and initiate offset credits from small and mid-size establishments within the Tokyo area, the TMG is going to (1) send specialists in saving energy to the targeted establishments to give advice utilizing top-level certification standards; (2) conduct energy-saving seminars to properly attune the settings of heat source equipment to meet the need of the respective establishments and optimize the operational process; (3) hold seminars for office-building tenants; (4) hold seminars for the greening of data centers where growing electricity consumption is expected; and (5) conduct seminars to support and explain the business plan for offsetting credits from small and mid-size establishments within the Tokyo area.

"One of the factors bringing the TMG's initiatives to successful conclusions is the strong leadership shown by our governor. Even in the face of opposition from the business community, he has been able to persevere and consistently lead the way forward with various programs," says Teruyuki Ohno, Director-General for Climate Strategy in TMG's Bureau of the Environment.

He continues, "The TMG can boast a proud history of doing important things first in the nation. It was TMG that first instituted regulations on air pollution, for example. And it is not just Tokyo itself but also the establishments and companies here that share the same pioneering spirit; many have the spirit to do things first and demonstrate them to the world."

Tokyo's cap-and-trade program will strongly push forward Japan's national emissions trading scheme. We should keep our eyes on the Tokyo Metropolitan Government, because it is also promoting a variety of other innovative and effective initiatives to watch.

Written by Junko Edahiro

See also: Tokyo Takes the Lead in Climate Change Mitigation Measures in Japan