09-08-2009 - Energy

A tectonic shift may be underway in Japan, but not of the sort normally associated with this country and its frequent earth tremors. Rather, a new era in climate politics may dawn as a result of the recent win by the DPJ in the national elections. This is because within the manifesto pledges of the DPJ sit two key policy choices, now (Monday September 7th) formally announced by incoming Prime Minister Yukio Hatoyama:

1. A commitment to reduce national emissions by 25% by 2020, relative to 1990 – this compares with the proposal by the LDP of an 8% reduction, one which was heavily criticised internationally as being insufficient support for the developed country contribution to an agreement in Copenhagen.

2. A commitment to implement a cap-and-trade system within the Japanese economy. Although the previous government had talked about this policy instrument, little progress was made in implementing it given the negative position that some business groups took towards it.

Whilst much domestic “nemawashi” is still to take place, this shift could be critical for the success of an agreement in Copenhagen.

But Japan already finds itself an international leader in energy management, given the energy legacy inherited from the previous administration. However, the CO2 story in Japan, whilst positive, has not delivered an overall drop in emissions. Whilst energy diversity and efficiency have been key policy objectives for many years now, absolute CO2 emissions have risen by nearly 15% from 1990 (to 2006, IEA). At the same time emissions in the EU-27 have fallen, but only slightly. Over the same time period CO2 emissions in the USA have risen by just over 19%.

A big difference lies in the power sector, with Japanese power emissions staying at around 430 gms CO2 per kWh over a 20 year period, but EU power emissions falling from over 430 gms per kWh to some 350 gms per kWh in the same period. This is due to the continuing rise of nuclear power in the EU, the influx of natural gas and the more recent aggressive build of renewables in countries such as Germany and Denmark. By contrast, Japan has seen emissions from coal grow by 45% over the same period, much of that in the power sector.

With a transport sector already one of the most CO2 efficient in the world and an efficient manufacturing base, the power sector will become a particular area of focus. But efficiency alone is not going to deliver the necessary change, so fuel switching (i.e. more natural gas), renewables and international offsets will all play important roles.

The last item above will be critical to the strategy. But to be truly effective, the tougher target must be backed by an emissions trading system, which is also a preferred policy position of the DPJ. A Japanese emissions trading system, with very open access to international markets will allow the domestic target to be met but importantly will direct significant funding to developing countries.

Some quick numbers – let’s assume domestic emissions in 2013 are down to 1100 MT (with the Kyoto target met through CER and AAU purchases) and that the country can reduce this to 1000 MT by 2020 (i.e. a ~20% reduction from 2006 to 2020). Therefore, meeting a 2020 target of 810 MT CO2 (i.e. 25% lower than 1990) could mean the purchase of over 800 million tonnes of international credits from projects between 2013 and 2020.

Between Japan, the USA, the EU, Canada, Australia and New Zealand, six cap-and-trade systems could be buyers of some 10 billion tonnes of international reductions in the period 2013-2020, giving rise to not only a very large and liquid global carbon market but also an ability to fund very significant step changes in developing country emissions. In tandem, new avenues of supply would have to be rapidly developed, including a mechanism that supports some kind of sectoral crediting, although this will likely be more successful as an outgrowth of the CDM through the creative use of methodologies rather than an entirely new approach.

The announcements by the new government in Japan, if put into practice over the next three years, could have very far-reaching effects. Rather than facing the prospect of a lone EU-ETS struggling to hold the fort for this powerful market instrument, we instead head rapidly into the brave new world of a global carbon market.

Written by David Hone

9 Responses to “Incoming Japanese Prime Minister announces key climate policy choices”

1. mindy says:

   September 8, 2009 at 9:38 pm

   Too confusing I am a newbie at this I need layman terms… Anyone???

   Reply
2. David Hone says:

   September 9, 2009 at 3:51 am

   In short, Japan is setting itself a very ambitious target which it probably cannot meet domestically, especially given the existing high efficiency of the transprt and manufacturing sectors. So that means two things;
   1. They are going to have to do quite a bit in the power sector where they are burning increasing amounts of coal.
   2. They are going to have to play in the international project mechanism (offset) market in a big way.
   The second point is good in that it helps build a big carbon market, but it will only work really well if the government carries through on its second promise and implements a domestic emissions trading system through which participants buy the needed offshore credits (offsets).

   Hope this helps.
   David

   Reply
3. Deborah Byrd says:

   September 9, 2009 at 6:18 am

   David, why do you say that Japan’s actions here may be critical to success at the Copenhagen climate summit in December? Is it that Japan is making a bold move here – creating a particularly strong program to deal with the issue of global climate change – that other countries may use as a model for their own behavior?

   Reply
4. David Hone says:

   September 9, 2009 at 6:59 am

   There are two reasons;
   1. They are now proposing a target that is in the same ballpark as the stretch targets from some other developed economies;
   2. They are saying that this will be supported by an emissions trading system, which means we have another large market driver in the world. These big driving forces are essential as they force private money into projects globally which is an essential element of a deal.

   Reply
5. Jorge says:

   September 9, 2009 at 10:34 am

   Seems to me that Japan sees an opportunity in gearing itself up for a future where CO2, like other pollution, is accounted for and would rather be ahead of the curve than behind it. It’s not going to be an easy transition to reduction of CO2 emissions of 25 percent by 2020, but avoiding some of the more dire predictions of scientists most likely warrants it.

   Reply
6. Claire says:

   September 9, 2009 at 11:19 am

   Isn’t it really a pipedream to think that Japan (or any country!!) will stop burning coal, or even reduce significantly? And I have read climate experts say that unless THE WORLD stops burning coal NOW, we are headed for climate and economic calamity

   Reply
   • David Hone says:

     September 9, 2009 at 2:14 pm

     Yes, it is a pipedream for the world as a whole because we need the energy – so that means utilising carbon capture and storage. In the case of Japan they face a real challenge;
     - they are concerned that their geology may not be suited to CCS.
     - nuclear is not universally accepted there as it is in say, France (where they did demonstrate that a country can move away from coal).
     - they don’t have great wind resources.
     - they could use LNG, but that makes them very dependent on one market, something they don’t really want to do.

     So what do they do – solar is big there and very efficient generation from coal and gas may be able to significantly reduce consumptoin – but it isn’t an easy pathway for them. Biomass (e.g. sea algae) could be interesting perhaps.
     David

     Reply
7. Deborah Byrd says:

   September 9, 2009 at 2:53 pm

   Interesting example of energy solutions needing to be different for different parts of the globe!

   Reply
8. Gagan Gilotra says:

   September 24, 2009 at 4:13 am

   Hi David you stated that Solar is big in Japan but according to the other reports that I have read generation from solar is almost nothing (eg. WEO 2008)? Japan\’s overall energy intensity is also one of the lowest amongst the ANNEX1 countries and I think Japan had also announced a 20% renewable target which will help to abate a bit.

   Reply