Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 1 The Japanese Background Ken Yamaguchi Mitsubishi Research Institute Inc. Sustainable Development Research Dept. SB18 Bonn, June, 2003

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 2 What is MRI? A Japanese private think tank established in 1970, with a wide variety of activities Has 14 years ’ experience on climate-related research, since 1988 Toronto conference Has the largest research staff among the Japanese think tanks Has worked closely with both the Japanese government and industry on this issue Is involved in the internal discussions within Keidanren, and has wide network in Japanese business Able to introduce suitable contacts to foreign counterparts

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 3 MRI ’ s recent climate-related activities Activities to explore and forecast the “ carbon- constrained world ” Carbon Offset Initiative JEMS (Japan Emissions Management Simulation) Cooperation with UNIDO Strategic consulting on corporate climate policy

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 4 Overview of presentation Kyoto Protocol and Japan Domestic emissions trading Post-2012

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 5 Kyoto Protocol and Japan Formulated the outline of measures in March, 2002 National communication on May, 2002 Ratified KP on June, 4, 2002 JI/CDM Application finalized October, 2003 Two projects approved (gov ’ t-sponsored energy project in Kazakhstan, private sector biofuel in Brazil)

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 6 KP and Japan Japan ’ s emission profile Has to decrease emissions by 6% So far it has increased by about 8% Without measures, may increase by another 10% Decrease in mainly due to recession Data: Japanese government

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 7 Why Japan faces the toughest challenge (Even though every country says so … ) Japan Already energy-efficient Already afforested (>60%) Few non-CO 2 measures (waste, pasture, aluminum) Close links with CO 2, energy trends GHG Emissions 2000 Data from the governments

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 8 KP and Japan-domestic compliance No additional measures until 2005 If likely to miss target, then additional measures from 2005 Carbon / energy tax? Emissions trading? Scenario of compliance Bring back to 1990 level through energy-related measures 0.5% reduction through methane / N 2 O 2.0% increase through use of HFC, PFC, SF 6 3.9% reduction through sinks 2.0% reduction through “ revolutionary tech. / further efforts ” Remaining 1.6% … ???

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 9 Domestic emissions trading Industry views Against caps, but against tax Why should industry bear the burden? Industry the only sector where emissions are kept constant Gaps in the expectation Industry: stabilization Government: 7% reduction Recent change in organization may be important Data: Japanese government Other: Energy transformation, process, waste

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 10 Kyoto Mechanisms - status of discussion “ To be pursued due to its cost-effectiveness ” METI&MoE... co-leaders in climate policy Creation of domestic registry to be operational by Keep abreast of the work in progress in EU, a market four times as large

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 11 Kyoto Mechanisms - status of discussion METI “ KM helpdesk ” to facilitate private sector involvement: Received inquiries for 50CDM projects / 20 JI projects Emphasis on JI / CDM... industry influence Investigation of risk insurance scheme (via NEXI, etc.) Affiliate organizations ’ intentions to become the project implementation entity, a la Senter?... Plans to allocate 1.9bn JPY (c.16million USD) to fund a quarter of CDM/JI finance Condition: no oversea transfers

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 12 Kyoto Mechanisms - status of discussion MOFA JBIC announces its intention to be a fund for KM Potential conflict with its ODA activities Potential conflict with METI Much know-how in disbursing funds (e.g. hydropower) MoE Step 1 ( ): Voluntary ET for experience-gaining Step 2 ( ): Build up on the experience One-year commitment periods, bankable unlimited OTC trading of 6gases Interest towards the UK ETS... due to its tax implications?

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 13 Possible ET schemes Government does everything If industry is deemed as meeting its target (not very likely after the nuclear problems) 100Mt-CO2 X 10USD/t-CO2 = 0.1% of government budget, 10% of FY2003 climate policy budget Government bids against credits gained by the industry Industry bears targets

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 14 A Government perspective Public-private funding Pending issues Turf issues ODA concerns Budget Which organization shall be the Fund? Projects KM Fund Company ACompany B Gov’t Sectoral compliance (industry scheme) National Compliance financecredits assistance risk insurance financial assistance

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 15 Outlook for CP1 Japan stands to be the largest buyer of emissions reduction credits (perhaps on the order of 100Mt-CO 2 /yr). Electricity industry has the largest carbon exposure (and interest in projects), but some other sectors are also candidates. Role of government is probably significant Active role in project development Passive role as a purchaser, possibly with a bidding process A possibility: Emissions trading for the industry / carbon- energy taxation for other sectors (after 2005)

Mitsubishi Research Institute Inc. Sustainable Development Research Dept. 16 Post-2012: ready to fight? No official position yet METI-affiliate committee ’ s report (2003/5) Kyoto Protocol is unfair Need to incorporate US and key developing countries Emphasis on policies and measures New framework should be bottom-up, should not be preoccupied with enforcement