The Japanese government will establish a new market where companies buy and sell allowances for greenhouse gas emissions. This new program must be made into an effective system in order to realize the country’s goal of becoming “carbon neutral” by 2050.
The emissions trading scheme is one method that promotes decarbonation by placing an economic burden on firms depending on their emissions amounts. A limited number of permits that allow the release of a specific quantity of pollutants is allocated to each company, and firms whose emissions exceed their allotment buy permits from others that emit less pollutants to offset their carbon footprint.
Following the Ministry of Economy, Trade and Industry’s proposal, 440 companies, including mainly major firms, decided to participate in the initiative. A trial will be implemented from September, while full-fledged operations are set to begin during fiscal 2023. Discussions between the government and the private sector will be held to work out details on trading rules.
The scheme’s greatest feature is that the companies have the capacity to determine on their own the amount of pollutant emissions, as well as whether or not they will participate in the initiative. It also seems that even if companies exceed their emissions cap target, they will not be forced to purchase carbon credits.
Many Japanese companies have already created emissions reduction plans, and investors and consumers have also shown increased interest in climate change. Therefore, the government deemed it unnecessary to impose stringent regulations. The decision was also likely made out of consideration for the business community which opposes an increase of burden.
However, if a large number of participating companies become complacent with their weak efforts, there will be no progress in the reduction of greenhouse gas emissions. If companies that set rigid targets are at a disadvantage, the market cannot be said to be a fair one.
Another emissions trading scheme that was tested by the Ministry of the Environment and other bodies in the past had limited effectiveness as it allowed companies to set targets at their own discretion. In Europe and the United States, the government is deeply involved in the establishment of emissions caps.
To secure the transparency of trading, it is indispensable to have a function for a third party to evaluate the appropriateness of the emissions caps. Specific reduction plans, as well as the state of development for necessary technology, among other information, must be disclosed for each industry, and a system to regularly inspect them is also required.
Debate over carbon tax, which is designed to incentivize the reduction of carbon dioxide emissions, needs to be carried out immediately. Though it was at the focus of tax reform debate last year, the ruling parties, which were concerned about their impact on the economy, called off their implementation.
Amid the soaring prices of resources, there has been an increasingly cautious outlook surrounding carbon taxation. However, it also has the benefit of allowing for investment into the development of technology required for reducing emissions. The government should consider introducing the carbon tax, while also reviewing the current energy taxation scheme.
Countries around the world have been competing to actualize a system that efficiently reduces emissions while curbing negative effects on the economy. Avoiding disadvantages in the short run will not enable survival through this age of decarbonization. The commitment levels of Japanese companies are in question.