JFS Newsletter No.94 (June 2010)
http://www.japanfs.org/en/mailmagazine/newsletter/pages/030080.html

The megacity of Tokyo is like a country in many ways. It consumes asmuch energy as entire countries in Northern Europe, and its productionmatches the GNP of the world's 16th largest country. And even before thenational government of Japan took action, the Tokyo MetropolitanGovernment (TMG) has made major changes to steer Tokyo toward being alow-carbon city. It has made steadily progress in achieving results bydesigning and implementing effective measures, including the launch of amade-in-Tokyo emissions cap-and-trade program in April 2010. In thisarticle, we introduce the measures that the TMG has implemented toaddress climate change, the results, and prospects for the future.

In June 2007, the TMG formulated the Tokyo Climate Change Strategy as abasic plan for the "10-Year Project for a Carbon-Minus Tokyo," one ofthe measures aimed at realizing "Tokyo's Big Change -- The 10-year Plan,"formulated in December 2006. This strategy clarifies Tokyo's basic policyon measures against climate change in the next decade and introducesmajor initiatives. The TMG says it "formulated this strategy in order topose 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 http://www2.kankyo.metro.tokyo.jp/kikaku/kikouhendouhousin/data/tokyo-climate-change-strategy_2007.6.1.pdf

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

About half Tokyo's total greenhouse gas (GHG) emissions come from thecommercial and industrial sectors, and the other half is from thehousehold and transportation sectors. Forty percent of emissions fromthe 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 theiremissions and introducing the cap-and-trade scheme stirred considerablecontroversy, since the national government was far behind schedule withfull-scale introduction of emissions trading; it was still at the levelof 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 hasused to establish new initiatives, such as the cap-and-trade program itimplemented 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 variousprograms in accordance with the strategy within three years of itslaunch, including the cap-and-trade program which requires mandatory CO2reductions from CO2 emitters that are large establishments and sets upan emissions trading system, a reporting program that requires small andmedium-sized companies to report on their efforts to save energy, andenhancing a series of measures for sustainable urban development. Theseare pioneering efforts in Japan, and also represent some of the mostleading-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 UnionGreenhouse Gas Emission Trading System (EU-ETS) launched in 2005, andthe Regional Greenhouse Gas Initiative (RGGI) in the United States in2009, the first mandatory, market-based initiative implemented by tenAmerican Northwest and mid-Atlantic states to reduce their GHG emissions.It should be noted that the TMG's program (Tokyo-ETS) is the first amongthese to set targets for business sectors.

The establishment of its systems was made possible by cooperationbetween the TMG and other entities, including companies and businessgroups in Tokyo, specialists and research institutes in various areas,and non-governmental organizations (NGOs). After releasing its ClimateChange Strategy in June 2007, the TMG held several stakeholder meetingsup to January 2008. Furthermore, it seized as many opportunities aspossible to discuss new measures with relevant companies and businessgroups in the design of the new systems. When determining the requiredreduction 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 theexpertise of specialists and think tanks in various areas, includingthose involved in energy conservation, law, finance, accounting,construction, and design.

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

The TMG came up with a unique way todetermine the baseline emissions levels through many discussions withcompanies. The baseline for an establishment is set as the averageemissions in any three consecutive years between 2002 and 2007. This isintended to reward corporations that started their efforts to saveenergy and tackle global warming earlier, by allowing them to choosetheir most favorable years in the period.

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

When voluntary efforts to reduce their emissions fail to meet therequirements, the targeted companies can compensate for the shortage bypurchasing 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, andone of the major reasons for this is concern that it could lead to amoney game (speculation for profit). Under the EU-ETS, for example,emission reduction efforts by participating establishments are evaluatedannually, and some critics say that this makes them rely more onemissions trading, thereby increasing the risk of a speculative moneygame developing. In the TMG's scheme, on the other hand, the implementation period is five years rather than one year. By setting alonger term, the TMG expects that companies will be able to fulfilltheir obligation in a planned manner over five years, with less dependencyon emissions trading.

Since the introduction of the Tokyo-ETS, companies and office buildingsin Tokyo appear to be encouraged to step up their efforts to reduce CO2emissions, as seen in the establishments subject to the requirementsthat started to review/update their facilities, introduce LED (light-emitting diode) lamps, and encourage employees to undertake every effortpossible.

As for the office buildings that have scarcely reduced their CO2 emissionsso far, the building owners are still subject to the obligations but thetenants of a certain scale of building or larger are required to submittheir own emission reduction plans to comply with the emission reductionmeasures. Some building owners are in support because they say that theycan 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 bethe face of Tokyo, embarked on a unique challenge: the company decidedto cover all the energy demands of its Shin-Marunouchi Building using100 percent renewable energy. The annual electricity consumption foroffices and commercial facilities in the building is equivalent to20,000 tons of CO2 emissions.

Based on the interregional cooperation structure to promote renewableenergy established by Tokyo and Aomori Prefecture, Mitsubishi Estateinitiated an innovative system to supply electricity generated at windpower stations in Aomori Prefecture through electrical grids owned bythe electric power company. Generally, many companies use the GreenPower Certification System, in which those who purchase the certificatesare considered to be buying electricity generated by a natural energysource. The price of green power certificates, however, could easilyskyrocket because of its affordability, and the company worried aboutthe unavailability of the certificates when actually needed.

Shin-Marunouchi Building to Utilize 100% Green Energy
http://www.japanfs.org/en/pages/029784.html

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

Coincidentally, in order to promote voluntary reduction among the targetedestablishments and initiate offset credits from small and mid-sizeestablishments within the Tokyo area, the TMG is going to (1) sendspecialists in saving energy to the targeted establishments to give adviceutilizing top-level certification standards; (2) conduct energy-savingseminars to properly attune the settings of heat source equipment tomeet 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 growingelectricity consumption is expected; and (5) conduct seminars to supportand explain the business plan for offsetting credits from small andmid-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 theface of opposition from the business community, he has been able topersevere and consistently lead the way forward with various programs,"says Teruyuki Ohno, Director-General for Climate Strategy in TMG'sBureau of the Environment.

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

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