Reducing the city’s carbon footprint: Tokyo’s emissions trading system (ETS)

The initiative

In June 2008, the TMG took legislative action. “the Governor of Tokyo, Shintaro Ishihara, submitted a bill to the second regular meeting of the Tokyo Metropolitan Assembly (TMA) … that introduced mandatory targets for reductions in overall GHGs for large-scale emitters as part of an emissions trading programme. The TMA passed the bill, thus introducing Japan's first cap-and-trade emissions trading programme, to take effect in fiscal 2010.” It was the first such programme to be introduced in Asia. A cap-and-trade system means that “there is a ‘cap' or limit set on the total GHG emissions allowed by all participants covered by the system and this cap is converted into tradable emission allowances”. [2]

Tokyo's Emissions Trading System (ETS) had the following objectives regarding GHG emissions:

• “To reduce total emissions among the capped sectors by 6% from fiscal 2010 to fiscal 2014.” [3]
• To reduce “emissions by 17% compared to the base year by 2019”. [4]

The system applies to the  industrial and commercial sectors. “These sectors account for approximately 40% of the GHGs emitted in Tokyo. The cap applies to large-scale facilities (buildings/factories) that have total consumption of fuels, heating and electricity of at least 1,500 kilolitres per year. These facilities include large CO2 emitters such as office buildings and factories. About 1,400 facilities in Tokyo come under this classification.” [5]

There are two five-year compliance periods, each with its defined cap on emissions. “Facilities (buildings/factories) that come under the cap are permitted to bank the surplus when their emissions during a given compliance period are less than the emissions allowances. Banking acts as an incentive for facilities to reduce GHG emissions ahead of schedule.” [6]

Non-compliance is punishable by publication of the breach, fines, and surcharges. SMEs are required to take steps to reduce emissions, but they are not affected by the cap.

The challenge

In 2010, greenhouse gas (GHG) emissions in Tokyo were 59.6 million tCO2e a year while, at 1.26 billion, Japan’s were almost 3 percent of the world’s total. The Tokyo Metropolitan Government (TMG) had recognised this environmental problem when “announcing its Tokyo Climate Change Strategy in June 2007 [and] the TMG had been examining ways to bolster the fight against global warming” since that time. [1]

The public impact

Tokyo has benefited greatly from the ETS:

• At the end of the first compliance period in December 2014, the programme had “achieved an emissions reduction of 23% compared to base year emissions during the four years [from 2010]. [7]
• “By February 2015, over 90% of covered facilities had surpassed their reduction targets for the first compliance period and 69% of facilities had already exceeded their second compliance period targets of 15-17% reductions.”

Stakeholder engagement

Stakeholder engagement was a crucial reason for the ETS's success, according to a World Bank report. “Interacting with stakeholders was repeatedly identified as a very important lesson learned in Tokyo. Including stakeholders from the beginning afforded TMG the chance to tailor the ETS to individual companies' needs, while meeting TMG's ambitious reduction goals. The stakeholder meetings identified areas for improvement in the ETS design. More importantly, these meetings helped TMG to build confidence among ETS participants.” [8]

The TMG is the main stakeholder in the Tokyo ETS. The main external stakeholders are “numerous parties, including financial institutions and the Tokyo Stock Exchange, [which] are showing strong interest in TMG's cap-and-trade programme”. [9] Although some of the business community was originally opposed to the system, “facilities are working hard to cut their emissions and actually exceeding targets, suggesting that they have engaged with the programme since its mandatory roll-out”. [10]

Political commitment

The TMG remains committed to executing the ETS and reducing emissions, having initially introduced legislation to create the cap-and-trade system.

The Japanese government, however, is no longer committed to rolling out a cap-and-trade programme, based on the Tokyo model, across the country. “Efforts to implement a national ETS in Japan were postponed in December 2010, and, at present, there does not appear to be much momentum surrounding such a policy.” [11]

Clarity of objectives

The stated objectives are well defined and quantifiable, i,e., to reduce GHG emissions for the Tokyo metropolitan area. Data showing progress towards these objectives continues to be collected and published.

Strength of evidence

The ETS was the result of a lengthy planning process that took into account scientific studies and reports from other kinds of emissions trading schemes around the world. “TMG collected opinions from communities, industries, municipalities, NGOs, scholars, research institutes and energy suppliers through public opinion surveys, internet-based monitoring questionnaires, and stakeholder meetings.” [12] The most well-known model was the EU's Emission Trading Scheme, which has been in place since 2005. An important influence on the way “Tokyo's cap-and-trade programme has been configured [was] the Global Warming Measures Plan system that has been in place since 2002”. [13]

However, there is a significant difference in Tokyo's cap-and-trade model. It was “the world's first urban cap-and-trade programme to cover office buildings” and as such serves as a model for other such schemes around the world. [14]

Feasibility

The legal feasibility of the system was addressed by the TMA's amendment of the Tokyo Metropolitan Environmental Security Ordinance in July 2008 “to include clauses for the establishment of emissions caps on large emitters, with effect from 1 April 2010. This amendment formed the legal basis for implementation of the ETS, and ETS implementation became a regulatory design issue”. [15]

There were additional actions to address feasibility:

• Although “emissions allowances have not yet been extensively traded in Japan [and] as a result, financial institutions and other companies in Japan do not have significant trading experience”, the TMG “actively provided information to these parties through the launch of this scheme [and] has worked to formulate the emissions trading rules with reference to the opinions of experts”. [16]
• “To establish a sound carbon market, measures are also required to prevent abnormal trading price surges. To stabilise the emissions trading prices, first of all the TMG will endeavour to prevent trading price surges through measures to increase the supply of reductions that are traded.” [17]
• Numerous guidelines for monitoring, verifying, and certifying emissions were established in advance of the roll-out.

Management

The ETS is managed by the TMG and “Tokyo's success in implementing the ETS can be attributed to a generally cooperative environment and the high level of technical and financial management capacity both within the government and in the private sector". [18] The TMG has a implemented a number of measures to enforce it, including:

• “In the course of each five-year compliance period, facilities (buildings/factories) that come under the cap are obliged to report GHG emissions in the previous fiscal year to the Governor, and to disclose such data every fiscal year. The GHG emissions are verified by a third-party verification agency registered with the Governor of Tokyo.” [19]

“The registry of reductions is being established to manage emissions trading records, and a record needs to be made with the registry when acquiring, transferring or using excess reduction or offset credits to fulfil obligations.” [20]

Measurement

Facilities are required to report their emissions each year, and these reports are independently verified:

• The TMG has a “mandatory reporting programme, [comprising a] reporting requirement on emission inventory with a reduction target and reduction plan, [a] feedback system to show their performance with comparable data and examples [and] rating and disclosure of the plan and results”. [21]
• The TMG also maintains an electronic registry of emissions and publicises progress toward goals.

Alignment

The aims of the ETS align with Japan's “target of a reduction in the country's GHG emissions to 25% below the 1990 level by 2020”. [22] It also aligns with international efforts to curb global warming.

Although some businesses believe that efforts to cut emissions hampers economic growth, and so were unwilling participants in this mandatory scheme, nearly all facilities have met their emissions targets.

Bibliography

Tokyo Cap-and-Trade Program: Japan's first mandatory emissions trading scheme, March 2010, Bureau of the Environment Tokyo Metropolitan Government

TOKYO: AN EMISSIONS TRADING CASE STUDY, May 2015, IETA

Tokyo Cap-and-Trade Program & Strategic Reporting Requirements, Yuko Nishida, Tokyo Metropolitan Government

Tokyo's Emissions Trading System: A Case Study, JUNE 2010, DIRECTIONS IN URBAN DEVELOPMENT