Japan to float trial carbon market with 202 users

TOKYO (Reuters) - A trial carbon market is to float in Japan with 202 compliance participants, the government said on Thursday, marking a rather low-key start for a country whose greenhouse gas emissions are well above its Kyoto target.

Japanese industry's voluntary reductions in energy-origin carbon dioxide (CO2) are a core part of Japan's plan to meet its commitments under the Kyoto Protocol, and a carbon market is in theory helps to promote their efforts by putting a price on CO2.

In the year to March 2008, Japan, the world's fifth-biggest greenhouse gas emitter, saw its emissions rise 2.3 percent to a record 1.37 billion metric tons in CO2 equivalent.

Japan's Kyoto commitments are to cut emissions to 1.19 billion metric tons on average in the five years to March 2013, down 6 percent from the 1990 levels.

Launched as a trial base in October, the domestic carbon market is aimed to become the nation's broadest emissions market, where emissions rights generated by clean energy projects abroad under Kyoto's market schemes can be traded.

The market's compliance participants include major emitters such as utility and steel companies, a step forward from its smaller predecessor, called J-VETS market.

But a government survey of applicants showed only 20 percent of the respondents said they would take part in trading, with 40 percent saying they didn't know. The remaining 40 percent said they had no immediate plan to trade any.

"Most of the participants have not made up their mind yet," said Hiroshi Kamagata, a counselor in charge of climate policy at the Cabinet Secretariat.

"Falling production recently is one factor to consider because that undermines energy efficiency in terms of CO2 per unit of production," he told Reuters at the sidelines of a government panel meeting on Thursday.

The Japanese market is still far from a mandatory cap-and-trade scheme like in Europe as a target can limit either the total volume of CO2 a participant emits or the amount of CO2 per unit of production.

The latter would allow emissions to rise along with economic growth as long as energy efficiency improves. But steel, utility and other industries with such voluntary targets are now worried if they are able to meet their goals.

A slump in exports since the financial crisis late last year put a brake on production here, resulting in a fall in operating rates, and thus worsening energy efficiency.

Japan has approved voluntary targets for the year to March 2009 for 202 participants, including the two industry associations of steel companies and car makers, enabling them to trade in a market expected to run at full strength in the third quarter of this year after their emissions for the period are finalized.