On April 1, Tokyo’s Metropolitan Government (TMG) started a cap and trade system, which was the first attempt by a metropolitan area in the world. Further, at the national level, the current administration, led by a coalition composed by the Democratic Party of Japan, the People’s New Party and the Social Democratic Party, proposes a cap and trade system in its bill on the basic law for prevention of global warming (Ondanka Taisaku Kihon Hoan) and the Diet started deliberating the bill on April 20. Though a cap and trade system is going to be carried out at the national level, its structure has not been clear, and METI and businesses very actively seek to make the structure of a Japanese cap and trade system preferable or acceptable for them. As environmental NGOs propose different ideas concerning a Japanese cap and trade system from those of METI, the battle between green NGOs and METI over significant aspects of a cap and trade system has been fiercely happening. Especially, whether a Japanese cap and trade system should adopt an absolute target or an intensity target is one of the most controversial issues.

While METI strongly insists on the adoption of an intensive target, environmental NGOs are strongly pushing for the adoption of an intensity target. Environmental NGOs favour an absolute target mainly because an intensity target is supposed to promote increase in production for targeted industries. Indeed, because it is supposed that an absolute target is superior to an intensity target for CO2 reductions, TMG’s cap and trade system uses an absolute target. However, METI in its report, ‘Haishutsuryo Torihikiseido ni Tsuite’ (Concerning a cap and trade system), published on April 7, eloquently proposes an intensity target and justifies its adoption in the basic law.

Concerning the argument that an intensity target would promote increase in production, METI in its report suggests that increase in production is good for the Japanese economy and especially development of stable companies which achieve highest energy efficiency is beneficial for the whole nation and should be supported. Further, METI proposes that an intensity target would encourage businesses to achieve highest energy efficiency in the world. It is, according to METI, also possible to consider separately various adjustment mechanisms in order not to increase total CO2 emissions where a company achieves an intensity target but increase emissions because of increasing production.

In order to justify these arguments,  the report cites comments of Professor Gwyn Prins at London School of Economics in an article of Montel Powernews, “Japanese industry has shown real efficiency gains, reduced emissions and increased profits at the same time.” However, it is difficult to say that METI’s arguments can be justified by the comments. Indeed, in his two main articles as well as the article mentioned above, How to Get Climate Policy Back on Course and The Wrong Trousers: Radically Thinking Climate Policy, Professor Prins does not suggest that production should be increased. Either, he does not propose the adoption of an intensity target in a cap and trade system though he strongly emphasizes the necessity for reduction of the carbon intensity of an economy through increasing energy efficiency and deploying low-carbon technologies. Although he points out some deficiencies in the current cap and trade system and proposes its improvements in the latter article, he does not specify the adoption of an intensity target as its improvements at all.

In the very near future, it will be determined whether Japan’s cap and trade will adopt an absolute target or an intensity target. It is actually very difficult to determine which target should be adopted because both targets have pros and cons. As discussed above, however, it is inappropriate to adopt an intensity target because of the METI’s report as Professor Prins proposes neither an intensity target nor an increase in production and METI’s arguments are not supported by him, that is the report is misleading.

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