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Wednesday, Feb. 16, 2005

Working to reach Kyoto goals overseas

But earning credits by cutting emissions in poorer nations has detractors

Staff writer

With the 1997 Kyoto Protocol on curbing greenhouse gas emissions taking effect Wednesday, both the government and private sector are pinning hopes on overseas projects to help Japan earn sorely needed emission reduction credits.

News photo
Workers in Sumatra, Indonesia, process tapioca to produce starch at a local firm. Sumitomo Corp. plans to provide the firm with technology to collect and burn methane generated from the process, in a project to cut greenhouse gas emissions. PHOTO COURTESY OF SUMITOMO CORP.

Japan's total greenhouse gas emissions in fiscal 2003 were up 8 percent from 1990 levels. It must now cut 14 percent of its emissions by 2012 to meet its Kyoto pledge of a 6 percent reduction from the base year.

With Japan fighting an uphill battle to meet this goal, the government now hopes to earn credits through the Kyoto Mechanism, which enables protocol signatories to use emissions credits generated in other countries to achieve their own reduction goals.

"Since we can't reduce emissions sufficiently through other measures, we have no choice but to utilize the Kyoto Mechanism to achieve our target," admitted Motonari Tsujiwaki, chief officer of the Environment Ministry's Climate Change Policy Division.

The Kyoto Mechanism consists of three pillars: the Clean Development Mechanism, in which countries gain credits through such measures as curbing greenhouse gases or afforestation in developing nations; Joint Implementation, in which a developed country gets credits for cutting emissions in another developed country; and Emissions Trading, in which a developed nation buys credits from another industrialized nation.

The CDM has drawn the widest attention among the three, not least because there is greater room to cut emissions in developing countries.

But experts say Europe has a head start in finding efficient projects and buying credits at reasonable prices, and there may only be slim pickings for Japan.

According to Environment Ministry officials, the government was slow in deciding to actively use the Kyoto Mechanism because it believed Japan's reductions should come first and foremost through domestic measures. The Finance Ministry was not forthcoming with funds, arguing that it was still uncertain whether the Kyoto Protocol would really take effect, they added.

But many Japanese companies now regard the CDM as an efficient way to reduce their greenhouse gas emissions while at the same time tapping new business opportunities.

Makoto Katagiri, president of emissions broker Natsource Japan Co., said his firm has seen an increase in the number of CDM-related inquiries.

Earning credits through the CDM is cost-effective for Japanese companies, he said, because many firms achieved high energy efficiency after the oil crisis of the 1970s and would need to make huge investments to make their domestic operations more efficient.

"It generally costs more than $100 for a company to reduce 1 ton of carbon dioxide in Japan," Katagiri said. "But if the company cuts the same amount in a developing country, it only costs around $6 to $7."

Copier maker Ricoh Co. plans to use overseas projects to achieve its goal of curbing emissions by 12 percent from the fiscal 1990 level by the end of fiscal 2010.

Based on the assumption that it will grow 4 percent annually, Ricoh hopes to meet the target through such efforts as enhancing energy efficiency in production processes, according to Tatsuo Tani, general manager of its corporate environment division.

But more robust growth could throw a wrench into the calculations, he said, adding, "We can avoid the risk (of missing the goal) through CDM projects."

For its first CDM scheme, the company has proposed starting afforestation in Ecuador with the cooperation of the U.S.-based nonprofit organization Conservation International.

Some firms, meanwhile, view CDM projects from a purely business perspective.

Trading house Sumitomo Corp. plans to rake in profits by cutting emissions in developing countries. More than 10 CDM projects are on its drawing board, according to Ryuzo Yamamoto, general manager of its global environment department.

Explaining the potential profit in CDM projects, Yamamoto used the example of a proposed scheme to decompose methane, a byproduct of coal mining.

"By burning methane, we can generate power while at the same time gain emissions credits," which would be sold to other firms, he said.

But Naoyuki Yamagishi, climate change policy officer of WWF Japan, said he suspects many businesses want to use CDM projects to get around emissions-reducing regulatory measures, including a carbon tax, that are currently envisioned by the Environment Ministry.

While the environmental watchdog supports the use of the CDM, Yamagishi said that some proposed projects are not without controversy.

During a December meeting of the United Nations CDM Executive Board, approval of two projects presented by Japanese companies was postponed due to concerns they might increase emissions of another environment-threatening gas. The board's approval is needed for the projects to be implemented.

The projects, one planned in India by Sumitomo Corp. and another in South Korea by INEOS Fluor Japan Ltd., would destroy hydrofluorocarbon 23, a greenhouse gas emitted in the course of producing hydrochlorofluorocarbon 22, which is used as a coolant in air conditioners.

HCFC 22 destroys the ozone layer. Its use is to be banned in developed countries by the end of 2019 and in developing countries by the end of 2039.

One board member was quoted as saying that under Sumitomo's project, the Indian HCFC 22 producer would receive part of the profits from the sale of the credits, which might encourage it to produce more of the ozone-depleting gas.

But Yamamoto said this is unlikely because demand for the gas is limited, and she stressed the validity of the project, which would destroy gas equivalent to 3.38 million tons of carbon dioxide a year.

Another controversial point is that the projects might discourage other CDM schemes making use of renewable energy sources and energy conservation.

Because HFC 23's global warming effect is some 10,000 times that of carbon dioxide, a firm that gets rid of the gas can acquire a great many credits with a minute investment and sell them at prices lower than those of credits earned by other CDM projects, WWF Japan's Yamagishi said.

"If a lot of credits earned through HFC-eliminating projects are traded on the (emissions trading) market, credits of renewable energy or energy-saving projects will be pushed out of the market."

This would discourage projects such as constructing renewable power plants and energy saving facilities, which are necessary for developing countries to achieve environmentally sustainable growth, he added.

Rie Watanabe, a researcher at the Institute for Global Environmental Strategies, said that to get around the problem, both the U.N. and countries involved need to consider improving rules regarding approval of CDM projects.

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