IEEJ: March 2003

Domestic and Overseas Trends in Measures to Combat Global
Warming and Future Prospects1- The Necessity of Utilizing the Kyoto Mechanisms and Related Issues Hiroki Kudo
Group Manager, Environment GroupThe Institute of Energy Economics, Japan

1.

Introduction
In 2002, Japan, the EU, Canada, and other major developed countries ratified

the Kyoto Protocol and, despite continuing insistence by the US and Australia on not
ratifying the Protocol, there is a growing possibility that the Protocol will come into
effect during 2003 with ratification by Russia. Given this, those countries in the EU
and elsewhere that have ratified the Protocol are promptly pursuing approaches toreduce the costs of achieving their targets by considering the introduction andimplementation of measures utilizing the Kyoto Mechanisms and emissions trading
systems.
At the same time, Japan is presently reinforcing its existing measures as the firststage of a “step-by-step approach” and, with a view to the review scheduled for 2004, it
is quite likely that Japan will examine additional measures, depending on developmentsin the economy and its nuclear power generation capacity. Although a close
examination of precisely what additional measures should be adopted is a matter for
future consideration, utilization of the Kyoto Mechanisms is essential for Japan toreduce the costs of achieving its targets, and preparations for the start of the complianceperiod should be made from an early stage.
The purpose of this report is to consider those matters that should be studied atpresent, in the light of these domestic/overseas trends and future developments,
regarding how to utilize the Kyoto Mechanisms as domestic measures.

1

This report was made based on a presentation made at the 377th Regular Research Report Meeting of the Instituteof Energy Economics, Japan.

1

IEEJ: March 2003

2.

Countries ratifying the Kyoto Protocol and trends/forecasts of greenhousegas emissions in these countries(1)
Countries ratifying the Kyoto Protocol (see Diagram 1)
Detailed rules on implementing the Kyoto Protocol (the Marrakesh Accords)
were agreed upon at COP7 (2001), thereby establishing the conditions needed forparticipating countries to ratify the Kyoto Protocol. The EU then ratified the Protocol
at the end of May 2002, Japan did the same in June, and Canada, which had beenthought unlikely to ratify, signed on in December of that year, bringing the number ofcountries ratifying the Kyoto Protocol to 100. The possibility remains strong that the
Kyoto Protocol will come into effect during 2003 with the ratification of Russia.
(2)
Trends/forecasts of greenhouse gas emissions in these countriesa)Trends in these countries

The trends in greenhouse gas emissions among developed countries through2000 vary by country. There has been a consistent uptrend in the US and Australia, as
well as in Canada, a Protocol signatory. Despite having seen their rising levels ofemissions generally level off in recent years, Japan, the Netherlands, and Norway arestill above their target levels. On the other hand, the UK and Germany, two EU
members with large-scale greenhouse gas emissions, are realizing steady declines
towards their target levels through domestic fuel conversion and more efficient energy
consumption, and Sweden, experiencing a similar reduction, has even adjusted its
national reduction targets downwards.
The countries of Eastern Europe and Russia,
seen as future suppliers of emission credits, have substantially reduced their emissions,but their emission levels have stabilized over recent years due in part to economic
recovery (see Diagram 2).
b)
EU
Despite a large number of EU member countries such as Spain and Portugal
seeing since 1990 an increasing trend in carbon dioxide emissions attributable in greatpart to increased use of fuel for transport, the substantial reductions made by the UK
and Germany, which have some of the highest emissions levels in the EU, have meantthat emissions volumes for the EU as a whole have dropped more than 4% since 1990.
Although recently announced emissions forecasts show the EU will be about 140
million tons (CO2 equivalent), or approximately 3%, above its target if existingmeasures are simply pursued as they are, the introduction of additional measures, suchas an emissions trading system within the EU, could well bring about a reduction
exceeding the EU’s Kyoto Protocol target by 180 million tons, or around 4.3% (see2

IEEJ: March 2003

Diagram 3).
c)
CanadaCanada’s greenhouse gas emissions in 2000 were about 20% above their 1990
level, representing an annual increase of 1.8% and a nearly 26% divergence from thecountry’s emissions target (94%) in the Kyoto Protocol. This prompted the Canadiangovernment, in advance of the deliberations on the bill for ratification before
Parliament in the latter half of last year, to compile a draft plan for achieving the Kyoto
Protocol targets. To achieve these targets, this plan stipulates reducing greenhouse gas
emissions by 80 million tons (CO2 equivalent) using the measures presently underconsideration and by 100 million more tons using new policy measures, including
utilization of the Kyoto Mechanisms by both the public and private sectors; it thenpresents measures that have the potential for a further reduction of 60 million tons. At
the same time, Canada has demonstrated that it will continually urge that the reductionof greenhouse gas emissions due to the use of such energy as electric power generated
from hydraulic power or natural gas that is primarily exported from Canada to the US(cleaner energy exports) be recognized within international rules.
d)Russia/former East Europe
Greenhouse gas emissions for Russia in 1999 (excluding greenhouse gas sinks)
were a substantial 38.4% below their 1990 level. By volume, 80% of thesegreenhouse gas emissions were carbon dioxide and about 15% methane. Despite asubstantial drop in Russia’s greenhouse gas emissions between 1990 and 1994, a
slowdown in the rate of reduction of primarily CO2 emissions since then has produced aleveling off of the overall trend (see Diagram 4).
Forecasts released by the Russian government indicate that future economic
expansion will lead to an upsurge in greenhouse gas emissions as well. Russia’s
economy is expected to grow at an annual rate of 5.2% over the next 10 years,
according to the forecasts for mid-range scenarios. In conjunction with this, CO2
emissions are projected to be rising at an annual rate of 1.5% in 2010, but the level of
those emissions will still be 25% less that of 1990. Even the forecasts given in the
IEA’s World Energy Outlook 2002 suggest the decrease will be on the order of 17%,and the level of “hot air” that has long been estimated for Russia is approximately 20%of the 1990 level (approx. 480 million tons; CO2 equivalent).
The emissions trends in the countries of former Eastern Europe are,notwithstanding some disparity among their levels of reductions, similar to that in
Russia in that the rates of reduction have begun to slow recently. The economies of3

IEEJ: March 2003

these countries are likely to expand in future, especially with accession to the EU, andCO2 emissions from energy consumption are forecast to increase at an annual rate ofabout 1% from 2000. With the lowered emissions achieved thus far, however, thetotal emissions for the countries of Eastern Europe are still about 15% below 1990
levels, and overall it appears highly likely that many of the countries in this region will
become suppliers of emissions credits (US DOE, International Energy Outlook 2002,
Reference case).
(3)
Vision for a future international market
As has long been pointed out, Eastern Europe and Russia will have surplus
emission credits while countries such as Japan, Canada, and Norway are expected tofind themselves in the position of purchasing emissions credits from overseas. The
crafting of an intra-regional emissions trading system and progress made through othermeasures could turn the EU, too, into a net supplier of emissions permits. In any case,
Japan must construct a strategy for reducing its compliance costs using the Kyoto
Mechanisms while taking into account the international supply and demand for credits.
3.

Recent trends in, and characteristics of, measures to combat global
warming taken by the countries of Europe(1)
History of measures to combat global warming (see Diagram 5)
In addition to energy conservation and other conventional measures to combat
global warming, market-oriented approaches such as tax systems and emissions trading
systems have been steadily introduced since the 1990s. Similarly, steps in theindustrial sector towards establishing voluntary reduction efforts among the companies
concerned have also been incorporated among these measures since about the time of
the Kyoto Conference.
Characteristic of recent years have been (1) the introduction of environmental
tax systems in Germany and the UK, both countries with high levels of emissions, and(2) the emergence of countries considering policy combinations of tax systems,
voluntary reduction efforts, and emissions trading systems. Denmark early on
introduced an emissions trading system in its electric power sector, and the UK, too,created an emissions trading system as part of its combination of tax systems andvoluntary agreements. One distinctive feature of the industrial sectors in somecountries has been the planning and implementation of experimental trading systems
that help companies more accurately estimate the costs of reducing emissions and letthem gain experience with the emissions trading system. At the same time, earning

4

IEEJ: March 2003

reduction credits through financial participation in such programs as ERUPT and
CERUPT, administered by the Dutch government, and the World Bank’s IFC is anotherapproach gaining attention as a means by which governments actively establish
emissions credits.
(2)
European approaches: characteristics and strategies
Many of the specifics of the EU intra-regional emissions trading system to be
introduced in the future, Norway’s own trading system, and other approaches
envisioned by EU countries remain unclear. However, the actual trials being
conducted involve (1) studying and designing specific systems for utilizing the Kyoto
Mechanisms, (2) searching for means of acquiring credits as cheaply as possible at thepresent, and (3) governments and companies actively implementing trial approaches
aimed at gaining experience with trading systems likely to be introduced in future andto determine any issues that need to be addressed. In these moves one can get a
glimpse of the future strategies of EU countries in trying to achieve their targets
through the market system with as much economic efficiency as possible (see Diagram
6).
4.
(1)

Present approaches in Japan and future prospects
Trends thus far in measures to combat global warming
Japan’s greenhouse gas emissions for 2000 (data reported to UNFCCC) were1.386 billion tons (CO2 equivalent), representing a 7.9% increase over 1990. To meet
its Protocol commitments, therefore, Japan must make an approximately 14%
reduction.
The present scenario for Japan achieving its Kyoto Protocol targets is describedin the Outline for Promotion of Efforts to Prevent Global Warming, revised in 2002.
Japan is trying to comply with the Kyoto Protocol by stabilizing CO2 emissions fromenergy consumption at 1990 levels, by using the policy options of holding emissions atcertain levels through other greenhouse gas countermeasures and forest management asa primary carbon sink, and by acquiring emissions credits overseas through use of the
Kyoto Mechanisms. A step-by-step approach, moving ahead in stages, will be
adopted in realizing this scenario. In the first stage of this policy, the principal focus
will be on reinforcing and improving the effectiveness of existing measures andestablishing the proper conditions for utilizing the Kyoto Mechanisms; already the
Energy Conservation Law has been revised and the decision made to implement a
policy of encouraging electrical power suppliers to introduce new types of energy (RPS5

IEEJ: March 2003

System).
(2)
Forecasts for energy supply/demand and CO2 emissions; issues involving
measures to combat global warming
In this step-by-step approach, an assessment will be made in 2004 of the policy
measures taken to that point, and new additional measures will be considered if it isdetermined that insufficient progress has been made. With both supply-side problems
such as delays in constructing nuclear power generators and a continuing rise in energy
consumption in the private sector (households, businesses) and the transport sector(principally privately-owned vehicles) expected, however, stabilization at 1990 levels
by around 2010, especially for CO2 generated by energy consumption, will not likely beeasy. In devising measures for achieving reductions in both these sectors, there is lessprice flexibility than in the industrial sector, making compliance costs extraordinarily
high, and it is thus no easy matter to secure qualitative reductions in emissions.
Consequently, bearing in mind the disposition of the excess emissions in these sectors
and the risks in trying to achieve the Protocol targets through other measures such as
greenhouse gas sinks, consideration must be given to options for achieving these targets
through the future utilization of the Kyoto Mechanisms.
5.
(1)

Issues in utilizing the Kyoto Mechanisms
Ideas on utilization of the Kyoto Mechanisms
The Kyoto Mechanisms consist of three tools: international Emissions Trading,
Joint Implementation (JI), and the Clean Development Mechanism (CDM). These
tools differ by starting point and utilization methods within both the Kyoto Protocol andthe Marrakesh Accoard.
Feasible for immediate consideration is the CDM, whereby certified emission
reduction (CER) credits earned by emissions reduction efforts in projects started in orafter 2000 can be applied towards a country’s target, including those actual reductions
achieved prior to the commitment period. Japan should therefore begin studying
CDM projects early on should it become necessary for Japan in future to ensure as widea variety as possible of options for earning emissions credits overseas. In the case of
JI projects, credits for actual reductions for projects begun in or after 2000 will berecognized from 2008 onwards, and thus the credits to be earned there can be
maximized by completing the development of projects and preparations for
implementing them before 2008. Emissions trading will begin in earnest from 2008,
basically once credits initially allotted to individual countries onwards become

6

IEEJ: March 2003

available for trading. Because the parties that will engage in such trading(governments and companies) have almost no experience with such a system, however,
the assumptions for this future market, relevant domestic systems, and an adequate
preparatory stage prior to actual trading must be established in advance (see Diagram
7).
(2)
Issues in implementing CDM projects
CDM projects are the first feasible approach, and many issues need to be
examined in carrying out these projects. There are currently no policy incentives forcompanies that must implement the CDM projects, which lends great uncertainty todecision-making. Within the process of considering participation in a CDM project,
there are a number of factors difficult to assess by parties seeking to start up projects
right away: (1) selection of the target countries and projects, (2) risks in the target
countries (legal/economic risks, local views on CDM projects), (3) forecasts of futurecredit prices, and (4) procedural uncertainties (the extent of follow-up procedures, etc.).
For that reason, policymakers should devise provisional support measures to cover risks
that companies themselves cannot assume. As more and more experience is gained,
an environment in which these risks gradually lessen (and a scheme developed bywhich they will be reduced) so that CDM projects can be steadily implemented would
be desirable (see Diagram 8).
A great deal of public assistance has already been planned and implemented
from this perspective. Together with steadfastly promoting such measures as
information provision to enhance understanding among domestic companies involved
in JI/CDM projects (for example, the Ministry of Economy, Trade and Industry’s Help
Desk and the Kyoto Mechanism Guidebook), decisions on domestic application
procedures, feasibility studies conducted by the national government on JI/CDM
projects (for example, projects by NEDO), capacity building to promote CDM projects
in developing countries, and the organization of funds and application of tradeinsurance to support projects planned from next year onwards, efforts should also bemade to broadly promote awareness and understanding among domestic parties
engaged or seeking to engage in these projects. Consolidating and publicly releasing
information from relevant organizations and companies that can be shared between
companies – information on the CDM acceptance systems and the functions of thevarious organizations in host countries, conditions within host countries, policy
objectives, the legal infrastructure for carrying out projects – is necessary, as isdeveloping a program that would facilitate matters for parties wishing to implement

7

IEEJ: March 2003

projects by centralizing the various CDM application procedures (see Diagram 9).
6.

Toward the establishment of a future system
As was mentioned earlier, European countries are conducting in-depth studies ofpolicy measures with a particular focus on the Kyoto Mechanisms and are preparing to
implement trial measures before the start of the first commitment period in 2008, all tohelp achieve their respective Kyoto targets. This is surmised to be a manifestation of
their aims to verify as early as possible measures that are compatible with these
Mechanisms and to play a useful role in putting together the final policy measures inorder to reduce as much as possible the costs for each country in achieving its Kyoto
Protocol targets and maximize the effectiveness attainable by utilizing the Kyoto
Mechanisms.
In Japan, on the other hand, the situation at present is that little progress has
been made in examining domestic systems for ultimately utilizing the Kyoto
Mechanisms. Given Japan’s clear need to utilize the Kyoto Mechanisms to achieve its
Kyoto targets and the trends/forecasts for its domestic greenhouse gas emissions, it
should begin preparations for the commitment period as it pursues these examinations.
Bearing this in mind, the following list of matters meriting further consideration has
been compiled.
(1)
The 2004 review
As things stand now, neither (1) the items to be assessed nor (2) the standards
for assessment in the review of policies scheduled for 2004 have been clearly stipulated.
Nevertheless, it is highly probable that the relevant data to be assessed will be thefigures recorded in 2002. As mentioned earlier, the delay in building nuclear power
plants at home is becoming more tangibly felt, while there remains a high degree of
uncertainty with regard to economic policies and economic forecasts for the future.
Under such circumstances, the 2004 review should carefully study the full spectrum offactors impacting on energy supply/demand and should elucidate the direction of thepolicy measures that will ultimately be taken.
(2)
Presumed scenarios for achieving targets and the need for earlyconsideration
Let us now consider measures to be pursued should the domestic measures set
forth in the existing Outline for Promotion of Efforts to Prevent Global Warming not be
fully implemented, in other words, a scenario for the ultimate policy measures forachieving the Kyoto targets (see Diagram 10). In light of the various policies studied

8

IEEJ: March 2003

thus far by the countries of Europe, the following scenarios appear plausible: two
government-driven scenarios -- (1) the national government using the national treasury
to purchase emissions credits from overseas, and (2) similarly, private companies
purchasing these credits through voluntary participation (the view behind the Dutch
system) – and two additional scenarios involving a domestic emissions trading system,
namely (3) allotting credits only to the industrial sector (the UK or EU systems, which
differ on the policy point of whether or not to include conversion sectors) and having
the national government (or the private sector, through voluntary participation)purchase the excess credits needed for the private and transport sectors, and (4)allotting all credits (in practical terms, this means allotting these credits to the top-tierindustries: the type planned by Norway).
Careful consideration and coordination requiring much discussion will beneeded to determine which of these scenarios is the most appropriate for Japan. One
lesson that can be applied from the experience of other countries in designing similarsystems is that preparations for the commitment period starting from 2008 must
incorporate several stages for consideration and trials, as Japan has had no experience
thus far in designing systems like the emissions trading system (see Diagram 11). At
the very least, the utilization of the Kyoto Mechanisms has already been advocated in
the existing Outline and, as it increasingly appears that achieving its targets throughdomestic policies alone will be quite difficult, discussions on future systems (with theprincipal focus on the utilization of the Kyoto Mechanisms) should be arranged early
on between the private and public sectors and a trial period arranged for the selected
policy measures.
The experimental systems used should incorporate the following elements: (1) apricing structure by which trading parties can determine their own reduction costs, (2)realistic frameworks that increasingly correspond to the future system, (3) the ability toforecast credit prices via links with overseas systems and the utilization of CERs
generated early on.
(3)Issues for consideration when studying system construction
In studying the construction of such a system, several points must be borne inmind. First is that the role of the Kyoto Mechanisms is to enable each country as
certainly as possible to achieve its target while keeping the costs of doing so as low as
possible. In this context, attention must also be paid to maintaining international
competitiveness of domestic industries will be harmed, how to link the domestic market
to the international market, how to enable the market to flexibly respond to

9

IEEJ: March 2003

circumstantial changes (domestic emissions trends, international trading prices, etc.)
both inside and outside the country, and how to ensure conformity with the revisions toenergy policies and economic policies now underway.
7.
Conclusion(1)
Regardless of the introduction of additional measures, the utilization of Kyoto
Mechanisms is essential for Japan to achieve its targets. From that premise, it follows
that Japan must assess the possibility of options that allow it to acquire emissions
credits less expensively than through domestic measures, keeping in mind all the whilea vision of the international market of the future. CDM projects, for example, are one
option for acquiring emissions credits that can be pursued early on, and Japan must
therefore promptly examine the feasibility of such projects and the degree to which they
can be utilized in the future.
(2)
A policy direction for promoting the utilization of the Kyoto Mechanisms must
be made clear as soon as practicable. Looking ahead to the review of domestic
systems in 2004, early discussions should be arranged through the cooperation of theprivate and public sectors on a system that can effectively utilize the Kyoto
Mechanisms. Doing so will help encourage all parties to assess the potential of CDM
projects at an early stage.
(3)
In assessing the future utility of CDM/JI projects, information on hostcountries’ systems, project needs, preparation periods for individual projects, and the
problems and restrictions faced in implementing projects must be gathered from anearly stage. It is also important, to smooth decision-making and implementation bycompanies, to find means of consolidating the information available for sharing,
centralizing procedures, and developing support schemes for CDM/JI projects.
(4)
Given the great likelihood of countries and companies utilizing the Kyoto
Mechanisms in future and their total lack of experience in doing so, the trading
participants must gain the experience needed for rational action if this system is to be
utilized effectively. A trial period should be arranged early on for such study, taking
into account market conditions and scenarios expected in 2008 and onwards. Staged
methods that gradually approach the final system should be considered, and attention
paid to links with overseas markets in terms of trading prices and the utilization of

10

IEEJ: March 2003

CERs generated early on.
(5)
When examining domestic systems, it is important to clarify the conditions
that systems must meet. In addition to those aspects that must be scrutinizedinvolving measures designed to combat global warming – lowering the costs ofachieving targets, reducing policy costs, giving due consideration to the international
competitiveness of industries, establishing links to an international emissions trading
market, etc. – attention must also be paid to energy security and ties to the energy
market system when ascertaining trends.

Reference
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)

(10)

European Environment Agency, Greenhouse gas emission trends andprojections in Europe, 2002
Government of Canada, Climate Change Plan for Canada, 2002
Adriaan Korthuis, Dutch Joint Implementation and Emission Trading Policy,
presentation paper for side event at COP8, 2002
Steve Sorrell, Back to the Drawing Board?, SPRU, January 2003
Government of Russia, 3rd National Communication, UNFCCC website,
November 2002
OECD/IEA, Energy Balances of OECD Countries, 2002
OECD/IEA, Energy Balances of Non-OECD Countries, 2002
Global Warming Prevention Headquarters, Outline for Promotion of Efforts toPrevent Global Warming, 19 March 2002
Kokichi Ito, Long-term Energy Demand and Supply Prospects for Japan, 374th
Regular Research Report Meeting of the Institute of Energy Economics, Japan,
20 November 2002
Hiroki Kudo, The US Acid Rain Program and SO2 Emissions Credit Trading
System, Doryoku, Vol. 48, No. 249, November 1998

11

IEEJ: March 2003

Diagram 1

Ratification by Annex B Countries
Non-ratifying
countries

Rumania (19 Mar 2001)

US

Czech Republic (15 Nov 2001)

2002.1

Australia

Iceland (23 May)
Norway (30 May)
EU (31 May)

RussiaSlovakia (31 May)

UkraineJapan (4 Jun)

Croatia
Latvia (5 Jul)

Slovenia (2 Aug)

Switzerland
Bulgaria (15 Aug)

MonacoHungary (21 Aug)

Liechtenstein
Estonia (14 Oct)

2002.12

Poland (13 Dec)

Canada (17 Dec)

New Zealand (19 Dec)
Lithuania(3 Jan 2003)

As of 3 Jan 2003
Ratifying countries: 102 (Annex B: 30/38 countries)
CO2 emissions (effective conditions applicable)
43.7%[ Russia: 17.4%](Source) UNFCCC website

Diagram 2
KyototargetGermanyUK
FinlandSwedenFranceDenmark
Netherlands
Italy(EU total)
NorwayUS
CanadaAustralia
Japan

-21%
-12.5%
0%
4%
0%
-21%
-6%
-6.5%
-8%
1%
-7%
-6%
8%
-6%

GHG Emissions in Major Countries

Change inemissions frombase year-19.1%-12.9%
-4.1%
-1.9%
-1.7%
-1.7%
2.5%
5.0%
-3.7%
6.3%
14.2%
19.7%
18.1%
7.9%

(Source) UNFCCC website

12

CO2

CH4

N2O

CFC
alternatives-12.8%

-4.1%

-2.3%

0.1%

-5.5%

-3.4%

-3.2%

-0.8%

-0.2%

-2.9%

-1.6%

0.6%

-0.3%

-1.3%

-0.4%

0.1%

1.4%

-1.1%

-2.5%

0.6%

0.3%

-0.1%

-2.5%

0.7%

7.1%

-3.3%

0.0%

-1.2%

4.6%

-0.3%

0.5%

0.2%

-0.4%

-2.0%

-1.5%

0.2%

11.8%

0.7%

0.0%

-6.2%

13.7%

-0.6%

0.6%

0.5%

16.5%

3.0%

0.1%

0.2%

16.3%

0.5%

2.1%

-0.7%

9.2%

-0.4%

-0.2%

-0.8%

IEEJ: March 2003

Diagram 3

Forecasts of GHG Emissions by the EU(1990=100)
105

100
96.5
95.3
95
+ 140 million tons CO2
90- 180 million tons CO2
87.6

85

80
1990
1995
Existing measures

2000
2005
Additional measures

2010
Actual figures

Target(Source) EEA, Greenhouse gas emission trends and projections in Europe, 2002

Diagram 4

Trends in Emissions of GHGs in Russia(1 million tons CO2)

Fluorocarbons
N2O
CH4
CO2

3,500
3,048

3,000

-38.4%
2,500
1,877

2,000

Composition in 1999
CO2: 80.4%
CH4: 15.5%
N2O: 1.9%
Fluorocarbons: 2.2%

1,500

1,000

500

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

(Source) Government of Russia, 3rd National Communication (20 November 2002)
13

IEEJ: March 2003

Diagram 5: Derivation of global warming policies in Europe

UNFCCC

COP3

Carbon (Environment) Tax
Germany, Italy, UK

Scandinavian countries

Unification: Denmark

Voluntary actions/agreements

Unification: UK

Agreement making:Germany

Germany, etc.

Domestic emissions trading
Denmark

NorwayEU: 2005

Voluntary trading system
French industries

Shell / BP

Kyoto Mechanisms
Netherlands(Based on various sources)

Diagram 6: EU-wide emissions tradingFirst phase(2005 to 2007)

Second phase(2008 and after)

Target gas: CO2

Extended review

Allocation coverage: power generation,
oil refining, iron and steel, nonferrous
metals, paper and pulp, chemicals,aluminum

Extended review

Allocation method: free of charge

Auction up to 10 % and the rest isallocated free of charge

Exception 1: Some industries may be
exempt from coverage at each country’s
discretion (A committee of national
representatives has veto power).

May not be exempt?

Allowing industrial bodies to pool theiremission credits
Penalty: 40 euro per ton of CO2

100 euro per ton of CO2*Each country develops a “national
allocation plan” for the purpose of
specific allocation and obtains approval.
The plan should comply with state aid that
regulates competing requirements among
member countries.

(Based on materials from the European Commission)

14

IEEJ: March 2003

Diagram 7: Utilization schedule for Kyoto Mechanisms
Before commitment
periodCurrent

Commitment period

Exploration of projects

CDM

Implementation of projects
Acquisition andutilization of CER

Early acquisition of CER

Exploration of projects

JI

Implementation of projects
Acquisition andutilization of ERU

Internationalemissionstrading

Studies of future
market scenarios anddomestic schemes

Preparatory procedures
based on futurescenarios

Participation in theinternational market
and utilization of
trading systems(Based on various sources)

Diagram 8: Implementation process for CDM projects and related issues
Year X

About threemonths2 to 3 years

Term

Work
items

Work
summary

Supporting
actionsandmotives

Determination ofproject
launchExplorationof projects

Six months tothree years

About threemonthsConstruction

Proceduresforissuance of
CER

Application
procedures
as a CDM
project

Development ofproject
plans-Recognition ofnecessity-System
improvement-Development of
implementation
strategies(Project purpose/
policy purpose)-Narrowing down
targetprojects/hostcountries-Studies of legal
situation in hostcountries-FS/pre-PDD-Development ofproject plan
(Price projections
for energy and
CER)-Preparation of
PDD Validation-Determination offund-raising-Effectuationof the Protocol-Determining
direction ofdomestic
polity-Memorandum ofUnderstanding
between thegovernments(MOU)-Provision of
information onhost countries(Contact points,
project needs andlegal situation)-Monetary support-Domestic/international
trading performance(Price information)-Risk hedge schemes(Trade insurance)-Rationalization of
PDD preparation-Promoting the efficiency
of verification processes-Application to
home/host countries-Application to
CDM Executive
Board-Dealing with publiccomments, etc(Based on interviews and various sources)

15

Clarificationand promotionof the efficiency
of application
procedures(Domestic)

Utilizationof CER
200X to2012-Verification-Application to
CDM Council(Certification)-Issuance of CER(Procedures totransfer
registration todomestic register)-Determinationof plans forachieving targets(Scope ofprocurementby trading = Price)-Participationin the trading
market-Promoting theefficiency ofthe verification
process-Determinationof domestic rules

Clarification andpromotion of theefficiency of
application
procedures(Domestic)IEEJ: March 2003

Diagram 9: Integration of CDM/JI Projects Support

In future
Easy to obtain information required for the projects
Efficient procedures available to companies conducting CDM/JI
Project approval/registration department
Approval procedures
Information exchange
Policy information
on support measures

Processing of
applications

Consolidation and disclosureof information
Training of experts

Collection and analysis
of information fromvarious countries

Centralizing contact points
from companies
Inquiries

Accumulation of
relevant researchand study data

Study of measures forenhancing the relationshipwith host country

Diagram 10: Possible target achievement scenarios
Government-led scenario
National treasury

Purchases of allcredits bygovernment

Purchase of AAU,
CER, etc.

Environmental tax system,
general accounting budget, etc.

Voluntary
participation by
private sector

Domestic market utilization scenario

Domestic
emissionstrading system

Dutch system

Emissions fromindustrial sector only

Purchase bygovernment

Credit allocation in U.K. plan

Conversion + allocation
to industry
Credit allocation in EU plan

Allocation of all credits(top-tier industries)
Credit allocation in Norwegian plan

16

Purchase bygovernmentIEEJ: March 2003

Diagram 11: System construction time schedule and preparation measures
Flowchart of U.K. system

Flowchart of U.S. system

Climate change
levy agreement

Trading system

Recommendatio
ns in report

Proposal fortest system
introduction(November 1998)

Governmental
proposal(March 1999)

Revision of
Clean Air Act(1990)Development ofsystem
Early reduction
credits
Start of private
sector trading

ETG
establishment(May 1992)(June 1999)

Multiple
proposals(1993)

Drafting ofsystem structure

Start ofphase I(March 2000)

Introduction(April 2001)

Preparation period
for companies(Determination of
reduction cost)

First EPA
auction(November 1999)

Agreement
coordination

SO2 allowance
trading

Introduction

Phased reduction
period (moderate
reduction target)(1995)(April 2002)

Preparation
periodStart ofphase II

Strengtheningof target(2000)

2007(Based on various sources)

Inquiries: Please contact ieej-info@tky.ieej.or.jp

17