3 July 2002 – An advisory body to Japan’s environment ministry said in a report released Monday that the government should set up a mock trading system to give companies experience bartering with emissions credits to help Japan meet its obligations under the Kyoto pact.

Interested companies would be listed in a digital registry and given accounts to buy, sell or exchange carbon dioxide emissions credits. The firms would also set voluntary emission-reduction targets based on past emissions.

Ministry officials said they basically endorse the proposal outlined in the report and hope up to 30 companies will sign on to the project, which is expected to start in fiscal 2003 and run through fiscal 2004.

They anticipate it will help both industry and the government get a sense of what to expect when a real market eventually goes on line. It should also help determine whether companies are prone to setting targets that are too ambitious or too moderate, the officials said.

Emissions trading is one of three mechanisms recognized under the Kyoto pact on global warming, which obligates industrialized countries to collectively pare greenhouse gas emissions by 5.2 per cent of 1990 levels on average during the period between 2008 and 2012.

Japan’s target under the international framework is to reduce emissions by 6 per cent. But under its own recently updated framework for achieving the cuts, all measures will be entirely voluntary until changes are made in the policy during two scheduled reviews in 2004 and in 2007.

Although a few private-sector simulations have been undertaken, such as by energy broker Natsource Japan Co., the project would be the government’s first attempt at actively engaging companies in a trading scheme as well as the first in which actual in-house emissions data are used. The trading information is slated to be made public.

Officials said the ministry hopes to receive up to 200m yen ($1.7m) from the fiscal 2003 budget to finance the project.

The European Union is planning an emissions trading scheme between member countries to commence in 2005. The UK and Denmark already have schemes in place but each operates differently from the proposed EU market