Global low-carbon gas shift needs carbon pricing: I-REC Tokyo speakers

The decarbonization of natural gas markets will require both a robust attribute certification infrastructure and significantly higher carbon prices, speakers at the International Renewable Energy Certificates Day Japan conference in Tokyo said on Oct. 16, with implications for LNG trade flows, gas pricing and energy security across Asia.

Travis Caddy, Director of Xpansiv, and Takeo Kikkawa, President of the International University of Japan, approached the low-carbon gas transition from different angles -- market infrastructure and energy policy, respectively.

Caddy said natural gas will remain part of the energy mix for the foreseeable future, but its continued use must be underpinned by verifiable environmental attributes and a carbon pricing framework that can drive fuel switching at scale.

Certification infrastructure

Combining renewable energy with the electrification of end users could deliver emissions reductions of up to 70%, and realizing this potential would have a significant impact on gas and LNG pricing as well as on energy security, Caddy said.

He noted the role of attribute certification in making the environmental value of biogas and biomethane visible and tradable. Caddy described biogas and biomethane as a "double dividend" -- reducing greenhouse gas emissions while strengthening energy independence by utilizing existing gas infrastructure.

However, he said that without a globally standardized trading instrument, the green value embedded in low-carbon gas cannot be effectively priced by markets or used to mobilize investment.

Caddy outlined three chain-of-custody models for managing green gas attributes -- full segregation, mass balance and book-and-claim.

He identified the book-and-claim model as the mechanism best suited to scaling the market, under which environmental attributes are fully decoupled from the physical flow of gas.

The book-and-claim model connects supply and demand across geographic and infrastructure constraints, enables companies to demonstrate decarbonization progress ahead of physical green gas infrastructure build-out and provides bankable demand signals that can unlock project financing for new biogas and biomethane developments.

Looking ahead, Caddy described the convergence of gas and electricity attribute markets as a defining feature of the next phase of environmental attribute certificate market development.

He said Xpansiv's I-TRACK (G) and I-REC (E) platforms are designed to stack, enabling multi-product claims from a single integrated platform.

"The future of the EAC market is not siloed," Caddy said.

Carbon pricing imperative

Kikkawa said Japan's 7th Strategic Energy Plan should not be read as a retreat from carbon neutrality, but rather as a more nuanced framework for achieving it while natural gas continues to play a role in the country's energy system.

"The key point here is that it's based on the premise of achieving carbon neutrality," Kikkawa said. "While it's true that we'll continue to use natural gas, the essence of what we're saying is that we'll do even more to absorb and recover it."

He identified hydrogen and ammonia as important alternative fuels within this framework, pointing to the transition from gas-fired to hydrogen-fired power plants and from coal-fired to ammonia-fired generation as key elements of Japan's decarbonization strategy.

However, he was explicit that these transitions cannot proceed without a step change in carbon pricing.

"This kind of thing won't be possible without carbon pricing, or rather, a very high level of carbon pricing, which is currently low but will eventually be implemented," Kikkawa said.

He projected environmental value price points ranging from ¥3,000-¥20,000/metric tons of CO2 equivalent, noting that higher carbon prices would progressively erode the economics of coal-fired power and synthetic fuels.

Platts assessed J-credit Energy Efficiency at ¥4,450/mtCO2e on Oct. 16, down ¥30/mtCO2e from the previous session.

Kikkawa also highlighted a policy pivot in Japan away from synthetic fuels and toward biomethane as the preferred pathway for decarbonizing the city's gas networks.

He pointed to Tokyo Gas's shift in focus from eMethane toward biomethane, and to the renaming of Japan's methanation promotion council to reflect a broader mandate encompassing biological fuel production methods. He said a council meeting held just days before the conference formally confirmed the name change.

Kikkawa raised concerns about the correct attribution of CO2 emissions reductions across complex supply chains, stressing that double counting must be avoided.

For imported synthetic methane, he said a trilateral credit mechanism -- similar in structure to Japan's existing Joint Crediting Mechanism -- would be necessary to properly account for cross-border flows.

Market outlook

Japan, as one of the world's largest LNG importers with extensive existing gas infrastructure and growing policy momentum behind biomethane and hydrogen, sits at the center of all the themes addressed at the conference.

Platts assessed the December JKM, the benchmark price for LNG cargoes delivered to Northeast Asia, at $29.732/million British thermal units on Oct. 16, up 47.3 cents/MMBtu, or 1.62%, from the previous session.

The policy and market architecture being developed -- standardized attribute certification on one side, a strengthening carbon pricing framework on the other -- is expected to reshape the economics of gas trade flows, accelerate investment in low-carbon gas projects and drive a broader convergence between environmental attribute markets and physical commodity markets across the Asia-Pacific region.