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Japan's METI aims to start demonstrative carbon credit market in FY 2022-23

Japan's Ministry of Economy, Trade and Industry said Aug. 5 it aims to start a demonstrative carbon credit exchange market in fiscal year 2022-23 (April-March) as it considers means to monetize local companies' carbon emissions reduction in its push for carbon neutrality.

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This plan was included in an interim policy report presented during the seventh round of a policy study group, launched in February, that is looking at means of carbon pricing in pursuit of carbon neutrality as Japan intends to formulate its course of action of carbon pricing by the end of 2021.

The carbon credit exchange market will be a platform to trade monetized carbon credits from CO2 emissions in Japan, as well as trading carbon credits from the reduced emissions in ASEAN countries, and voluntary credits from Europe and the US.

Publicizing the traded carbon credit price will not only help monetize CO2 reductions, but also send price signals to help transform corporate behavior toward carbon neutrality.

The policy report also noted a need for Japan to take quick strides toward carbon neutrality, including clarifying carbon credits acquired by companies.

Carbon neutral LNG

Further discussions are needed to clarify Japan's carbon credits, including carbon neutral LNG, Fumihiro Kajikawa, director of METI's environmental economy office said in a press briefing.

"We understand that carbon neutral LNG is basically introduced on a voluntary basis," Kajikawa said. "There could be various stages to look at this."

For example, Japanese gas utilities receive third party verifications on a voluntary basis in Japan for introducing carbon neutral LNG, is one way of obtaining carbon credits, Kajikawa said.

"How we position [the carbon credits] under the act of promoting global warming countermeasures is something we have not made much progress in our discussions," Kajikawa said. "This will likely be discussed in the process of clarifying the [carbon] credits," he added.

The government's expected move in clarifying carbon credits, including carbon neutral LNG, comes at a time when there is a growing number of Japanese companies introducing carbon neutral LNG as well as carbon neutral city gas as part of corporate efforts to decarbonize their gas supply.

Currently, Japanese companies, both buyers and sellers of carbon neutral LNG, cannot claim their CO2 offset under the act of promoting countermeasures to global warming when they procure and use the carbon neutral gas.

Policy recommendation

The report also recommended that Japan should take a number of immediate actions including enhancing the convenience of trading non-fossil fuel energy certificates, improving systematic environments for the J-Credit Scheme,

expanding projects and the number of partner countries and using private funds for the Joint Crediting Mechanism, or JCM.

METI is working with the Ministry of Environment to double carbon credits being generated from the J-Credit Scheme to around 15 million mt by 2030 via measures that include hydrogen and carbon capture, utilization and storage (CCUS) projects for the scheme, which mostly cover renewables, and current energy conservation projects.

Japan also aims to generate around 100 million mt of carbon credits from the JCM by 2030 via measures that include enlarging projects abroad, allowing the credits to be traded in Japan and abroad as well as carbon capture and storage (CCS) and hydrogen for bilateral projects, of which currently are tree planting and renewable projects.

Japan established in May 2018 a non-fossil fuel energy value trading market, where companies can trade non-fossil fuel energy certificates, which serve as proof that electricity originates from renewable energy sources covered by the Feed-in Tariff Scheme for Renewable Energy, known as FIT.

The J-Credit Scheme is designed to certify the amount of greenhouse gas emissions reduced and absorbed through efforts to introduce energy-saving devices and manage forests.

The JCM is a mechanism to evaluate Japanese contributions to GHG emission reductions, or removals, quantitatively through measures such as providing low carbon technologies and infrastructure in developing countries, and to count them to help achieve Japan's emission reduction target.