Policy Proposals Environment and Energy Achieving a Low Carbon Society of Global Scale -- Proposals for Climate Change Policy --
September 14, 2010
With a view to achieving the target of halving global emissions of greenhouse gases (GHGs) by 2050, in December 2009 "Nippon Keidanren's Commitment to a Low Carbon Society" was published as a basic policy that set out a vision for the Japanese business community to harness its technological prowess and assume an instrumental role in meeting this goal. In response to this initiative, many industries have announced or are formulating action plans. We will continue working to further expand the number of industries participating in the efforts outlined in "Nippon Keidanren's Commitment to a Low Carbon Society."
In June this year, the Cabinet of Japan approved a new Strategic Energy Plan focusing on comprehensive energy security and stronger measures to combat climate change, together with a New Growth Strategy that identifies green innovation as one of the strategic areas. We are confident that we can enhance the effectiveness of government measures by steadily implementing "Nippon Keidanren's Commitment to a Low Carbon Society."
However, we have grave concerns that the government is discussing a domestic emission trading scheme, a tax for measures against global warming, and a feed-in tariff scheme for renewable energy as separate issues rather than taking an integrated approach, since these measures are bound to have serious effects on the economy and employment.
From this perspective, we would like to make the following proposals regarding Japan's future climate change policies.
1. The Importance of Technology in Combating Climate Change
(1) Technology is the key to combating climate change while also pursuing growth strategies. Saving energy and switching to low-carbon energy sources are essential to restricting carbon dioxide (CO2) emissions while maintaining or enhancing the level of economic activity. And by popularising low-carbon technologies and products on domestic and international markets, new growth can be achieved. Thus "Nippon Keidanren's Commitment to a Low Carbon Society" comprises four pillars: (1) maximising the introduction of best available low-carbon technologies in corporate activities, (2) developing and commercialising products and services that harness world-leading energy-saving technologies for consumers, (3) transferring technology and expertise to other countries, and (4) developing innovative technologies. These aims are aligned with the direction set by the Strategic Energy Plan.
We believe that "Nippon Keidanren's Commitment to a Low Carbon Society," like the current Keidanren Voluntary Action Plan on the Environment, can play a major role in achieving a low carbon society by being clearly positioned as part of the government's measures to fight climate change in the post-2012 era. #1 Nippon Keidanren seeks to gain appropriate government cooperation in implementing its commitment based on a plan-do-check-act cycle.
(2) The Japanese business community is determined to continue leading the world in CO2 reduction, not only at the manufacturing stage, but also in its products and services. To support this aim, it is important not to penalise the Japanese business community, which is already achieving world-leading levels, but rather to create an environment where it can focus on further technology development and diffusion. We must establish a "technology creation cycle," which encourages the development and diffusion of innovative technologies and harnesses the benefits gained for new technology development.
2. Securing a Level International Playing Field
(1) Japanese companies specialise in using world-leading technologies to create products and services for supply both in Japan and abroad. As well as helping to reduce global CO2 emissions, these activities contribute to growth in Japan. To ensure that such industries are not forced to leave this country, we need strategies that will enhance the competitive advantage to be gained by locating operations in the manufacturing nation of Japan, attract overseas investment, and make Japan a magnet for the world's low-carbon industries.
However, Japan has high cost structures compared to other countries, as typified by burdens such as high corporate taxes. Moreover, further distortion of the competitive environment through mistaken climate change countermeasures would not only prevent Japan from using its strengths to make an international contribution, but also have a negative impact on the economy and employment.
(2) The 2020 midterm target of reducing GHG emissions to 25 percent below 1990 levels should be revisited. While maintaining consistency with the Strategic Energy Plan, we need to re-initiate open, transparent public debate from the standpoints of international equity, feasibility, and the appropriateness of the public burden.
To ensure international equity, it is particularly essential to construct a single equitable and effective international framework with participation by all major emitters, including the U.S. and China. In terms of midterm targets, it will be important to reflect past reduction efforts and to equalise marginal abatement costs, at least among developed countries, to prevent carbon leakage. #2
Since the development and diffusion of new technologies take time, to enhance feasibility it is vital to set bottom-up targets that, like those identified in "Nippon Keidanren's Commitment to a Low Carbon Society," aim for maximum introduction of best available technologies.
3. Focusing on an LCA Approach
(1) Achieving a low carbon society is likely to require a major expansion in the production of devices such as solar power generators, high-efficiency lighting, and next generation vehicles, together with high-performance materials to support such production #3. However, the government's measures to combat climate change are divided vertically into the industrial, residential and commercial, and transportation sectors and aim at sector-specific emission controls.
For example, if the domestic emission trading scheme being considered by some government agencies were introduced, companies that exceeded the emission quota allocated by the government would be penalised by having to purchase credits or suffer fines, even if they supply large volumes of low carbon products to meet government plans and consumer needs, or materials or parts essential to production of such goods.
(2) Focusing on a life cycle assessment (LCA) approach to measures against climate change, it is necessary to strategically foster and strengthen industries that contribute to GHG reduction.
4. Building a New Mechanism to Evaluate International Contributions
(1) The New Growth Strategy sets the target of using Japanese private sector technology to reduce world GHG emissions by at least 1.3 billion tons of CO2 equivalent by 2020. The United Nations Clean Development Mechanism (CDM) provides international incentives for the diffusion of technology from developed to developing countries, but there is a limit to how far use of this system can expand, since it is procedurally complex, time-consuming, and costly.
Given these limitations, in a policy proposal entitled "Achieving Growth through Green Innovation" (16 March 2010), Nippon Keidanren called for the creation of new independent schemes to supplement the CDM, whereby overseas GHG reductions made using Japanese technology could be recognised as a contribution by Japan.
(2) The government subsequently began examining bilateral offset mechanisms #4 and implemented a project to promote the diffusion of technologies to fight climate change. #5 Nippon Keidanren rates these initiatives highly, and the business community will continue to actively cooperate with them.
Swift introduction of bilateral offset mechanisms will require methodology for measuring GHG emission reductions, accelerated inter-government talks aimed at reaching bilateral agreements with developing countries, and the promotion of international understanding of Japan's initiatives.
5. Accelerating Development of Innovative Technologies
(1) Developing and diffusing innovative break-through technologies will be essential to achieving the target of halving world GHG emissions by 2050. To this end, the Strategic Energy Plan calls for the drafting of a new energy innovation technology roadmap. Developing innovative technologies is one of the four pillars of "Nippon Keidanren's Commitment to a Low Carbon Society," and various initiatives are being examined across all industries.
(2) With a view to encouraging the development of innovative technologies, Japan needs to expand the current tax incentives for R&D and make them permanent, and to steadily implement large-scale trials of low carbon technologies while considering bold deregulation utilising mechanisms such as comprehensive special zones.
6. On the Introduction of New Policy Instruments
(1) The Japanese government is currently considering the introduction of a domestic emission trading scheme, a tax for measures against global warming, and a feed-in tariff scheme for renewable energy. In Japan, where energy conservation is already advanced and there is relatively little scope for reducing emissions, such policies will have a major impact on people's lives, employment, and industrial competitiveness. However, these policies present various problems, including inviting carbon leakage and depriving companies of resources that could be devoted to R&D to develop and diffuse innovative technologies. Japanese companies can make a major contribution to future growth and climate change prevention through manufacturing that makes use of advanced low carbon technologies. However, even just discussing the introduction of policies such as those mentioned above undeniably has the effect of lowering earnings expectations and curbing domestic investment. In view of these circumstances, the Japanese business community is against arbitrary introduction of such policies.
Although economic measures are a pressing issue given the current economic situation, the government needs to carefully scrutinise its policy priorities and consider whether it should even be examining policies such as those mentioned above, which are bound to restrict corporate activity.
In particular, a cap-and-trade style domestic emission trading scheme could have the following harmful effects: (1) hinder corporate initiatives taken from an LCA perspective, (2) impede fair and efficient competition among companies, and (3) slow R&D efforts by enabling companies to meet targets by simply purchasing credits. Moreover, since top-down allocation of emission quotas to companies carries the risk of swollen government authority and ballooning administrative costs, #6 such a scheme should not be introduced in Japan.
The government has explained that factors such as effectiveness in CO2 emission reduction and revenue required for its measures to fight climate change will be taken into account when setting tax rates for measures against global warming. However, taxation at a level that will be effective in curbing CO2 emissions inevitably means tax rates that will have a major impact on people's lives and industrial competitiveness. While the outlook for the Japanese economy remains uncertain, the government should not adopt policies that place new burdens on companies. Moreover, more than 1 trillion yen has already been allocated to the government's measures to fight climate change, #7 and it is debatable whether the government can clearly explain the necessity for additional sources of revenue that will place further burden on taxpayers.
In making the shift to a low carbon economy, the feed-in tariff scheme for renewable energy requires deliberate debate. Since renewable energy is not necessarily cost-effective, we need to consider how far it should be supported given the additional burden on the public and the impact on major energy-consuming industries and the economy as a whole.
(2) The business community is particularly concerned that separate systems are being designed for each of these three policies due to a lack of collaboration across government agencies.
The Strategic Energy Plan states that in implementing policy it is important to explain the relationship between benefits and burdens to the public in a clear and transparent manner, and to gain the understanding and trust of the public and business operators. The government should first clarify the overall effects and cost burdens of these three policies and commit to transparent and open public debate #8.
As mentioned at the beginning of this policy recommendation, many industries have responded to Nippon Keidanren's call to formulate action plans for a low carbon society. Through "Nippon Keidanren's Commitment to a Low Carbon Society" companies within an industry cooperate to take proactive action, enabling the industry to achieve reductions that surpass the sum of efforts that could be taken by individual companies within the industry, for example by sharing best practice, developing common targets, standardising LCA information, and transferring technologies overseas.
Using "Nippon Keidanren's Commitment to a Low Carbon Society" as a focus, joint public-private initiatives are effective tools for Japan to achieve the aim of creating a low carbon society. At the same time, we firmly believe that they will contribute to building the strong economy envisaged by the New Growth Strategy. To this end, Nippon Keidanren will strengthen dialogue and employ other means to build even closer links with the government and other related parties on the overall subject of combating climate change.
The Kyoto Protocol Target Achievement Plan adopted by the government states: " ... the voluntary action plans of Nippon Keidanren are ... playing a central role in countermeasures in the industrial community. The advantages of a voluntary instrument include the ease of selection of superior countermeasures for each actor based on its originality and ingenuity, the likelihood of providing incentives to pursue aggressive targets, and no procedural costs for both the Government and implementing actors."
Comparing the targets submitted to the United Nations following the Copenhagen Accord on a marginal abatement cost basis gives figures of 476 dollars for Japan, 60 dollars for the U.S. and 48-135 dollars for the EU (calculated by the Research Institute of Innovative Technology for the Earth).
Using 2007 levels as a baseline, the Strategic Energy Plan estimates that by 2030 emissions will be reduced by 53 percent in the residential sector, 57 percent in the commercial sector, and 37 percent in the transportation sector. Compared to business-as-usual (BAU) scenarios, reductions of 580 million t-CO2 are projected for 2030, and 270 million t-CO2 (47 percent) of these reductions will be achieved at the usage stage, through use of low-carbon products, etc.
Where emissions are reduced overseas through the spread of low carbon technologies and products created with Japanese expertise, such mechanisms use bilateral agreements to independently recognise the reductions as a Japanese contribution. Similar initiatives are under way in the EU and other regions.
This feasibility study project encourages the discovery and formation of specific emission reduction projects in developing countries, with a view to helping create new mechanisms for making overseas contributions through technology.
In the EU, where such a system has actually been introduced, wild fluctuations in emission credit prices have rendered them ineffective as indicators for management decision-making on R&D investment and capital expenditure.
In July this year, the government announced the overall framework of a feed-in tariff scheme for renewable energy that would entail a cost burden of between 460 and 630 billion yen, and at the end of August it proposed the introduction of a tax for measures against global warming. Separately from such proposals, some advisory councils are discussing emission trading scheme design.