mitsubishi/Kyoto Doubts Prompt Japan to Hedge Its CO2 Bets:

"There's no reason to stick to the Clean Development Mechanism," said Haji Watanabe, head of Mitsubishi UFJ Morgan
Stanley Securities Co.'s emissions-reduction unit in Tokyo. The
firm, which has 90 greenhouse-gas projects, may seek some
credits under Japan's program instead of the UN's, he said.


Kyoto Doubts Prompt Japan to Hedge Its CO2 Bets: Energy Markets
2010-11-10 11:18:34.213 GMT

By Mathew Carr and Tsuyoshi Inajima
Nov. 10 (Bloomberg) -- Japan, the world's fifth-biggest
greenhouse-gas polluter, is building a new emissions market as
the widest carbon-trading spreads in four months signal the 1997
Kyoto climate agreement will be scrapped.
Credits for 2012 in the United Nations market, set up after
the Kyoto accord, traded at 3.95 euros ($5.50) less than those
in the European Union's cap-and-trade program as of Nov. 3.
That's the biggest difference since June 14 and compares with
2.39 euros at the start of the year.
Traders are selling UN credits on concern they will have
little value after 2012, when the Kyoto targets expire, as they
speculate the U.S. and China will fail to reach agreement on new
limits being considered at this month's climate summit in
Cancun, Mexico. That's prompting Japan to build an emissions-
trading system independent of the UN, through individual
agreements with other nations.
"If negotiations are going to be stuck in a quagmire, the
best thing is for countries to set up bilateral agreements,"
said Anthony Hobley, a partner and climate specialist at Norton
Rose LLP, a London-based law firm. "Bilaterals are a lot easier
to negotiate," he said in an Oct. 22 interview.
Japan has earmarked about $4 billion for projects from
saving forests in Brazil to building a nuclear plant in Vietnam
in an attempt to offset its own emissions and fulfill a pledge
to cut greenhouse gases by 25 percent in the 30 years through
2020, according to the trade ministry.

Biggest Emitters

UN credits for December 2012 have fallen 18 percent to
11.39 euros on London's ICE Futures Europe since trading at
their 2010 peak on May 3, leaving them little changed this year.
Comparable EU futures are up 9 percent to 15.21 euros on ICE.
Talks to extend Kyoto's emission targets to the U.S. and
China, the world's biggest emitters, failed at the 2008 summit
in Poznan, Poland, and again a year later in Copenhagen. The
Kyoto Protocol set emission caps for 38 countries through 2012,
establishing the UN Clean Development Mechanism, or CDM, as a
worldwide carbon market.
"There's no reason to stick to the Clean Development
Mechanism," said Haji Watanabe, head of Mitsubishi UFJ Morgan
Stanley Securities Co.'s emissions-reduction unit in Tokyo. The
firm, which has 90 greenhouse-gas projects, may seek some
credits under Japan's program instead of the UN's, he said.

Tapping Rich Countries

The UN market was designed to encourage developed countries
to pay for emission reductions by awarding tradable offset
credits known as Certified Emission Reductions, or CERs, to use
against their targets.
While CERS can now be used for compliance in the EU, which
runs the world's largest carbon market, the 27-member bloc may
exclude some of them from 2013. ICE Futures Europe doesn't list
UN credits beyond March 2013.
David Abbass, a Bonn-based spokesman for the CDM, says it's
too early to write off the UN system.
"Parties have said that the CDM should continue, but that
it can be improved and scaled up," he said in an interview on
Nov. 3 "The fact that several countries, including Japan,
recognize a need to establish domestic trading systems just
reaffirms the importance of a market approach in combating
climate change."
Japan isn't alone in seeking one-on-one agreements. The EU
is considering importing credits under a deal with Chinese
steelmakers, according to its website. California, the biggest
U.S. state, also cleared the way last month to create its own
offset credits starting in 2012, with proposed purchases from
countries including Mexico and Canada.

Falling Emissions

Japan's former Prime Minister Yukio Hatoyama pledged in
September 2009 to provide $15 billion in climate aid for
developing nations. The country has spent about $5.3 billion so
far, Foreign Minister Seiji Maehara said on Sept. 25. Its
current target is contingent on similar reductions from other
developed nations, Hatoyama said.
Japan's companies produced 17 percent less carbon dioxide
in 2009 compared with 1990 levels, according to a report
released today. The country's 34 largest industries emitted 422
million tons of CO2 after taking into account carbon offsets,
the country's business lobby, Nippon Keidanren, said in the
report. Corporate emissions are expected to average 8.2
percent lower than 1990 levels between 2008 and 2012, it said.
Japan agreed to start talks on possible bilateral offsets
with India on Oct. 25 and Vietnam on Oct. 31, according to the
foreign ministry. Negotiations have begun with Thailand, the
Philippines, Indonesia and Laos.

'Faster and Flexible'

"We'd like to create a scheme that can co-exist with the
UN's CDM but one that is faster and more flexible," Keisuke
Murakami, director of global environmental affairs at Japan's
trade ministry, said in a Nov. 1 interview.
Japan Bank for International Co-operation is overseeing
about $4 billion of climate investments under a program called
Green, which could feed into a bilateral market. The bank may
also help finance some of the 33 projects under consideration in
the nation's bilateral programs, according to Takashi Hongo,
head of environmental finance at the Tokyo-based lender.
"If there is no global regime, integration of the
bilateral programs will be desirable," Hongo said in an Oct. 29
interview. "We would like to keep a first right of refusal to
get credits" as Japan starts spending, he said.

For Related News and Information:
Top Renewable Energy Stories: GREEN <GO>
Clean Development Mechanism Projects: CDM <GO>
Company News: 9501 JP <Equity> CN <GO>

--With assistance from Stuart Biggs in Tokyo and Dinakar
Sethuraman in Singapore. Editors: Mike Anderson, Justin Carrigan

To contact the reporter on this story:
Mathew Carr in London at +44-20-7073-3531 or
Tsuyoshi Inajima in Tokyo at +81-3-3201-2059 or

To contact the editor responsible for this story:
Stephen Voss on +44-20-7073-3520 or