East Asian cap and trade plans hit the wall

The new year sees emissions trading plans in Japan shelved and under mounting question marks in South Korea as their respective governments face heavy political pressure from industry.

Japan’s plan for an emissions cap and trade scheme to start in 2013 have been shelved for now following heavy opposition from the business sector against the plan. The ongoing effects of international recession and the lack of any progress on emissions curbs among other big emitting nations and the recent Cancun climate talks has seen the government’s resolve on pricing carbon wane.

Japan has pledged to cut emissions by 25 per cent below 1990 levels by 2020 under the Democratic Party government, one of the most ambitious targets among industrialised nations. A comprehensive set of measures to lower emissions was passed in an overarching climate bill in 2010 but the detail for an emissions trading scheme was to be developed in a separate bill. An carbon tax on fossil fuels and mandatory renewable energy requirements will still go ahead this year but the government has dropped plans for the ETS for now.

The government is standing by its ambitious reduction target but there is little faith it can be achieved without extending carbon pricing across heavy-emitting sectors via the now-shelved emissions trading scheme.  

The powerful business lobby in Japan has gained traction for its argument that economic competiveness will be eroded by a domestic ETS being introduced before major rivals like the US do so. The same arguments led to Australia shelving a planned ETS and resulted in Congressional cap and trade bills in the US failing over the past two years.

In South Korea, the fourth largest emitter in Asia, the government had signalled it would introduce an ETS in 2013 with draft laws due to go before parliament next month. But there, too, the business sector is ramping up opposition on competitiveness grounds, and it appears to have found support within the government.

For South Korean industry, the big competition comes from China and Japan and the latter’s shelving of ETS plans is only adding momentum to Korean industry’s case. In a sign that the government may be wavering in the wake of the Japanese policy reversal, Choi Kyung-hwan, the Minister of the Knowledge Economy, questioned the wisdom of the planned ETS scheme saying it would cost emitting companies $32.5 billion. His ministry confirmed the figure.

South Korea is not subject to any mandatory emissions reduction targets under the Kyoto Protocol but has set itself a voluntary target to cut emissions by 30 per cent below business as usual levels by 2020, equivalent to a 4-per-cent absolute reduction below 2005 levels. The proposed Korean scheme would begin with a first phase from 2013 to 2015 covering almost 500 heavy-emitting firms.

In China, meanwhile, a cautious embrace of emissions trading by the government has seen regional emissions trading trials included in its next five year plan starting this year.

Bloomberg 14/1/11, Reuters 13/1/11, Japan Times 29/12/10.

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Japan moving on emissions trading scheme
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