Exchanges to study carbon trading

The Tokyo Stock Exchange Group Inc. (TSE) and the Tokyo Commodity Exchange (TOCOM) will jointly study carbon trading systems with an eye to possibly creating a domestic market, sources said.
TSE, the operator of Japan's largest stock exchange, and TOCOM, the market for futures trading in precious metals, aluminum and oil, will form a study panel by the end of this month, according to the sources.
It is part of a broad agreement to be signed by the two entities as early as Wednesday to raise Japan's international competitiveness, the sources said.
While trading in greenhouse gas emissions credits emerged as a thriving business in Europe, Japan dragged its feet in creating a market due to opposition from business circles.
Even so, the two exchanges said there is clearly a growing need for Japan to have one as it comes under stronger pressure to reduce emissions of carbon dioxide (CO2) and other greenhouse gasses.
Trading in emissions rights forms part of the mechanisms introduced under the 1997 Kyoto Protocol to fight global warming.
Countries and companies unable to meet the CO2 reduction targets are allowed to buy emissions credits from those which have cut emissions beyond their goals.
In 2005, the European Union introduced a system to set emission quotas to each company within the region that will allow those unable to meet the criteria to buy credits from those which more than met theirs.
The system is aimed at promoting CO2 reductions on the strength of market forces as successful cuts would lead to benefits while greater emissions mean higher costs.
There has been growing interest in the United States and Canada in following the EU's lead.
In Japan, however, Nippon Keidanren (Japan Business Federation) and related organizations are opposed to the introduction of such systems on grounds emission quotas would mar competitiveness.
Within the government, the Environment Ministry is studying a domestic emission credits system while the Ministry of Economy, Trade and Industry remains cautious.
The two exchanges plan to study systems abroad, such as the European Climate Exchange, to see how they function and to determine the demand for such trading in Japan.
The panel is expected to propose a system that will meet Japan's needs and circumstances as well as point to possible problems.
Under the Kyoto Protocol, Japan is obliged to cut greenhouse gas emissions by 6 percent on average between 2008 and 2012 from levels in 1990.
But meeting that goal appears to be difficult because preliminary figures show that Japan's emissions in fiscal 2006 actually rose 6.4 percent from the 1990 levels.
Against this background, the two exchanges apparently decided it is possible that the need for a domestic market will emerge naturally, according to the sources.(