Position Brief on the Kyoto Mechanisms

12 June, 2000
The Federation of Electric Power Companies

1. Perception of the Climate Change problem

Climate change is an issue which the three E's - Economy, Environment and Energy - are closely interrelated, and all entities must strive towards its solutions.

1. 1. We believe that the Kyoto Protocol is a step towards solving the climate change problem, and anticipate its early entry into force.
2. 2. As of 1997, GHGs emissions in Japan increased by approximately 8.5% from their 1990 level. Emissions of CO2, especially, increased by 9.4% from their 1990 level. Therefore, substantial efforts are to be necessary even to stabilize CO2 emissions at the 1990 level.
3. 3. The climate change issue calls for global cooperation on a long-term viewpoint. In this sense, the Kyoto mechanisms are important measures to complement domestic actions, and are also beneficial to both developed and developing countries.

2. Actions taken by the Japanese electric power industry towards mitigating the climate change

1. 1. In November 1996, the electric power industry in Japan, as a member of the society, formulated and published "Environmental Action Plan by the Electric Power Industry" in order to solve the "trilemma of the three E's", while ensuring stable electricity supply. A check-and-review process is carried out annually, and its results are published in order to ascertain the achievement of the goals of the Action Plan and to ensure its transparency.
2. 2. In the " Environmental Action Plan by the Electric Power Industry ", the following domestic actions are being taken towards achieving the voluntary target (approximately 0.3kg-CO2/kWh, 20% reduction of CO2 emission rate [CO2 emissions per kWh of electricity consumption] by 2010 from 1990 figures). Examples of such actions are:
   1. a. Energy mix centering on nuclear power development.
   2. b. Increased energy efficiency of facilities.
   3. c. Energy savings on the demand side.
3. 3. Kyoto mechanisms are effective ways to control GHGs emissions on a global scale through facilitating the transfer of advanced electric technologies and know-how from Japan to overseas. They are also important as complementary measures to domestic actions in terms of cost-effectiveness. The Japanese electric power industry is actively taking actions towards utilization of the mechanisms.

3. Views on the Kyoto mechanisms

*Basic views on the Kyoto mechanisms

The solution of climate change problem requires global efforts based on a long-term perspective. In this regard, the framework of the mechanisms should be established to secure their cost-effectiveness, sustainability and simplicity. In addition, projects need to contribute to sustainable development in the developing countries and must be beneficial to both donor and host countries in terms of the technology transfer, capital flow and human resource development, etc.

1. 1. Broad participation by the private sector is essential. Therefore, acquisition of emission allowances / credits* by the private sector through the use of Kyoto mechanisms should be allowed. These emission allowances / credits should belong to the implementing entities themselves. A public registration system of allowance / credit transactions is necessary in order to ensure transparency.
2. 2. Since early actions are essential, a minimum set of rules and frameworks taking account of the voluntary actions by the private sector should be established at an early date, with experience to be gained through a "learning by doing" process.
3. 3. Kyoto mechanisms should cover six GHGs defined under the Protocol. Sinks should be eligible under the CDM as well as Joint Implementation.
4. 4. Emission allowances / credits generated through emissions trading and Joint Implementation / CDM should be regarded as mutually fungible.
5. 5. Limiting the use of Kyoto mechanisms is not desirable, since it may undermine opportunities to reduce GHGs emissions in a cost-effective manner through an efficient transparent market.
6. 6. Administration of the Kyoto mechanisms should be carried out as efficiently as possible, with an aim to minimize administrative costs.
7. 7. Funds for assisting developing countries should be procured in a way that does not hinder utilization of the Kyoto mechanisms.

*Views on emissions trading[International Systems]

1. 1. Efficient management of transaction system is necessary to maintain the soundness of the market. Intervention by governments and international organizations in the market must be kept to a minimum, in order to ensure transparency of registration of transactions, etc. Existing mechanisms for commercial transactions should be utilized in the emissions market.
2. 2. To keep the allowance price at an appropriate level, and to ensure the sustainability of the system, emission credits derived from Joint Implementation / CDM projects should be incorporated in the market for emissions trading, which responds well to the "price signals" from these projects.
3. 3. Seller liability would be more advisable than buyer liability for ensuring credibility as an international system as well as facilitating private sector participation, until the market is sufficiently developed.

*Views on Joint Implementation / CDM

1. 1. Joint Implementation / CDM mechanisms are effective in promoting activities to reduce GHGs emissions on a global scale, and should be established as early as possible.
2. 2. Guidelines including provisions on baseline calculation methods and monitoring system should be established at an early date, in order to reduce transaction costs. With respect to CDM, a provisional guideline should be prepared as early as possible, since certified emission reductions generated from CDM projects can be operational from the year 2000 under the Protocol.
3. 3. Baselines for Joint Implementation / CDM projects should, in principle, be decided on a project-by-project basis. Upon agreement of stakeholders including the host country, however, categorized or simplified baselines in accordance with project type should be allowed.
4. 4. Joint Implementation / CDM should be designed in a way to produce actual reductions, and should be mutually beneficial to both donor and host countries, in terms of technology transfer, capital flow and human resource development.
5. 5. National priorities of the host country should take precedence in evaluating sustainability of projects, and specific technologies such as nuclear power should not be excluded a priori.
6. 6. Operational entities for CDM should be designed to enable all entities throughout the world to access them equitably and easily.
7. 7. In order to foster private sector participation in Joint Implementation / CDM schemes, cost-effectiveness of GHGs reduction, as well as durability and commercial viability of projects are the most important factors to be ensured. "Additionality", a requirement for project validation, should be assessed only in terms of actual reduction of GHGs. Therefore, projects that could be commercially feasible should be made eligible so long as they are effective in GHGs reduction. In addition, there should be incentives to stimulate private sector participation such as support by public finance (ODA, etc) and preferential treatment in accounting and taxation.
8. 8. Prompt implementation of the followings should be carried out to facilitate putting the mechanisms into effects:
   • Disclosure of information and data which provide the bases when calculating GHGs reduction effects.
   • Capacity building in host countries.
   • Intergovernmental cooperation on project identification.
   • Comprehensive consensus-building between governments.
9. 9. 3. Expected conditions for the early reduction efforts

4. Expected conditions for the early reduction efforts

*Conditions necessary for the early reduction efforts

1. 1. In accordance with the aforementioned views, the Japanese electric power industry expects that constructive discussion will take place at related meetings with an aim to achieving agreement upon the design of the Kyoto mechanisms at COP6, in order to ensure early entry into force of the Kyoto Protocol and to facilitate establishment of international systems of the Kyoto mechanisms.
2. 2. Should there be a delay in reaching an international consensus with respect to the details of the Kyoto mechanisms, a provisional guideline should be established for certification and registration of GHGs reduction generated from the early reduction efforts by private entities.

<Appendix: views on domestic systems>

1. 1. In Japan, companies take measures to address the climate change by setting their own voluntary targets in accordance with the "Keidanren Voluntary Action Plan on the Environment", a compilation of voluntary plans from 42 industrial sectors which include the "Environmental Action Plan by the Japanese Electric Power Industry". In an effort to ensure transparency and ascertain the achievement of the targets, an annual review is conducted, and its results are publicized. The follow-up to this Action Plan is one of the key measures listed in the "Guideline of Measures to Prevent Global Warming" formulated by the Japanese government in 1998. State of progress under individual sectoral plans are reviewed annually by a third-party committee, consisting of the academia and environmental NGOs, which is held at the government council. The findings are also reported to the joint conference of relevant advisory councils on domestic measures against global warming. Private sector participation in the Kyoto mechanisms should be implemented as a part of voluntary actions, and emissions allowances / credits obtained through the Kyoto mechanisms should be permitted to utilize for achieving the individual sector targets.
2. 2. Schemes which involve initial allocation of emission allowances would not be acceptable in Japan, since this is problematic in terms of achieving equity and practicality.
3. 3. Systems to certify and register GHGs emission reduction generated from the early reduction efforts by the private sector etc. should be established at an early date.
4. 4. When the national government participates in the emissions trading, financial resources for such purposes should be provided by the restructuring of annual expenditure, not by the imposition of new taxes.