Japan nears carbon rights deal with Latvia: source

TOKYO (Reuters) - Japan will announce within weeks a deal to buy 1.5 million tonnes of emission rights from Latvia, a government source familiar with the matter said, helping the world's No.5 emitter near a target for purchasing carbon credits.

"(The Japanese government) is taking one of the final administrative steps before making an announcement," the source told Reuters on Thursday. The cost would be about 10 euros ($14) per tonne, the source added.

The deal would be one of Tokyo's last purchases of carbon credits from abroad via the Kyoto Protocol's market mechanism, a scheme under which other major buyers include Japanese companies and European governments and firms.

The Japanese government has so far procured about 95 million tonnes of Kyoto-backed carbon credits from abroad, almost completing its plan to receive delivery of 100 million tonnes over Kyoto's 2008-2012 period to supplement domestic efforts to cut emissions.

Developed nations comfortably below greenhouse gas targets under the Kyoto Protocol can sell excess emission rights to other countries in the form of credits called Assigned Amount Units (AAUs).

"It's almost there," said another Japanese government source familiar with Tokyo's purchase of AAUs, who added that the volume of AAUs to be exchanged with Latvia would be a part of the remaining 5 million tonnes Tokyo has been aiming to buy.

The negotiations have been jointly conducted with Japan Carbon Finance Ltd, the sources said. If completed, they could pave the way for Japanese companies to buy AAUs.

JCF, which manages funds provided by about 30 large Japanese companies including Tokyo Electric Power Co, was not immediately available for comment.

GREEN INVESTMENT SCHEME

AAU deals are often criticized as threatening to undermine other markets in Kyoto-backed carbon offsets, which project developers can sell in return for conducting clean energy or energy saving projects.

Most AAUs are often the result of an industry collapse in former communist countries in the 1990s, instead of emission-cutting steps. Thus, buyers like Japan insist that 'Green Investment Scheme' clauses are included in contracts to avoid criticism.

Tokyo earlier this year sealed two AAU deals with Ukraine and the Czech Republic to buy a total 70 million tonnes of AAUs under condition that each country uses the proceeds to help fight global warming. Poland and Russia are among other countries Japan has been in talks with on AAUs.

A similar scheme to limit the usage of proceeds from the Latvia deal has already been agreed, the second government source said.

Under the Kyoto pact, Japan promised to cut greenhouse gas emissions by 6 percent below 1990 levels over the five years to March 2013.

But the latest official data showed it was 9.0 percent above the 1990 level in fiscal 2007/2008, one year before the five-year Kyoto period started.

The government's planned purchase of Kyoto-backed credits of 100 million tonnes, or 20 million tonnes a year on average, accounts for a meager 1.6 percent of the 1990 level.

Other plans to meet the minus 6 percent Kyoto goal include forest conservation in Japan and big companies' voluntary efforts to meet their sectoral emission-cutting targets, which can be met partly with the buying of carbon credits.

In the electric power sector, which accounts to 30 percent of Japanese greenhouse emissions, eight out of the 10 power companies in Japan failed to meet their voluntary pledges on emissions cuts in the first Kyoto year, data provided by the companies showed.

($1=.7030 Euro)

(Editing by Chris Gallagher and Joseph Radford)