Japan divided on carbon trading, talks continue

By Risa Maeda

TOKYO (Reuters) - Japan is still undecided whether to adopt a cap-and-trade system which binds industry to mandatory greenhouse gas emissions limits, as a Japan-hosted July meeting of Group of Eight leaders nears.

Prime Minister Yasuo Fukuda may be keeping his powder dry, to unveil a set of new climate measures at that G8 meet, as countries negotiate a climate pact to succeed the Kyoto Protocol.

Japan, the world's fifth biggest emitter, has said it will, along with other major emitters, agree to a quantified target in a framework after 2013 if a target is fair and equitable.

Three separate government panels of professors, experts and industry officials have been discussing new green policy measures, as Prime Minister Fukuda pledged in January, and which could include a shift beyond the current voluntary pledges by major industries.

Proponents of a similar cap-and-trade scheme as in Europe say forcing major carbon-emitting installations to buy emissions permits would put a price on carbon dioxide, the main greenhouse gas blamed for global warming.

But sectors including steel makers argue such a scheme would penalize them unfairly and instead want incentives to develop "revolutionary" low-carbon technology.

Chairman of a government sub-committee on climate policy measures, Akio Morishima, said on Wednesday it was still at the planning stage so any proposal is welcome, in particular from opponents of carbon trading.

On Wednesday the sub-committee listed a range of views from its members in a report to its parent committee headed by Hiroshi Okuda, the prime minister's special adviser on global warming and Toyota Motor Corp's senior advisor.

The parent committee is set to meet next week.

"In Japan, once we decide, we do it at any cost. I think that should be taken into account when we talk about carbon trading," said Mitsutsune Yamaguchi, a member of the sub-committee.

Last week another working panel, organized by the Ministry of Environment, made a draft proposal on four possible options if and when Japan introduces a carbon trading scheme, including details about their merits and demerits.

One of them is unique to Japan as it allocates emission quotas to electricity suppliers and some other major emitters, with waivers on certain industries exposed to a risk of unfair competition from overseas.

Some members at the panel said it is the most plausible as it is kinder to already energy efficient sectors.

One panel member, Kenji Yamada, head of Nippon Steel Corp's environmental management division, reiterated that the report would not warrant the introduction of carbon trading.

Such an emissions cap on industry would force businesses to buy carbon offsets from abroad, he said. "That would result in an outflow of national interest and thus help little for Japan to cut emissions in real terms," Yamada said last week.

(Reporting by Risa Maeda)