Japan seeks carbon credit suppliers to meet targets

TOKYO (Reuters) - Japan is looking for new suppliers of carbon credits as uncertainty over future funding mechanisms for credit suppliers has limited the number of big clean energy projects that sell such credits, a Japanese official said.

Kazuhiko Oe, director of the department for the promotion of carbon trading mechanisms at the New Energy and Industrial Technology Development Organization (NEDO), said Japan was exploring various schemes to meet its credit needs.

NEDO is in charge of Japan's investments under the Clean Development Mechanism, a scheme that allows rich nation polluters to fund emission cuts in poorer countries and put them toward domestic carbon reduction targets or sell them for a profit.

Speaking at Tokyo symposium on Wednesday, Oe said NEDO should look beyond that mechanism and consider alternatives such as Joint Implementation and Green Investment Scheme programs.

Eastern European countries, which have a surplus of government carbon credits under the Kyoto Protocol to tackle global warming, can sell the credits through those programs.

Oe told Reuters on the sidelines of the symposium that NEDO is looking into bilateral negotiations with Russia, Ukraine, Czech, Hungary and Belarus to look for a large number of credits per contract.

NEDO is set to buy 100 million tons of carbon credits, to be delivered between 2008 and 2012, to help Japan meet its emission targets. But negotiations over future targets beyond 2012, are dragging on and weighing on climate change projects that supply such credits.

In the two years through March, 2008, NEDO signed contracts with 18 projects as part of the Clean Development Mechanism. The projects are expected to deliver a total 23 million tons for the 2008-2012 period.

Oe said business is tough since offset prices have risen in the primary Clean Development Mechanism market in China. Stricter regulation on validation and credit tightening in developing countries are also reducing the number of CDM projects.

"The floor price has been raised in China due to the government's advice not to sell cheap," he said.

China is the world's No.2 host of CDM projects after India, and NEDO's main partner for such projects because of its lower prices.

Emission offsets from popular CDM projects in China, such as wind farms, now cost 13 euros or more per metric ton, said Oe, who is in charge of NEDO's direct buying of carbon credits from project managers. NEDO also buys credits in a secondary market via general trading houses and other brokerages.

Delegates from around the world are trying to agree on a new, broader treaty to succeed the Kyoto Protocol by the end of 2009 in United Nations-led climate talks. They are also reviewing existing funding schemes, including the CDM.

(Reporting by Risa Maeda; editing by Sophie Hardach)