UPDATE 1-Japan considers emissions cap and trade system

(Recasts, adds comments)

TOKYO, Feb 20 (Reuters) - Japan is considering compulsory caps on greenhouse gas emissions and a domestic emissions trading scheme for its reluctant companies as it is expected to make tougher commitments in the post-Kyoto Protocol phase, a trade ministry official said on Wednesday.

Japan, the world's fifth-largest greenhouse gas emitter, currently lets companies set their own targets on emissions and monitor themselves for compliance, and the country's most powerful business lobby strongly opposes a compulsory scheme.

But the Ministry of Economy, Trade and Industry appears to be breaking ranks with the firms it regulates. The ministry official, who deals with environmental and economic issues, said METI would set up an informal study panel in early March to look into possible initiatives to cut emissions further, including compulsory trading schemes.

"A tough emission trading scheme, like the one in Europe, will be one option to discuss (at a study panel)," the official said.

"As we've said before, there's no sacred cow when we discuss what we can do in post-Kyoto," he said.

The panel reports to a senior official at the ministry's technology and environment bureau and will compile its findings by June, he said.

METI will then meet with other ministries and key industries to hammer out the details of a plan that could come into effect from 2013, after the expiry of the Kyoto agreement to tackle global warming.

Japan hosts a meeting of leaders from the Group of Eight industrialised nations in July, where they are expected to discuss 2020 emission targets among other issues.