Japan to seal carbon deal with Ukraine soon: source

TOKYO (Reuters) - Japan is set to complete a deal this week to buy emissions rights from Ukraine, marking its first deal via a government-to-government trading scheme under the Kyoto Protocol, a Japanese government source familiar with the talks said on Monday.

Smoke is emitted from a factory at Keihin industrial zone in Kawasaki, south of Tokyo October 22, 2008. REUTERS/Kim Kyung-Hoon

Ukraine will deliver 30 million tonnes of so-called Assigned Amount Units (AAUs), half of which will be delivered in the Japanese fiscal year that ends this month and the other half in the next fiscal year, the source said.

Japan hopes to complete another AAU deal in April with a different eastern European country, estimated to be worth tens of millions of tonnes, the source also said, to help it meet its emissions target under Kyoto.

But the source declined to comment further about the second AAU deal.

Under Kyoto, all 37 industrialized countries that have committed to meet emissions curbs issue emissions credits called AAUs, which can be traded to other governments.

The number of AAUs are calculated with reference to a nation’s emissions against Kyoto’s 1990 baseline year. Each AAU represents a tonne of CO2-equivalent.

Many former Soviet bloc countries have an excess of AAUs after an industrial collapse in the 1990s and some have been selling these to nations well above their Kyoto targets to help them meet their emissions reduction obligations.

Japan is well above its Kyoto target.

During 2008-12 it has to cut emissions by 6 percent from the 1990 levels of 1.26 billion tonnes of CO2-equivalent.

But emissions rose to a record 1.37 billion tonnes in the year to March 2008.


Over the past two years, Japan has talked to about 10 eastern and central European countries. Among them, bilateral negotiations with Ukraine, the Czech Republic, Poland and Hungary have made the most progress.

But a second government source said on Monday that talks with Poland and Hungary had been delayed, which looked set to increase the prospect of a deal with Czech Republic.

In February, a Czech government official said Japan was seeking to buy emissions rights comparable to those Tokyo had sought from Ukraine.

“Another government-to-government deal is expected early in the next fiscal year,” a third government source said.

“If and when it were done, our goal is almost there,” the source said, referring to the Japanese government’s planned purchase of 100 million tonnes in carbon offsets from abroad during the 2008-2012 Kyoto period.

Japan’s utility and steel companies are big offset buyers, too. Their voluntary reductions in greenhouse gas emissions is the core of Japan’s plan to meet its Kyoto target.

“The deal (with Ukraine) is reasonable relative to prices in the market,” the first source said.

Ukranian Prime Minister Yulia Tymoshenko is scheduled to visit Japan next week.

European emissions permits, seen as the market’s benchmark, are currently trading around 12.60 euros ($16.4) per tonne of carbon dioxide.

AAUs are often cheaper than EU permits and other clean-energy project-based offsets because of estimates that global AAU supplies could be several times larger than demand forecasts.

The environmental integrity of AAUs is also in question because the bulk of them are the result of economic restructuring in eastern and central European countries rather than investment in clean energy.

Critics also argue the lack of accountability and transparency over where proceeds of AAUs are spent.

In the two years through March 2008, the Japanese government has bought the equivalent of 23.1 million tonnes from abroad, all of which are CERs, or offsets generated by clean-energy projects in developing countries under Kyoto’s Clean Development Mechanism scheme.

The government has so far bought CERs only by using part of fiscal 2008/09 budget of 34 billion yen ($346 million).

($1 = 98.26 yen)

Editing by David Fogarty