GISPRI organized five meetings for the committee entitled “Accounting and Tax Issues Research Committee on Emission Credits” under the chairmanship of Professor Yukiharu Kurokawa. (Keio University)

The year 2008 saw the launch of a pilot program for Japan’s first-ever integrated national emission trading market, as was envisaged in Fukuda Vision in June 2008. The move coincided with the start of the first commitment period of the Kyoto Protocol.

Meanwhile, Tokyo Metropolitan Government amended its program to address global warming in the same year, and held public hearings and presentations for relevant stakeholders to exchange their views on its designing with a view to introducing a mandatory system to cut greenhouse gas emissions starting from FY 2010.

This committee presented a forum for proactive discussion to explore and identify a number of potential challenges of accounting domestic emissions credits, using its previous findings and insights amassed through the process.

♦An Overview of a Pilot Emission Trading Scheme and Domestic Crediting System
A pilot program for the domestic emission trading market was put into place in accordance with the decision of the Global Warming Prevention Headquarters dated October 21, 2008. It has following two mechanisms:

• Domestic credits for small-and-medium size business entities (SMEs) and forests biomass activities treated as additional reduction efforts based on the government’s program to help achieve national Kyoto Protocol targets.
• Kyoto credits

♦Treatment of Emission Allowances in the Pilot Emission Trading Scheme
The pilot emission trading scheme allows its participants to set their voluntary emission reduction targets and trade emission allowances or credits in addition to their mitigation efforts. Target setting methods and the timeline to issue allowances have characteristics as below.

We have exchanged information, drawing upon the ongoing consideration at the ASBJ Emissions Trade Technical Committee, mainly on “the accounting treatment for emission allowances obtained through ex-ante issuance, at the time of ex-ante issuance, post-sales and at the end-of-term periods,” which was one of unanticipated questions within the scope of existing domestic accounting standards.

♦Treatment of Emission Credits in the Domestic Crediting Scheme
Domestic crediting scheme aims to help SMEs lacking their voluntary action program to promote low-carbon programs with financial and technical support from major business entities that have established their voluntary action programs; to certify their emission reductions; and to utilize them for achieving their targets pledged in their voluntary action plans and the like.

Although “baseline & credit method” approach is adopted just like CERs under the Kyoto Mechanism, we identified potential problems which need to be considered newly and discussed in our committee. The agenda included; different degrees of contributions between SMEs and big enterprises, original acquisition of domestic credits generated from emission reduction business, and different approaches to set prices.

♦Research of Mandatory Emission Reduction in Tokyo and Its Emission Trading Scheme
Tokyo Metropolitan Government has required large business emitters to reduce greenhouse gas emissions in accordance with their plans submitted in advance through its “anti-global warming measures planning/reporting/reviewing system.” However, Tokyo’s system was revised to introduce a mandatory emission reduction program from FY 2010 period. In conjunction with it, Tokyo metropolitan emission trading system was slated to be introduced in parallel as a measure to implement the reduction requirements.

Therefore, the committee decided to deepen its understanding about the overview of the system. Our discussion focused on how we could take into account and treat following new issues; “imputation and succession of emissions reductions commitments ”；“penalties for program participants in the case of non-compliance”, and “emission reductions generated from mitigation efforts on the side of business entities in Tokyo (SMEs in Tokyo and business facilities outside Tokyo area) that are not subject to this system.”