The Research Committee to coordinate environmental conservation and economic  growth held a symposium Policies and Measures for Global Warming in US and Japan with experts invited from the Resources for the Future, on May 25th, 1999 at the Hotel New Otani.

< Session 1 >　Policies and Measures for Global Warming
in US and Japan

Keynote Lecture : Policies and Measures for Global Warming in US
Dr. Michael Toman, Resources for the Future

     The flexible mechanisms in the Kyoto Protocol, so called Kyoto Mechanisms, are the  most important factors in attaining the targets of the Protocol. For example, if US's  GHG emission reduction costs less than that in Japan, it would be better for both US and Japan to locate the emission reduction sites in US, where cost is lower. Emission  reduction activities will be best done at a place with less cost. If US is to ratify the Kyoto Protocol, and to impose restraints on GHG emissions in the domestic market by implementing the Protocol, it will certainly involve the introduction of emissions trading program.

     Climate policies in US will proceed with deregulation in the electric power industries,  which environmental experts consider as a threat as well as a chance. If electricity charge is reduced by restructuring power industry, then the power industry may  choose to operate coal-fueled power generation plants which will eventually increase CO2 emissions. On the other hand, the reduction in electricity charge may facilitate the  introduction of carbon taxes implicitly and without pain. Another climate policy in US will be the introduction of early emissions reduction  program. This program will allow private entities to earn emission credits when they  voluntarily reduce GHG gas emission, and let them bank these credits for future. In my  opinion, this system will need a thorough configuration of this program.

     If the Kyoto Protocol is not to be implemented, a possible measure would be to soften  targets by applying, for example, the concept of a safety valve. This approach will not  necessarily contradict the concept of the Kyoto Protocol. Without developing countries participation, none of climate change mitigation measures  will ever succeed.  In this sense, it is important to let the developing countries recognize the merits of CDM for their own interests and their sustainable development. It will also be necessary to discuss about gradation. It means that developing countries achieving greater economic growth should take heightened responsibility.

Comments :

Dr. Tsutomu Toichi, The Institute of Energy Economics, Japan

     There is a perception gap between U.S. and Japan in the necessity of specific actions by developed countries in the first place, to win the participation of developing countries in emissions reduction.

     Regarding specific policy measures, U.S. is focusing on economic incentives while Japan is considering it is effective to have restrictive measures based on technological standards. The difference of condition in energy resources-U.S. is blessed with resources while Japan is not-might be reflected in different perception toward countermeasures for global warming.

     As for electric sector, U.S. considers that deregulation in electricity contributes to CO2 emissions reduction, but it is not the case with Japan. In Japan, liberalization in electricity retail market will make it difficult to develop power sources, which require a long lead time, due to increasing uncertainty in demand for electricity.

Prof. Mitsutsune Yamaguchi, Keio University

U.S. is planning to meet 85% of its obligation under the Protocol through emissions trading, which is completely against 'supplementality' stipulated in the Protocol. It might be good for improving a relationship between U.S. and developing countries to indicate a specific numerical target for their domestic reduction as the biggest emitter of CO2 in the world.

     In U.S., there is a dispute on what they should do in case the Kyoto Protocol is not ratified, which is a completely different situation from that of Japan, who has proceeded on the premise that the Protocol is to be ratified.

     There is also a difference in efforts towards AIJ between U.S. and Japan. U.S. has developed its effort notably in Latin America, while Japan has put emphasis on Asia especially on China. It might be better for Japan to be involved in activities in other areas as well.

     Currently Japan is advancing a voluntary action plan and direct restrictions, but it is necessary to have a trial calculation to compare the costs with those for domestic and international emissions trading.

Dr. Naoki Matsuo, GISPRI

     To address environmental issues, Japan has been successful in dealing with it through regulations. When we turn our eyes to other countries, U.S. has been successful in coping with it through SO2 allowance trading, and so were some European countries through introducing sulfur taxes. As long as an outcome is successful and the people are satisfied, any measure can be OK despite of its cost. But we should have a large scope in which we can choose a suitable one for a country comparing with others.

     In the various designs of institutions, there is an idea called "safety valve", which means to set a ceiling when the price of allowance increases too much. There is an idea from New Zealand of combining emissions trading and carbon charge, setting the amount of carbon charge to be the same as the ceiling of permit price. This is also a kind of safety valve.

     As for the initial allocation of allowance as well, it is important to set a measure that is the most suitable for the country's system, no matter it would be grandfathering and/or auctioning.
 

< Session 2 >　Domestic emission trading market in US

Keynote Lecture : Performance of US Acid Rain Program
Dr. Dallas Burtraw, Resources for the Future

     SO2 program is designed to have two approaches, one an emissions trading, and another the cap (upper limit) on emission allowance. The program is implemented in two phases (the first phase from 1995, the second phase from 2000). The phase I is to reduce average emissions from 4 lbs/min.BTU to 2.5 lbs/min.BTU and the phase II is to reduce them further to 1.2 lbs/min.BTU. Emission allowance is allocated to power companies based on the historic emission quantity and power generation volume.  The program also introduces auctioning but the auctioned profit does not go to the government. The SO2 compliance cost was overestimated. In the middle of the 1980's, the estimated marginal abatement cost due to scrubber installation requirement was US$1500 per ton.  In 1990's the estimated cost by introducing emission trading was 600 $/ton.

     The actual trading price, however, was 125 $/ton in 1997, 160$ in 1998, and 200$ in 1999.  The projected price in 2010 is 300$. Since the implementation of SO2 program in 1995, the emission quantity has dropped drastically from 1994 to 1995 due to greater use of low sulfur coal, indicating the effects of the program.

     SO2 emissions allowances are intangible assets created by U.S. government, which would be the source of new wealth. One of the policy options by the government is to auction such allowances so that the government could get revenue from them, instead of grandfathering to the power industries. With this benefit from auctioning, the government would be able to promote a policy in which they could offset reduction in other taxes (such as income tax).

Comments :

Prof. Mitsutsune Yamaguchi, Keio University

     Acid rain program is a successful program with less costs and great emissions reductions, but it did not create any technological evolution. This acid rain program owed its success to a relatively low standard. Even though the acid rain program with limited objectives was successful, it is difficult to foresee if that experience would also be useful for CO2.

     An auctioned permit is a kind of taxation. Imposing taxes on environmentally harmful activities to cover the reduction of income taxes would result in income transfer from industries to individuals. In such case, how should we deal with equity issues?    We also need to take the reduction of corporate taxes into consideration.

     It might be unrealistic to change a system abruptly to an auctioned permit system from the current one in which industries are legally allowed to emit certain amount of GHGs.

Prof. Tatsuyoshi Saijo, Osaka University

     It is said SO2 emissions trading in U.S. was successful, but it requires a multilateral evaluation to specify in which aspect it was successful. We need to analyze it fully from various aspects; whether it is equitable and efficient, and whether it is successful on a broker side or on an industry side, etc. Basically it should be valued in terms of achievement in the mitigation of the impact to health and environment. Also we need to review whether the target was too easy to meet or not.

     In case we set an initial allocation to have CO2 emissions trading in Japan, what is going to be the best way? There have been a lot of arguments supporting taxation, auction of the initial allocation, or combination of several methods. But which is the most suitable one for Japan to introduce?