TOKYO - Japan's government will decide by the end of the year its stance on introducing a national carbon emissions trading system for companies, a government official said on Tuesday, amid concerns the scheme has been shelved.

 

In a proposal on anti-global warming policies last week, the ruling Democratic Party said the government should "carefully study" the carbon cap-and-trade scheme by assessing such issues as its impact on industry and the effectiveness of similar systems overseas.

 

Japanese media interpreted this as indicating the plan, which has been criticized by companies, had been frozen.

 

If so, that would be a step back from the party's campaign pledges in an election last year, when it promised to set up a national carbon emissions trading market to help the government meet a target to cut Japan's greenhouse gas emissions by 25 percent from 1990 levels by 2020.

 

"We believe the government needs to take the party proposal seriously. So, we will take a very careful look at the issue," a Cabinet Office official said, declining to elaborate further.

 

Some powerful business groups have said a tough emissions reduction target and a trading scheme could increase costs, hurting the competitiveness of big exporting firms when competitors such as the United States have so far failed to win agreement on trading schemes of their own.

 

In addition, Prime Minister Naoto Kan, the fifth prime minister in three years, is struggling with plunging popularity, huge public debt and a divided parliament.

 

Under emissions trading, a price is placed on carbon dioxide emissions from industry through the issuance of tradeable pollution permits tied to emissions reduction targets. The idea is to drive investment in cleaner energy generation or energy efficiency.

 

Over time, the number of permits per tonne of emissions declines, driving up the price and acting as a reward for polluters that beat their targets, which can then sell excess permits to firms that fail to meet their mandatory cuts.

 

Even if the scheme is approved by the government, it would need opposition help to pass the bills. And the government's top priority is to have budget-related bills passed by the end of the current fiscal year to March 31.

 

Despite the possible backtracking on the emission trading scheme, Tokyo remains committed to pursuing other green steps and will continue to drive a shift in investments away from fossil fuels.

 

Japan said last week it would levy a new tax on CO2 emissions from burning fuels, starting in October next year. The government also plans to expand a pilot plan floated since last year to introduce more renewable energy in electricity.

 

(Reporting by Kiyoshi Takenaka, Risa Maeda, Osamu Tsukimori; Editing by Nathan Layne and David Fogarty)

 

Copyright 2010  Reuters Environmental Online Report