Japan wants to cut GHG emissions and export clean technology through its Joint Crediting Mechanism (JCM), but so far approved projects have a combined capacity to reduce emissions by just 500 tonnes of CO2e per year as the scheme faces lukewarm interest at home and controversy abroad.

Last week, officials gave final approval for an energy efficiency project in Palau, the fourth project to win registration under the JCM – a programme that consists of bilateral agreements between Japan and 12 developing nations.

Japan began planning the JCM in 2010 when it lost patience with cumbersome registration processes under the CDM, seeking to replace its dependence on the Kyoto mechanism with a bilateral tool that would offer speedier approvals and more predictable offset volumes.

Thomson Reuters Point Carbon has gathered a list of 186 JCM project ideas that have been published since the scheme’s inception. Sixty-seven of those projects have estimated potential emission reduction volumes totalling 766 million tonnes of CO2e.

Japan has said it will use some JCM offset credits to meet its 2020 emission target. It has not specified how many, though think-tank IGES said last year it could be as many as 20 million.

But the reality is in stark contrast to these estimates.

The four projects approved so far have a combined emission reduction potential of less than 500 tonnes of CO2e annually.

According to the JCM website, no other projects have started the approval process yet, although some are expected to do so shortly.

“We are hoping to register more projects and are calling for private companies to participate in the JCM,” said Yuichi Yokoi, an emissions trading specialist with the Ministry of Economy, Trade and Industry (METI), one of the Japanese agencies operating the scheme.

He stressed that the first bilateral agreement was only signed in January 2013, with Mongolia, and that a lot of time has been spent developing the methodologies and administrative procedures.

INCENTIVES

The JCM is intended to cut GHG emissions while at the same time boosting the export of clean technology.

METI, together with the New Energy and Industrial Technology Development Organization (NEDO) and the Ministry of Environment (MoE), have put in place financial incentive schemes to make the JCM attractive to private firms.

The MoE will part-fund projects in return for at least half the offsets resulting from them, while METI and NEDO are willing to take on all the initial risks of a project but require that its participants buy it back at a reduced cost after three years.

One problem, observers say, is that for a market mechanism, the JCM doesn’t offer much of a market. While the government will use its offsets towards meeting its international climate targets, private companies can’t really use them for much.

“The only incentive for the participant is the subsidy, thus it is not a market mechanism for emission reductions,” said Naoki Matsuo with consultancy Climate Experts.

“Through the MoE channel the participants cannot obtain profits from the subsidy directly. The scheme has been designed and operated without clear and written objectives and targets,” he told Carbon Pulse.

CONTROVERSIAL

The JCM has been internationally controversial from the outset, largely because Japan developed it making no secret of the country’s frustration with the CDM.

Participants in the UN scheme have complained about rigid rules, high costs and long waiting times, and in the past few years an increase in governments declining to use the CDM has caused CER prices to collapse and investment to dry up – putting into question the mechanism’s future.

In comparison, under each of the 12 bilateral JCM deals Japan and its counterparties have set up CDM-like processes that cost developers less, and yield quicker project approvals and more predictable offset issuances.

However, the scheme has yet to be recognised by the UN as a ‘new market mechanism’ that can generate offsets eligible to count against internationally-binding commitments.

The UN recently published documents from its international assessment and review procedure, which showed how reluctant some nations are to accept the JCM.

The UK, in particular, was sceptical, asking Japan how it intended to avoid double-counting of emission cuts under the JCM, and how it could guarantee the operation of the market would be independent from the government.

WTO

Recently, concerns have also been growing that the JCM may be in breach of a WTO agreement on subsidies and counterveiling measures.

The potential conflict with WTO rules was subject of a March meeting on Japan’s INDC, sources told Carbon Pulse, and depending on the government’s conclusion may impact whether or not it will aim to use JCM credits to meet its 2030 target.

At the moment, however, the government is adamant there is no conflict.

“The programme is not conditional on ‘export performance’. It is not conditional on ‘use of domestic over imported goods’,” said Yuji Mizuno, director for international negotiations at the MoE’s Office of Market Mechanisms.

“The items of expense to be covered under the programme is not restricted to or prioritised by use of domestic goods. It is not ‘specific to enterprise or industry or group of enterprises or industries’,” he added.

“The entities which are applicable to the programme are not limited to certain enterprises. There are some projects partly financed by the programme which utilise European technologies,” he told Carbon Pulse.

Meanwhile, two reports due to be released by expert panels this week will go a long way to finalising the overall target Japan will include in its INDC for the Paris talks in December.

According to local media reports, Japan is likely to set a target of cutting GHG emissions to 26% below 2013 levels.

By Stian Reklev – stian@carbon-pulse.com