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News Release

The Likelihood that the Kyoto Protocol Reduction Targets
Can be Achieved and Directions for Medium-term Targets

March 8, 2010

Overview

In fiscal 2008, Japan's greenhouse gas emissions recorded their largest ever fall, of 6.2% year-on-year. Much of this can be ascribed to the sharp economic downturn since the Lehman Shock but, at the same time, the fact that efforts to save energy and reduce CO2 emissions are gradually taking effect should not be overlooked. Since 2004, the fuel combustion-derived CO2 emissions factor has been falling by 2.3% per year, the next fastest decline since the 3.5% per year recorded during the oil crises.

The fall in the emissions factor is due to (i) structural changes in manufacturing industry, (ii) energy savings, modal shifts and shorter journeys in the passenger transportation sector and (iii) energy savings in the distribution sector. Although the household and business sectors have been making headway on energy savings, a rise in the ratio of electric power obtained from thermal power stations means that their efforts have not succeeded in curbing overall CO2 emissions.

In fiscal 2007, during which emissions reached a historic high, there were fears that the targets set in the Kyoto Protocol would never be met. Ironically, owing in part to the economic downturn since 2008, there is now hope that they will be: it is now thought that average emissions for the period 2008-2012 can be kept to the 1990 base year level. It should also be possible to cover the gap between current and target levels if the decline of 2.3% per year in the emissions factor achieved since fiscal 2004 can be maintained, among other factors.

However, even if real economic growth continues at 1.3%, meeting the Democratic Party's medium-term target of cutting emissions by 25% on 1990 levels by 2020 (15% in real terms) will require a steady decline in the emissions factor of 2.7% per year, and this will necessitate still great efforts. Moreover, if the target growth rate of 2.0% set in the Democratic Party's growth strategy is achieved, Japan will need to steel itself for an impact equivalent to that felt during the oil crises.

To achieve both a 25% cut in emissions relative to 1990 by 2020 and an economic growth rate of 2%, Japan will need to promote the use of natural energy, an area in which initiatives are making progress. It should also place still greater emphasis on the following:
(i) Pursuing a strategy for growth under CO2 restrictions, centering on industries with high added value and a CO2 emissions factor
(ii) Using the CDM, whose procurement costs are expected to rise in the medium-to-long term and which is only a means of buying emissions allowances in order to meet short-term targets, purely in a "supplementary" role
(iii) Using deregulation to encourage a modal shift away from road transportation in the distribution sector, in which area progress has been slower than expected
(iv) Moving towards a supply and demand structure that, although centering on electric power, would be balanced with town gas and LPG. (It would be difficult to build new nuclear power stations and over-reliance on electric power, whose cost per unit of CO2 emissions is low, would tend to push up CO2 emissions.)

If Japan is to achieve what are the world's highest reduction targets, the government's various economic and fiscal policies must be linked to impact on CO2 emissions. However, with the Democratic Party still discussing growth strategy and medium-term targets for cutting greenhouse gases separately, among other factors, a firm direction has yet to be decided.
Measures to prevent global warming that rely on subsidies are a heavy burden on public finances and will be hard to sustain. In view of the long-term target of cutting emissions by 80% by 2050, in accordance with the "Japan-US Joint Message on Climate Change Negotiations", a more sustainable policy based on carbon taxes, deregulation, etc. is required.

Japan's growth strategy can no longer disregard CO2 restrictions; it must be designed to achieve both growth and emissions reductions. It must also touch on the structure of industry and be explicit as to what kind of industry Japan will rely on in the future. For sustained growth, there must be a shift towards industries with a lower emissions factor and higher productivity and the wealth created by these industries must lead to an expansion of domestic demand.

For more information on the content of this report, please contact Takumi Fujinami, the Japan Research Institute, Limited.

Tel: 03-3288-5331

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