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Launched in 2010, the Tokyo Emission Trading System (TETS) started as the first local emission trading scheme worldwide and the first mandatory scheme in Asia. Moreover, it has become widely recognised as it is the first ETS scheme that targets mainly service sector buildings, and not only power sector and other industrial facilities like most emission trading schemes (e.g. the EU ETS) do. This is partly because 90% of Tokyo’s electricity is generated outside of TMG jurisdiction. The TETS has established compliance targets for 1,400 facilities, covering 20% of Tokyo’s CO2 emissions. The system is straightforward and transparent and is considered to benefit from the management capacities of the public and private sector (World Bank 2010, p. 4-1). An evaluation by TMG’s Bureau of Environment (BoE 2012) shows that facilities already saved 23% against the base-year already in the first two years of TETS’ implementation. However, most of these savings are rather a result of the Fukushima nuclear accident and the consequent attempts to reduce electricity consumption.
The Tokyo Emission Trading System (TETS), launched in 2010 and designed by the Tokyo Metropolitan Government (TMG), aims at reducing CO2 emissions through mandatory emission caps for large commercial and industrial facilities with an energy consumption above 1,500 kiloliters (kl) of oil equivalent per year.
In Tokyo, CO2 emissions amount to 59 million tons of CO2, 47% of which is emitted by the commercial and industrial sector consisting of over 700,000 facilities. Large facilities, albeit only a tiny share of 0.2% of all facilities, contribute 40% of all emissions of industrial and commercial sector.
Commercial facilities, also including buildings of the health and education sector, must reduce emissions by 8% within compliance period I (2010-2014) against the base-year, while industrial facilities have a 6% target for that period. For compliance period II (2015-2019) both will (presumably) have to reduce emissions by 17% against the base-year. Thus, emission targets are set individually for each building and calculated by the grandfathering method.
However, an evaluation by TMG’s Bureau of Environment (BoE 2012) shows that facilities saved 23% against the base-year already in the first two years of TETS’ implementation.
On the one hand, a survey found that 50% of facilities or offices targeted by TETS consider local policies like the TETS a “very important” motive to initiate CO2 savings; 46% of respondents consider TETS to be “moderately important” (n=95) (Arimura et al. 2012, p. 43). However, most of these savings are rather a result of the Fukushima nuclear accident, which led to power outages in Tokyo forcing the private sector to implement energy saving measures.
While on the national level, a building code for commercial buildings and the extension of the Top-Runner programme, which since 2013 also includes some building technologies, promote Japan’s building energy efficiency efforts, TMG has set overall emission reduction targets showing TMG’s commitment to fight global warming and functioning as an investment framework for the business sector.
The trading of emission allowances is only possible, if buildings overachieve their target. This safeguards that facilities keep in sight their individual target before becoming active in trading. Allowances, priced at around USD 140, are available in four forms (TMG 2012a, p. 33):
Annually, facilities have to report their energy consumption to TMG. Before data is submitted to the government, facilities must gain approval from TMG-registered auditors, which also verify base-year-emissions. If facilities do not reach their emission reduction target at the end of the compliance period, facilities can be penalised.
A high allowance price of around USD 140 is a high incentive for stakeholder to carry out building- (and also appliance-)related energy efficiency investments or conduct behavioural measures.
Emission trading systems have been implemented in the European Union (EU), New Zealand and Switzerland. The Kazakhstani ETS is the first nationwide ETS in Asia. A test phase was run in 2013 (EDF & IETA 2013b). Moreover, in regions such as California (USA) or Quebec (Canada), regional ETS have been implemented (The Climate Group 2013).
TETS is unique because of, at least, three aspects: First, it is a local measure. Secondly, it is regarded as an “indirect ETS” because 90% of electricity is produced outside the TMG area. Thus, “physical CO2 reduction is not achieved within ETS-area” (Niederhafner 2013, p. 8). And most importantly, TETS targets buildings and not like all other active ET systems industrial installations (BoE 2010, p. 4). In 2013, however, China has also launched local emission trading schemes in seven cities. All of these ETS use the year 2010 as a baseline and are, thus, less ambitious than TETS. For more information, the Environomist (2014) gives a comprehensive overview comparing the seven Chinese systems and benchmarking them against the EU ETS.
The next figure, gives a general overview of emission trading targets and timetables in various entities (Source: EDF & IETA 2013c):
|EU||2005-2020||20% below 1990 levels by 2020||11,500 installations|
40% of total emissions
|Alberta||2007-Present||Annual intensity reduction of 12% below baseline||All industrial facilities|
|New Zealand||2008-2020||10-20% below 1990 levels by 2020||Forestry (2008). Energy fuels and industrial (2010). Waste and synthetic GHGs (2013)|
|RGGI||2009-2018||10% below 2014 levels by 2018||Power sector|
|India||PAT Scheme: 2012-2015||20-25% intensity reduction below 2005 levels by 2020||Power, thermal, iron and steel, fertilizers, textiles, aluminium, pulp and paper, chlor-alkali|
|California||2013-2020||Reach 1990 levels by 2020||Energy, industrial sources (2013). Oil and gas (2015). Reaches 85% of total emissions|
|Québec||2013-2020||20% below 1990 levels by 2020||Energy, industrial sources (2013). Oil and gas (2015). Reaches 85% of total emissions|
|Australia||2013-2020||5% below 2000 levels by 2020||Energy, industrial process, commercial transport. 60% of total emissions|
(National from 2015)
|Intensity reduction of 40-45% by 2020||Differs between pilots; National coverage unclear|
|Kazakhstan||2013-2020||7% below 1990 levels by 2020||Oil and gas; Power; Mining and metals; Chemicals; others being considered|
|Switzerland||2013-2020||20% below 1990 levels by 2020 (Higher targets conditional)||950 companies across multiple sectors|
|Tokyo||2013-2019||25% below 2000 levels by 2020||1,400 facilities, 20% of total emissions|
|Korea||2015-2026||30% below BAU by 2020||490 emitters, 60% of total emissions|
In 1990, the level of CO2 emissions in Tokyo was at 53 MtCO2 experiencing a 15%-increase by 2005 (BoE 2010). Since then, Tokyo has succeeded in lowering emissions to 56 MtCO2, of which 95% (or 53,2 MtCO2) are energy-related (Miyazawa 2010; Rudolph & Kawakatsu 2012a; 2012b). Economic activities are responsible for more than 25 MtCO2 of energy-related CO2-emissions, of which 80% and 20% result from the commercial and industrial sector, respectively.
Particularly, large facilities of these sectors emit around 40% of sectoral C02-emissions and 20% of Tokyo’s overall C02 emissions (Rudolph & Kawakatsu 2012a; EDF & IETA 2013). Therefore, these large facilities have been chosen to fall under the scope of TETS.
In 2000, the Tokyo Metropolitan Government (TMG) announced the “Tokyo Metropolitan Environmental Security Ordinance” which led to the establishment of the “Tokyo Carbon Reduction Reporting Program”. While facilities had to report emissions as well as submit emission reduction plan, TMG offered advice to facilities. From 2005 onwards, on-site visits by TMG as well as a rating scheme for facilities were included in the programme. The ratings scaled from C (TMG proposals not implemented) to A (TMG proposals for basic measures implemented) and TMG even awarded A+ and AA grades for reduction targets of more than 2% or more than 5%, respectively. Grades were made public, a process which is considered to have resulted in an increase of A-ratings from 48% to 98% (Rudolph & Kawakatsu 2012b). In 2007, discussion about a mandatory ETS for Tokyo-based large facilities started.
In Tokyo, a cross-sectoral 25% CO2 reduction target is envisaged by 2020 against the 2000 baseline. The industrial and commercial sectors are to reduce emissions by 17% or from 25.7 MtCO2 in 2000 to 21.5 MtCO2 in 2020, while the residential and transport sector have to reduce emissions by 19% and 42% (BoE 2010, p. 14).
For the compliance period I (2010-2014) mandatory compliance targets of 6% and 8% have been set for the industrial and commercial sector, respectively. From 2015 to 2019, both sectors must presumably achieve a 17% reduction. Before an individual company can trade allowances, it must first overachieve its respective target of phase one (EDF & IETA 2013, p. 3).
It is a local policy. Admittedly, though, population size (> 36 million in the greater metropolitan area) and economic power (EUR 1.1 trillion, Brooking Institution 2012) of the metropolitan area of Tokyo are higher than those of many countries.
Energy-efficient building options and measures are considered to be “the best way” (Miyazawa 2010) to reduce energy-related GHG emissions. Switching to more efficient light bulbs but also reducing lighting to sufficient levels has become a very popular option to reduce energy consumption: “Around 750 lux was the most common illumination level before the earthquake, but 50% of facilities reduced it to around 500 lux in 2011” (BoE 2012).
Behaviour and Management
Energy-efficient appliances (e.g. office equipment) can contribute to energy savings, as well.
Emission trading schemes intend to rationalise the use of energy and thus create demand for more energy-efficient technologies and/or building designs, and incentivise optimisation of user behaviour as well as building energy management.
The TMG has not introduced any specific energy efficiency requirements. The decision on how to achieve the required GHG emission reductions is up to facility owners.
The TETS covers large commercial and industrial facilities consuming more than 1,500 kl of crude oil equivalent annually.
The following actors may benefit indirectly due to an increased demand for energy-efficient technologies and services.
Tokyo has announced an overall GHG savings target of 25% and 50% in 2020 and 2050, respectively, showing the commitment of local government to act against climate change.
On the national level, the Criteria for Clients on the Rationalization of Energy-Use in Buildings (CCREUB) is Japan’s energy code for commercial buildings. It combines prescriptive and performance-based elements with regard to heat loss through the building envelope, HVAC, mechanical ventilation, etc (Pacific Northwest National Laboratory 2009, p. 8). Moreover, the Top-Runner programme, formally applicable for energy-consuming equipment and machinery, has been amended to also include building technologies that lower energy use such as windows and insulation (Ministry of Economy, Trade and Industry 2013). The Top-Runner programme aims at dynamically achieving more energy-efficient product standards and, thus, will be beneficial to the TETS.
In order to extend the scope of energy savings in the buildings sector, the TMG has also introduced measures for new buildings. If new buildings consume 1,500 kl of crude oil equivalent or more, they will be integrated into the TETS.
The policy includes several innovative elements and is part of an innovative package.
The most innovative features of the TETS are a) that it is a local scheme and b) that it focuses on building-related energy consumption. As mentioned above, the majority of emission trading schemes focus on large industrial installations, which are outside of the jurisdiction of the TMG.
A Top-30 list of energy-efficient TETS-targeted facilities is published in the booklet “Low Emission Buildings Top 30 in Tokyo”, which is good publicity to the building user (TMG 2011).
While large facilities with an energy consumption of 1,500 kl crude oil equivalent annually are required to a) submit CO2 reduction reports and b) decrease energy-related CO2 emissions, authorities in Tokyo also introduced the CO2 Reduction Reporting Program for small and medium-sized facilities (SMFs), of which there are 700,000. Under the umbrella of this programme, CO2 emissions of smaller facilities with an energy consumption of less than 1,500 kl crude oil equivalent per year are targeted.
For companies with several SMFs consuming in total more than 3,000 kl of crude oil equivalent per year, the submission of annual CO2 emission reports and plans for reductions is mandatory (Nishida 2013, p. 18). However, energy savings are voluntary. As both of these plans are disclosed on TMG’s website, there is an incentive for energy efficiency in order to show to the public the company’s goodwill.
For other companies (consisting of one or more SMFs, which consume in total less than 3,000 kl of oil equivalent per year) both, CO2 reporting and emissions reductions are voluntary.
With the help of the CO2 Reduction Reporting Program, TMG wants to support smaller facilities in understanding their energy consumption and methods for CO2 emission reductions (World Bank 2010, p. 2-5).
In addition to that, there are four possible types of carbon credits:
- Excess credits are bought from other large companies.
- Small and medium sized facilities (SMFs) emit SMF credits. SMFs can participate in the TETS, but monitoring, reporting and verification procedures are simplified.
- Renewable energy credits are offset credits generated from renewable energy measures
- Outside Tokyo credits are only from large facilities outside the TMG area
- TETS also cooperates with the Saitama Prefecture, located north of Tokyo. Tokyo-based facilities can trade some credits with this area.
Moreover, the compliance phase for reaching individual company targets is not one but five years. Although an annual review takes place, penalties become effective only after the end of 2014. This gives facility owners more time to implement comprehensive energy efficiency measures.
TMG plays an active role in supporting facilities in reducing CO2 emissions. For example, TMG recommends several energy-saving measures, such as energy-saving measure staff meetings, inclusion of energy consumption figures in the invoice and other awareness raising measures for employees (TMG 2012a, p. 56).
Verification of annual emission reductions is mandatory and auditors need to be licensed by the TMG. Besides fulfilling various requirements, auditors must also participate in a TMG training course (TMG 2012a, p. 52).
It seems advisable that:
(1) Caps should become more ambitious. Most of the facilities have already after the first year (over)achieved their targets for the complete first compliance period .
(2) Instead of “grandfathering” (allocating emission permits free of charge based on past emissions), facilities should pay for allowances from the start in order to cover the social and environmental costs of their emissions.
(3) The TETS should be mandatorily extended to more small and medium sized facilities to increase the scope of CO2 emission reductions.
(4) The authorities in charge of the TETS should evaluate economic costs and benefits, as well as other benefits of the scheme.
With regard to optimising the policy package, additional soft loans may help incentivise energy-efficient investments.
The following pre-conditions were necessary to implement TETS:
Agencies or other actors responsible for implementation
TMG’s Bureau of the Environment (BoE) is in the driver’s seat when it comes to planning and administrating environment-related issues in Tokyo. It closely co-operates with other departments as well.
Some basic funding is needed for the administration of the scheme (allocating allowances, monitoring compliance, reporting, publicising results/TOP 30 list, training and accrediting auditors, etc).
The individual amount of allowances allocated to facilities depends a) on previous CO2-emissions (or the “base year emissions”) and b) on the sector of the facility, determining its compliance factor, which is the share of emission reductions compared to base year emissions. In order to calculate the amount of allowances the grandfathering method is used:
(Base Year Emissions) * (Compliance Factor 6% or 8%) * 5 (years) = Allowances (tCO2)
Companies can estimate their base year emissions by calculating the average of CO2-emissions of any three consecutive years between 2002 and 2007 (EDF & IETA 2013, p. 8).
For example, company A with base year emissions of 20,000 tCO2 and a compliance factor of 8% received in 2010 allowances for 92,000 tCO2 for the compliance period 2010 to 2014 based on the previous equation:
20,000 tC02 * (1-8%) * 5 years = 92,000 tCO2
This, in turn, means, that company A, which would normally emit 100,000 tCO2 within five years, has to reduce CO2-emissions by 8,000 tCO2 during the five compliance period or annually by 1,600 tCO2 (World Bank 2010, p.2-7).
The management capacity of both, the public and the private sector are very high, which resulted in a neatly planned ETS design and implementation. TMG was also receptive to business concerns (World Bank 2010, p. 4-1).
Furthermore, TMG was able to show to other stakeholders evidence-based energy efficiency gains as well as opportunities for improvement in Tokyo-based facilities. This was possible because large businesses had been obliged to report energy consumption data under the CO2 Emission Reduction Program, introduced in 2000 (World Bank 2010, p. 4-2).
From a more practical perspective, it proved useful that electricity meters were installed in all targeted buildings, simplifying emission calculations “by multiplying the monthly electricity consumption on the bill received by a crude oil CO2 emissions factor to arrive at a final number for reporting” (World Bank 2010, p. 2-3).
The establishment of the ETS in Tokyo was a gradual process, in which stakeholder involvement and consultations played a key role. The Keidanrein, the biggest business lobby group in Japan, voiced objections against the ETS, particularly regarding ETS’ financial burden, which would put Tokyo-based businesses in an uncompetitive situation.
Stakeholders including representatives from TMG, from the public sector (e.g. education and health) and the business world as well as building owners met three times between July 2007 and January 2008. Based on the outcomes of these meetings, TMG designed a conceptually straightforward, transparent scheme, which is easy to implement and flexible from an operational point of view. One further issue of concern was, whether to establish a voluntary or mandatory cap. Again, stakeholder consultation proved useful in order to overcome objections (World Bank 2010, p. 2-3).
The policy has various quantified targets. The overall target is a 25% and 50% GHG reduction by 2025 and 2050, respectively, based on 2000-levels (Rudolph & Kawakatsu 2012b). Within the first compliance period (2010-2014) targeted facilities must reduce emissions by 6% or 8%. After the second compliance period (2015-2019) all targeted facilities must (presumably) achieve 17% GHG emission reductions.
While Tokyo is member of various international initiatives (C40 Cities, ICLEI, ANMC21), it is unlikely that TETS will be linked with other emission trading systems. First, TETS focuses on buildings. Second, allowances prices of other systems are too low.
However, several large cities are interested in “replicating” TETS such as Sydney, Singapore, Bangkok, and Taiwanese cities. Tokyo supports these initiatives (EDF & IETA 2013, p. 3; Kaneko 2014).
Bureau of Environment (TMG department)
Each November, annual energy consumption data must be submitted to the TMG (World Bank 2010, p. 2-9; Niederhafner 2013, p. 8). However, an auditor must verify submitted data beforehand. For example, emission auditors, 30 of which are registered with the TMG, must check annual GHG emissions and reduction achievements compared to the base-year (World Bank 2010, p. 2-7; Niederhafner 2013, p. 9). Registration with TMG is mandatory for auditors (TMG 2012, p. 4).
In a press release announced in 2013, TMG published accomplishments briefly in the English language (TMG 2013). Note that, due to TETS’ focus, GHG emission reductions are not (re-) translated into energy savings.
We are not aware of any efforts to evaluate the economic costs and benefits, as well as other benefits of the scheme.
Design for sustainability aspects
The TETS primarily aims at reducing GHG emissions. This also improves the living standards due to pollution reductions.
Depending on which measures are implemented to achieve the required emission reductions, there may be different co-benefits such as e.g. health or productivity benefits due to improved indoor climate or lighting.
The following barriers have been experienced during the implementation of the policy
When the idea emerged to establish a local emission trading system in 2000 for the first time, business players lobbied against mandatory implementation.
The following measures have been undertaken to overcome the barriers
The BOE started a voluntary reporting and GHG emissions reductions programme, the “Tokyo CO2 Emission Reduction Programme”. Although results of this programme were hardly satisfying, it proved useful for BOE in engaging with business stakeholders: “BOE staff obtained information concerning private sector ways of thinking and decision making, institutional makeup, rules, and constraints” (World Bank 2010, p. 2-1). In the following, TMG established a simple reporting and (dis-)incentive system (World Bank 2010, p. 4-1; Miyazawa 2010).
The TETS focuses on GHG emission reductions for large facilities.
Between 2010 and 2014, commercial and industrial facilities are to save 8% and 6% of their base-year emissions. For compliance period II (2015-2019), a 17% emission reduction is envisaged.
According to TMG (2013) and as shown in the next figure, GHG emissions by targeted facilities were reduced by 13% and 23% in 2010 and 2011, respectively, compared to the base-year. This translated into 2.16 million tCO2 reduction in the second year of TETS’ implementation.
In 2010, sectoral GHG reductions were as follows:
|Usage of Facilities||Number of Covered Facilities||Base Year Emissions (t CO2)||Emissions in FY 2010||Emission Reduction Rate (%)||Reference: Average Base Year Emissions per Facility (t CO2)|
|Information Communication Center||32||375,389||373,260||1%|
|Waterworks / Sewerage||39||481,658||455,639||5%||12,350|
Source: Tokyo Metropolitan Government 2012
Niederhafner (2013, p. 7) argues that these energy-related emission reductions are “due to […] external factors driving down energy consumption.” First, it is likely that the effects of the global economic crisis of 2008 have lowered demand for high-tech products of the export-oriented Japanese economy, which is why the “factory sector” performed that well (22% emission reductions). “In contrast, the reductions were not as high in sectors that show genereally greater resilience to exogenous economic shocks” (Niederhafner 2013, p. 10). Second, the meltdown of the Fukushima Daiichi nuclear power plant has resulted in a) power outages and, in consequence, led to b) energy saving measures at the national and sub-national level from 2011 onwards (Niederhafner 2013, p. 10).
In 2010, 64% of targeted facilities already overachieved their obligations of 6% or 8% reductions for the end of 2014. For 2011, this figure increased to 93%. 70% of all facilities even overachieved the 2020-target.
However, as Niederhafner (2013, p. 12) notes, both figures are based only on reports submitted, which were 86% and 69% in 2010 and 2011, respectively. Therefore, for 2011 in particular, figures are likely to be corrected.
For compliance period I (2010-2014), emission reduction targets were set at 6% and 8% compared to the base-year. Already in 2011, a 23% reduction was achieved, which is more than the 17% demanded for the second compliance period (2015-2019).
As shown above, however, there is good reason to assume that savings are driven by external factors.
No information on the costs to the targeted facilities nor the administrative authority is available to us. There does not seem to be an evaluation of costs and benefits.
No information on the benefits to the targeted facilities nor to society is available to us. There does not seem to be an evaluation of costs and benefits.
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