Tokyo's Emissions Trading System : A Case Study

Abstract

The Tokyo Metropolitan Government (TMG) has developed the world's first cap and trade program at the city level targeting energy-related CO2. Called the Emissions Trading System (ETS), the program took effect in April 2010 and covers 1,340 large facilities including industrial factories, public buildings, educational institutions and commercial buildings. Targeting the city level for the reduction of Greenhouse Gas (GHG) emissions is of vital importance for climate change mitigation goals. Although there are several ETSs targeting GHGs around the world, none have operated at the city level until Tokyo's. City-based ETS systems have been largely aimed at enhancing local air quality by targeting local pollutants that may also happen to be GHGs. There are three particularly relevant cases of ETSs covering local pollutants at the city level. Tokyo's ETS is unique because it is the only one targeting GHGs, with the primary objective of mitigating climate change. Emissions trading are a market-based approach for addressing air pollution problems. If designed and implemented well, emissions trading systems can be economically efficient, providing incentives for participants to reduce their emissions of specified pollutants. An ETS, when functioning well, results in overall emissions remaining within the cap, while individual participants have the flexibility of a market-based mechanism within which to operate.