Tokyo-energy efficiency cap-and-trade scheme

Location: Tokyo, Japan

Population: 14,043,239

Climate: Humid subtropical

Duration: 2010 – currently

Sector: Buildings

Funding sources: Public

City networks: C40

Savings: The scheme’s initial five-year phase avoided 14 million tons of carbon emissions.

Solutions: implementing an urban Cap-and-Trade Program in Tokyo requires reductions in carbon dioxide (CO2) from large commercial and industrial buildings.

Multiple benefits: Since the cap-and-trade mechanism was implemented, there has been a reduction in energy emissions and an increase in economic growth due to energy use.

In 2010, Tokyo became the first city in the world to implement a cap-and-trade plan for building energy efficiency, encompassing buildings that accounted for 20% of the city’s total emissions.

Objective – Increasing ambition through an energy efficiency cap-and-trade mechanism.

Solutions – In Tokyo, where buildings consume 70% of the city’s energy, large commercial and industrial buildings are subject to a city-level cap-and-trade program that requires annual emissions reductions.

The Tokyo Metropolitan Government’s (TMG) Cap-and-Trade Program, which began in April 2010, is Japan’s first mandated Emissions Trading Scheme (ETS) and is linked to the Saitama ETS (source).

The program includes 1,200 buildings that must satisfy their reduction targets either through on-site energy conservation measures or acquiring credits from high-performing buildings. Buildings that fail to fulfil targets face financial fines.

Moreover, buildings are responsible for their emissions accounting, which a third party must confirm before being reported publicly. A new mechanism has been established to incentivize buildings to source their heat and power from renewable sources, extending the program’s effect to the supply side.

Additionally, the system is implemented in five-year phases, with ambition increasing following the 2030 objective of a 30% reduction in total city emissions compared to 2000.

Funding –  The program assigns a higher or lower objective to participate entities based on anticipated energy efficiency increases and the extent to which they consume energy supplied by other facilities (source).

Innovation – To meet their required reductions, covered facilities may purchase excess reductions from other facilities, as well as four types of offset credits: emission reductions from small and midsize facilities in Tokyo, renewable energy credits, emission reductions outside the Tokyo area, and Saitama credits.

Facility owners who fail to satisfy their reduction responsibilities face a fine of up to 500,000 yen and publication of their violation (source).

Success factors: 1) Gradually raise ambition: Tokyo’s cap-and-trade system, with interim targets set in five-year phases that increase intensity over time, enables building managers to understand the long-term aim in manageable steps. 2) Consider the big picture: While Tokyo’s cap-and-trade system is primarily focused on energy efficiency, it also rewards renewable energy procurement, water conservation, and increased resilience to natural disasters. 3) Transparency means accountability: All 1,200 buildings covered by the initiative have their emissions data independently validated and made publicly available. This level of openness encourages Tokyo’s buildings to take their carbon reduction requirements seriously.

Significant outcomes:

• Buildings have already decreased their emissions by 27% (during the second compliance period – FY2015-FY2019) in comparison to the baseline;
• Tokyo has decoupled economic growth from energy use through increased investment in energy efficiency.

Synergies with local policies:

• Zero Emission Tokyo Strategy for helping the world achieve net-zero CO2 emissions by 2050. Measures to increase energy efficiency and renewable energy are included in one of the Strategy’s three perspectives;
• Tokyo Environmental Master Plan 2016 sets goals of 38% energy consumption reduction by 2030 (2000 baseline) and 30% GHG emissions reduction by 2030 (2000 baseline);
• Tokyo Climate Strategy sets 20% energy consumption reduction goals by 2020 (2000 baseline) and 25% GHG emission reduction by 2020 (2000 baseline).

Political alignment:

• Energy Conservation Act sets the foundation for industrial energy efficiency and energy management regulations;
• Strategic Energy Plan (2021) sees a continuous strong role for energy efficiency in helping Japan meet its fundamental objectives of energy policy;
• Long-term Energy Supply and Demand Outlook is based on the Strategic Energy Plan (2014) and presents the ideal energy supply and demand structure by 2030. Includes specific energy efficiency measures;
• Energy Efficiency Labelling Systemis the primary energy efficiency policy tool to increase the efficiency of electrical appliances in Japan.

Marketability: Yes, bearing in mind the importance of having a clear pathway to follow to get ambitious targets, together with increasing transparency and accountability.