History of the Environmental Trading System in the Tokyo Bay Watershed - Trajectory and Future of Pollution Load Reduction

History of the Environmental Trading System in the Tokyo Bay Watershed - Trajectory and Future of Pollution Load Reduction
December 2003 - 2020s

1. 2003: Tokyo Bay Watershed Emissions Trading Scheme
In 2003, Japan's Ministry of Land, Infrastructure, Transport and Tourism (MLIT) considered the introduction of a quota trading system for advanced sewage treatment in order to improve water quality in the Tokyo Bay watershed. The aim of this system was to reduce water pollution by setting an upper limit on the pollution load of each sewage treatment plant and making the quotas tradable on the market.

In 2002, the Japan Sewage Works Association established a "Committee to Study the Emissions Cap Trading System for Sewerage Projects" and conducted simulations for the Tokyo Bay watershed area. The interim report published in March 2003 estimated that the introduction of emissions cap trading could reduce costs by up to 10 percent compared to the ongoing plan. In response, a decision was made to conduct a further case study, this time for Ise Bay.

Meanwhile, attention was also focused on international environmental trading schemes. For example, in the United Kingdom, it was decided that a trading system for waste landfill permits would begin in 2004, and a mechanism would be introduced to allow the trading of landfill permit slots between municipalities. This was a measure aimed at reducing the amount of landfill waste, which had been increasing even after the introduction of the landfill tax system in 1996, and was part of an environmental measure that utilized market mechanisms, similar to Japan's attempts at sewerage projects.

Discussions continued on the introduction of an emissions allowance trading system for the Tokyo Bay watershed because of its significant economic benefits, although a quantitative understanding of the expected benefits was considered a future issue.

2. developments in the 2020s: carbon pricing and renewable energy
Almost 20 years later, the direction of environmental policy in Japan in the 2020s has changed dramatically. Emissions cap-and-trade schemes were implemented more broadly, in conjunction with climate change measures.

In October 2023, the Japanese government officially launched the carbon credit market on the Tokyo Stock Exchange, introducing a mechanism to encourage business and industry to reduce greenhouse gas emissions. In addition, a carbon tax is scheduled to be introduced in 2028, and policies are underway to increase incentives for emission reductions. This is a form of the idea of reducing environmental burdens through a market mechanism that the 2003 Tokyo Bay watershed experiment had, but which has matured into a larger framework.

Japan's energy policy is also at a turning point. The government has announced a plan to provide 40 to 50 percent of its electricity supply from renewable energy sources by 2040 and to increase the share of nuclear power generation to 20 percent. Nuclear power, which had been curtailed after the Fukushima Daiichi nuclear accident, is being reevaluated in the context of carbon neutrality policies. At the same time, the introduction of region-specific renewable energies is being promoted, and linkage with regional development is being sought.

3. Summary: Evolution and Future of Environmental Trading Systems
The emissions trading system that was first considered in the Tokyo Bay watershed in 2003 was an attempt to balance the reduction of environmental burdens with economic rationality. At the time, the system was aimed at improving water quality, but by the 2020s it was linked to climate change countermeasures and energy policy, and has evolved into a carbon credit market and promotion of renewable energy.

Today, Japan's greenhouse gas reduction targets are ambitious: 60 percent below 2013 levels by 2035 and 73 percent by 2040. The use of market mechanisms, which began in the Tokyo Bay watershed, has become one of the pillars of environmental policy and continues to evolve in step with international efforts.

The key to environmental policy is to strike a balance between economics, technology, and social consensus. A future in which a system that was created to improve the water quality of Tokyo Bay will help to achieve carbon neutrality for the entire planet is now taking shape.