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Targeting a 25% Greenhouse Gas Reduction:
Strategic Use of Emissions Quota Trading with Developing Countries

Ken-Ichi Akao
Professor, Faculty of Social Sciences, Waseda University

The pros and cons of Hatoyama's address

Japanese Prime Minister Yukio Hatoyama stated in his address delivered to the United Nations Climate Change Summit in September that Japan would reduce greenhouse gas emissions by 25% from the 1990 level by 2020 on the condition that the major emitters in the world establish a fair and effective international framework for greenhouse gas reduction. He also announced the Hatoyama Initiative proposing measures for assisting developing countries in their efforts against global warming.

This address was highly regarded by the participating countries as a strong message toward the COP15 meeting of the United Nations Framework Convention on Climate Change to be held in December, which is again expected to be a difficult negotiation. In Japan, on the other hand, the address has aroused concerns about feasibility and the economic burdens of its implementation.

In fact, the 25% reduction in domestic emissions in the next decade seems almost impossible from both economic and political points of view, considering the global warming measures Japan has taken and their results so far. Alhough Japan promised to reduce its emissions by 6% compared to the 1990 figure between 2008 and 2012 according to the Kyoto Protocol, Japan's net emissions volume after subtracting forest absorption actually increased by about 6%. Specifically, emissions from offices and households, accounting for approximately 30% of total emissions, increased by more than 40%, against which few effective countermeasures have been found.

How emissions quota trading be regarded?

In view of these circumstances, the bulk of the 25% reduction must be achieved through reduction efforts overseas, or emissions quota trading with other countries, unless some groundbreaking technological innovation is made.

There have been adamant warnings against the overuse of emissions quota trading, as it would discourage domestic reduction efforts, and the government has taken the stance that trading should only be done when it is absolutely necessary. I argue, however, that there is nothing wrong with trading as such, and that Japan can significantly contribute to global environmental conservation by proactive and strategic use of emissions quota trading.

Characteristics of global warming

In order to explain the potential effects of emissions quota trading, let me introduce some basic facts. First, major greenhouse gases have a very long life span, and as a result, reductions made in any location on earth have a uniform impact throughout the world. So in terms of global impact, we needn't be overly concerned that the reductions be made in Japan.

Second, global warming progresses very slowly, which means that long-term reduction efforts are more important than immediate ones. As a long-term reduction target, U.N. Secretary-General Ban Ki-Moon confirmed in the chairman's summary for the previous U.N. Climate Change Summit that leaders all around the world jointly recognized the scientific necessity of reduction by at least 50% from the 1990 level by 2050. This figure has been mentioned in various meetings as a safe level that will not result in dramatic global climate changes.

On the other hand, according to the future scenario created by the Intergovernmental Panel on Climate Change (IPCC), world emissions in 2050 will be 2.5 times the 1990 level if the current conditions remain unchanged, and more than 4 times by the end of this century if population growth in developing countries is not curbed. It is also predicted that 70 to 80% of such emissions will be from developing countries.

Emissions reduction and population control in developing countries are key

Figure: Relationship between Per-Capita National Income and the Population Growth Rate
Source: United Nations Development Programme (2009) Human Development Report 2009.

These figures indicate the severity of global warming issues and show that reduction of emissions and population control in developing countries are critical for solving them. The Hatoyama Initiative, proposing enhancement of support for developing countries, is in line with such global warming measures that must be implemented worldwide. In addition, linking it with the 25% reduction target, Japan can meet its commitment as well as contribute to international efforts against global warming through emissions quota trading and reduction of emissions in developing countries.

But how can the population be controlled? As shown in the figure, the population growth rate declines with economic development, by a mechanism that I will not go into in this article. Accordingly, the achievement of so called clean development-implementing environmental conservation along with economic development in developing countries-will be a crucial matter.

Economic development also helps solve other global environmental issues caused by poverty, such as forest depletion, desertification, and biodiversity loss. The potential threat of these issues is comparable with the threat of global warming, and the mechanisms which caused these issues to emerge are closely related to each other. It should be noted that global warming is not the only urgent environmental issue we are facing.

The importance of research and development investment

However, economic growth in developing countries will also increase greenhouse gas emissions. The dilemma between increasing negative impact on the environment and population growth must ultimately be resolved through technological innovation in the future. For that purpose, Japan and other developed countries need to contribute sufficient investment in research and development. Although the returns on this investment may be too late to meet the target of 25% reduction in the next decade, the investment is crucial in resolving global warming.

The root problem with global environmental conservation

The population issue is at the root of global environmental issues including global warming. U.N. World Population Prospects predict that the world population will reach as many as 9.2 billion in 2050. Surprisingly enough, the increase during that period, 2.5 billion, is virtually equal to the entire population of the world in 1950. Even if environmental burdens per capita were halved, the total burden would increase if the world population more than doubled. We need to limit the world population within a range that is sustainable with the limited resources of the earth. As reflected in the figure above, population stabilization will be peacefully attained-and likely can only be peacefully attained-by turning poor countries into prosperous ones. During this process, it is also absolutely vital that the increase in environmental burdens due to economic development in developing countries not damage the sustainability of the planet. In conclusion, developmental support for developing countries-through economic cooperation including emissions quota trading as well as investment in new environmental technologies by developed countries-is extremely important for protecting the global environment.

Ken-Ichi Akao / Professor, Faculty of Social Sciences, Waseda University

Professor Akao was born in Osaka in 1962. He graduated with an undergraduate degree from the Department of Forest and Biomaterials Science in the School of Agriculture at Kyoto University and received his PhD in Agriculture in the Division of Forest and Biomaterials Science at the Kyoto University Graduate School of Agriculture.
Professor Akao previously served on the Faculty of Agriculture at Kyoto University as Assistant Professor and at the School of Social Sciences at Waseda University as Associate Professor. Professor Akao specializes in Environmental Economics, and he is currently a Professor on the Faculty of Social Sciences at Waseda University as well as a part-time Lecturer on the Faculty of Agriculture at the University of Tokyo.

Major publications
Global Environment and Environmental Economics [Chikyu Kankyo to Kankyo Keizaigaku], Seibundo, 1997.

Recent Articles
Tax schemes in a class of differential games, Economic Theory 35,
155-174, 2008
Feasibility and optimality of sustainable growth under materials balance,
Journal of Economic Dynamics & Control 31,3778-3790, 2007 2007 (co-authored with Shunsuke Managi)

Recent translations
- Geoffrey Heal, Nature and the Marketplace: Capturing the Value of Ecosystem Services, Island Press, 2000 (translated into Hajimete no Kankyo Keizaigaku, Toyo Keizai, 2005, co-translated with Eiji Hosoda and Ayumi Onuma)