Japan - Saitama Target Setting Emissions Trading System

1 | 5 Last Update: 9 August 2021 International Carbon Action Partnership ETS Detailed Information Japan - Saitama Target Setting Emissions Trading System General Information Summary Status: ETS in force Jurisdictions: Saitama Saitama Prefecture’s ETS was established in April 2011 as part of the ‘Saitama Prefecture Global Warming Strategy Promotion Ordinance.’ Large buildings and factories in Saitama Prefecture covered under the program are required to reduce emissions below a facility- specific baseline. They are assigned a higher or lower target, depending on factors such as expected energy efficiency gains and the extent to which they consume energy supplied by other facilities. Saitama’s ETS is linked to Tokyo’s Cap and Trade Program. Year in Review In fiscal year 2018, the Saitama ETS achieved a 29% reduction in emissions below base- year emissions. In April 2020, the Saitama ETS entered its third compliance period (FY2020-2024), which requires facilities to reduce emissions by 20% or 22% below baseline emissions, depending on their category. The ‘Zero Carbon Saitama’ initiative was announced in 2018 and includes cooperation with the Tokyo 2020 Organizing Committee to fully offset the GHG emissions from the (postponed) Tokyo 2020 Olympic and Paralympic Games. As part of this initiative, companies may donate excess credits from the ETS. Companies that do not possess credits but still wish to make donations may purchase credits from larger facilities within the ETS. Credit donations to the program closed in September 2020. Overall GHG emissions (excluding LULUCF) Emissions: 37.2* MtC02e (2017) * The overall emissions figure for Saitama is higher than the total of the emissions by sector because the former includes all GHGs in Saitama, whereas the emissions by sector only measures CO2 emissions. Overall GHG emissions by sector (in MtCO2) Sector Name MtCO2e Industrial Processes (11.2) 11.2 Residential (9.1) 9.1 Transport (9.4) 9.4 Commercial (4.8) 4.8 GHG reduction target BY 2030: 26% reduction from 2013 levels (Saitama Prefecture Global Warming Countermeasures Action Plan Second Phase) Carbon Price Current Allowance Price (per t/CO2e): No information available yet. International Carbon Action Partnership 2 | 5 ETS Detailed Information Last Update: 9 August 2021 ETS Size Covered emissions 0.20 GHGs covered CO2 Sectors and thresholds Consumption of fuels, heat, and electricity in commercial and industrial buildings INCLUSION THRESHOLDS: Facilities that consume the energy equivalent of at least 1,500kL of crude oil for three consecutive years. Point of regulation Downstream Number of entities ~608 facilities (first compliance period): • Office/commercial buildings: ~180 • Factories: ~428 Cap The cap is aggregated from the bottom up, based on facility-level “baselines” which are calculated using base-year emissions and a compliance factor (see “Allocation” section). The bottom-up cap for the first compliance period (FY2011-FY2014) was 33.3 MtCO2. Phases & Allocation Trading periods FIRST TRADING PERIOD: 1 April 2012 to 30 September 2016 SECOND TRADING PERIOD: 1 April 2015 to 30 September 2021 THIRD TRADING PERIOD: 1 April 2020 to 30 September 2026 The Saitama ETS has both trading periods and compliance periods (see “Compliance” section). The trading period is defined as the compliance period plus an additional 18- month adjustment period, during which time entities may continue to trade credits in order to reach their targets for the corresponding compliance period. Allocation Under the Saitama ETS, each facility has its own cap, which serves as the “baseline” from which it must achieve its reduction target. Baselines for facilities are set according to the following formula: Base-year emissions x (1 - compliance factor) x compliance period (5 years). The compliance factor for each period is determined based on regulations established by the Governor of Saitama Prefecture. Base-year emissions are the average emissions of any three consecutive years between FY2002 and FY2007, as chosen by each entity. Credits are issued to facilities whose emissions fall below the baseline. Baselines for new entrants are based on past emissions (the average of any three consecutive years of emissions from four years prior to the start of the compliance period up until the year before the start of the compliance period) or on emissions intensity standards. COMPLIANCE FACTOR: First period (FY2011-FY2014): 8% or 6% reduction below base-year emissions Second period (FY2015-FY2019): 15% or 13% reduction below base-year emissions Third period (FY2020-FY2024): 22% or 20% reduction below base-year emissions The higher compliance factor applies to commercial buildings, as well as to district heating and cooling (DHC) plant facilities. The lower compliance factor applies to other facilities, such as commercial buildings that use DHC for more than 20% of the entire energy consumption, and factories. In the third compliance period, for large facilities owned by small and medium-sized enterprises, the compliance factor is reduced to three quarters of the 22% or 20%, International Carbon Action Partnership 3 | 5 ETS Detailed Information Last Update: 9 August 2021 depending on category. Similarly, in medical facilities where electricity is vital to preserve life and health, the compliance factor is two percentage points lower than the 22% or 20% category. EMISSIONS REDUCTION METHODS: • Renewable energy: When covered facilities generate electricity from renewable sources for their own use, they can deduct this amount of electricity from the total energy usage of the facility to be reported. • Low carbon electricity: In order to evaluate energy efficiency efforts of the covered facilities, CO2 emissions factors of electricity suppliers are fixed during each compliance period. When covered facilities procure electricity from suppliers with lower emissions factors, they can reduce the difference between these emission factors from their emissions to be reported to Saitama Prefecture from the third compliance period. Facilities demonstrating outstanding performance in emissions reduction, as well as in the introduction, use, and management of energy equipment, are certified as top-level facilities that receive lower compliance factors according to their rate of progress, for a period of five years. The certification standards represent the highest-level energy-efficiency measures currently feasible, stipulating more than 200 different energy-saving measures. Flexibility Banking and borrowing Banking is only allowed between two consecutive compliance periods. Borrowing is not allowed. Offsets and credits Credits from five offset types are allowed in the Saitama ETS. SMALL AND MID-SIZE FACILITY CREDITS: Emissions reductions from non-covered small and medium-sized facilities in Saitama Prefecture. Quantitative limits: None. OUTSIDE SAITAMA CREDITS: Emission reductions achieved from large facilities outside of Saitama Prefecture. Large facilities are those with an energy consumption of 1,500kL of crude oil equivalent or more in a base year, and with base-year emissions of 150,000t or less. Quantitative Limits: Credits are issued only for the reduction amount that exceeds the compliance factor. These credits can be used for compliance for up to one-third of offices’ reduction obligations. Factories can use up to 50%. RENEWABLE ENERGY CREDITS: Renewable energy credits generated under the Saitama ETS encompass the following types: Environmental Value Equivalent, Renewable Energy Certificates, and New Energy Electricity, generated under the Renewable Portfolio Standard Law. Credits from solar (heat, electricity), wind, geothermal, or hydro (under 1,000kW) electricity production for use under the Saitama ETS were converted to 1.5 times the value of regular credits until the end of the second compliance period. From the third compliance period, they are converted on a 1 to 1 basis. Credits from biomass (biomass rate of 95% or more, black liquor is excluded) are also converted with factor 1. Quantitative limits: None. TOKYO CREDITS (VIA LINK): • Excess Credits: Emissions reductions from facilities with base-year emissions of 150,000 tonnes or less. Issuance of credits from FY2015. • Small and mid-size Facility Credits: Issued by Saitama Prefecture. Issuance of credits from FY2012. Quantitative limits: None. FOREST ABSORPTION CREDITS: Credits from forests inside Saitama Prefecture are counted at 1.5 times the value of regular credits. Others are converted with the factor 1. Quantitative limits: None All offsets must be verified by verification agencies. International Carbon Action Partnership 4 | 5 ETS Detailed Information Last Update: 9 August 2021 Market Stability Provisions In general, Saitama does not use market stability provisions. Compliance Compliance Period FIRST COMPLIANCE PERIOD: FY2011-2014 SECOND COMPLIANCE PERIOD: FY2015-2019 THIRD COMPLIANCE PERIOD: FY2020-2024 Covered entities must submit a global warming countermeasures plan preparation report and implementation status report by 31 July of the first fiscal year of the compliance period. Every year thereafter, operators must submit a new global warming countermeasure plan and emissions report by 31 July. Compliance instruments must be submitted and the predetermined target achieved by the end of the 18-month adjustment period, 30 September of the second fiscal year after the end of the compliance period. The next compliance period coincides, then, with the adjustment period for 18 months and begins immediately

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