2017 Volume 13 Issue 1 Pages 39-49
Objective. This paper is to summarize the effects of Paris agreement to Japanese industry. In Japan, only the cost of carbon abatement is focused when discussing the effect of Paris agreement. However, the public and private carbon pricing is expanding, and the investors are paying more attentions toward companies’ carbon performance.
Results and Discussion. Given the movement toward expansion of carbon pricing both for jurisdictions and companies, potential cost for not abating the Greenhouse Gas（GHG）emissions exist. After China starts its emissions trading scheme（ETS）in 2017, almost 25% of the world’s GHG emissions would be priced. Companies are getting ready for the future extension of carbon pricing, and utilize internal carbon pricing, in which companies consider price of carbon in their investment judgement, or put carbon tax on their operations and invest revenue for emissions reductions. The risk of further carbon pricing by jurisdiction is increasing, and there are companies getting ready, which will have more competitiveness in the future under expanded carbon pricing. Institutional investors who manage large amount of money on behalf of pension funds all over the world have had consideration to environment, society, and governance（ESG）, not only for their social responsibility but also for the stability of their profits. Movement to decarbonize investment’s portfolio has started, and the methods of quantitative management is under development to realize ESG investment, and has become mainstream, as 1500 investors managing 62 trillion USD, has signed PRI（Principles of Responsible Investment）. The Science Based Targets（SBT） Initiative has started in 2015, and as of November 10th, 2016, 196 companies have committed to have their targets to be aligned with 2 degree scenarios of Intergovernmental Panel on Climate Change（IPCC）or International Energy Agency（IEA）within two years. SBT methodology follows GHG Protocol, calculation methodology for GHG emissions, and GHG Protocol has revised to allow market based emission factors, enabling the purchase of renewable electricity to have a benefit to reduce companies’ emissions reported. The costs of renewables are already competitive against the costs of conventional power, and the purchase of renewable power is increasing, which result in lower emissions for purchasing companies, although those in Japan is still high and not competitive yet. SBT requires scope 3 emissions management, and CDP（International NGO for carbon and other natural capital disclosure, formally Carbon Disclosure Project）will start the evaluation of suppliers’ engagement rating in January, 2017. More companies are starting to reduce their scope 3 emissions, and will start selecting the suppliers with their carbon performance.
Conclusions. Emissions reductions will increase the cost, but under the global commitment to reduce GHG emissions, the value is given to the reduction of GHG emissions, so that the cost and value should both be considered, and the value part would expand after the Paris agreement became effective. The value the companies not reducing GHG emissions cannot gain is the investment from the pension funds as a part of ESG investment, selected as suppliers, and cost saving for the carbon pricing by jurisdictions.
