Thursday , May 13 2021

"Internal price of carbon" expands in Japan, but methods vary: Asahi Shimbun

A growing number of Japanese companies are introducing "internal carbon prices (ICP)" to promote investments in projects that can effectively reduce their greenhouse gas emissions.

Under the ICP system, companies financially value measures to reduce carbon dioxide (CO2) emissions, facilitating the prioritization of low carbon investments and appealing to investors in a society increasingly aware of the effects of global warming.

According to the Ministry of Environment, the number of companies that launched ICP reached 607 in 2017, compared to 150 in 2014.

In 2018, 67 Japanese companies, including Kokuyo Co., Astellas Pharma Inc. and Tokyo Electric Power Company Holdings Inc., introduced ICP.

However, each company has a different way of pricing, and the way they use ICP also varies. Depending on how the system is used, it may happen that companies are not actually reducing their CO2 emissions.

"There are unclear parts about how the IPC affects its real investment decisions," said a ministry official.

Hitachi Ltd., which builds nuclear power plants, held a meeting on environmental, social and corporate governance on September 24 and explained its ICP system introduced in fiscal year 2019.

Hitachi puts a monetary value of 5,000 yen ($ 46.70) on a ton of reduced CO2 emissions. This value is taken into account during capital expenditure decisions, along with pricing and performance of facilities and equipment.

Monetary value allows company employees to better see how much CO2 emissions certain equipment and alternative candidates can reduce. So far, it had been difficult to assess this effectiveness.

Energy efficient equipment can be chosen even if other items are cheaper.

Hitachi plans to reduce its CO2 emissions by more than 20 percent by fiscal year 2021 compared to fiscal year 2010.

Targeted CO2 includes emissions in the procurement and manufacturing processes, as well as the use of products and services, disposal and recycling.

Hitachi said only 3.6% of its CO2 emissions are produced at the manufacturing stage.

"We want to achieve our goals by creating a situation where capital investment decision makers have to worry about reducing CO2," said Osamu Naito, Hitachi vice president and chief executive officer.

Investors' growing interest in climate change issues forms the backdrop for companies actively working at ICP.

The Private Sector Climate-related Financial Disclosure Task Force, under the Financial Stability Board, set up by the financial authorities of key countries, urged companies to disclose climate change-related financial information so that potential investors can make judgments. appropriate.

(This article was written by Taiki Koide and Tsuneo Sasai.)

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