Cap and Trade Program in Buildings: Tokyo

Promote efficiency retrofits for homes and commercial buildings

Overview

While cities are rarely home to the largest point sources of CO2 emissions from power production, they do consist of millions of individual buildings, each with its own carbon footprint. To address this, the densely-populated city of Tokyo has implemented a cap-and-trade scheme specifically targeting building-level emissions.

The commercial and industrial sectors represent 20% of all CO2 emissions in Tokyo, a city of 14 million residents. The city has a target to cut emissions by 30% from 2000 levels by 2030, and a net-zero target for 2050 under its Zero Emission Tokyo Strategy. Cutting energy consumption related to commercial and industrial activities can also reduce other forms of pollution in the city.

Tokyo first began its city-wide initiative in the early 2000s to lower emissions. Key sectors were assigned emission-reduction targets including for the commercial and industrial sector, which was to cut emissions by 17%. The Tokyo Metropolitan Government established a cap and trade program to ensure that this target would be met.

Today, the scheme covers 20% of Tokyo’s CO2 emissions. Its covered activities include the use of fuels, electricity and heat in commercial and industrial buildings, as well as district heating and cooling plants. The program is mandatory and covers 1,000 office and commercial buildings and 200 factories, each with their own facility-level cap. Facilities can buy excess-reduction credits from other facilities. Offsets, free allowances, and banking are also permitted. Offsets can include emissions reductions from large facilities outside of Tokyo, renewable energy credits, and the on- or off-site use of renewable electricity. Facilities that fail to meet the reduction obligations must cover 1.3 times the reduction shortfall and can face fines.

Impact

The scheme is in its third compliance phase and has so far been found to be successful in driving emissions reductions via energy efficiency measures in buildings and industry. The program does not have an end date and will enter its fourth compliance period over 2025 to 2029, potentially with a 50% reduction target as proposed by the metropolitan government in March 2021.

New business opportunities have developed in Tokyo since the onset of the scheme, according to the metropolitan government. These include energy-efficient building management, brokers in carbon trading, and new low-carbon products. Examples of such products include energy-efficient light bulbs for media companies, which require the highest brightness, and window sheets to block sunlight to reduce the need for air conditioning.

Opportunity

Buildings are often the largest source of emissions in cities due to high usage of energy for power, heating and cooling, and policy support is required to accelerate their decarbonization due to economic and social barriers. Efforts to green the building stock focus on energy-efficiency measures that lower overall energy demand and directly cut emissions such as swapping to lower-carbon heating sources.

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