Spotlight on Tokyo: world’s first urban cap and trade program yields promising first-year results

The results of the first fiscal year of operation of Tokyo’s cap and trade program are in – and they go far in validating the city’s groundbreaking initiative to introduce a market-based approach to emissions reductions at the urban scale. Reports on 1,159 building facilities show collective emissions reductions of 13 percent over base-year figures; this was due to the active implementation of more than 5,700 measures by building owners to reduce energy use and corresponding emissions.

Cap and trade systems, more formally known as “emissions trading systems”, set a limit on total emissions for a given period of time, and allocate initial allowances to participants. (In Tokyo, facility owners can sell only excess reductions.)

Launched in April 2010, Tokyo’s mandatory program is backed by the Tokyo Metropolitan Environmental Security Ordinance. Importantly, the program targets 1,348 of Tokyo’s largest CO2-emitting buildings in the commercial and industrial sectors. Owners are obligated to cut emissions 6% to 8% from base-year levels by 2014, in addition to continuing to publish their emissions reports and reduction plans on an annual basis (mandatory emissions reporting began in 2002).

The cap and trade program uses both “carrots” and “sticks” to ensure compliance -- and it is working exceedingly well. According to the first-year results, an impressive 64 percent of facilities succeeded in meeting the compliance factor in FY2010, while one quarter of facilities have already reduced emissions by 17 percent or more, which is the expected compliance factor for the second compliance period (FY2015-2019). The Tokyo Metropolitan Government estimates that about 71 percent of facilities will fulfill their reduction obligations through their own reduction efforts, if all reduction plans included in the reports were carried out through the end of FY2014.

Cited as a “world-leading policy” by World Green Building Council (WGBC), Tokyo’s cap and trade program provides a compelling example for other cities to follow. It demonstrates -- once again -- that C40 Cities are at the forefront of climate action, achieving verifiable and consistent monitoring of urban emissions and implementing innovative actions for tackling the problem.