Japan in talks with Hungary to buy CO2 credits

...emissions under the Kyoto Protocol, a government official said on Monday.

Japan aims to clinch the first deal with Hungary using a United Nations-approved new trading mechanism termed the green investment scheme (GIS), the official said.

GIS, to be launched in January 2008, will allow countries well within their emission limits under the Kyoto Protocol to sell surpluses to other countries and invest the revenues in projects to reduce gas emissions.

Countries that have been breaking their emission caps, such as Japan, can then count other countries' cuts as their own.

Most former communist states, whose heavy industries collapsed along with the Soviet Union, emit less pollutants than in 1990, the baseline year for a number of gases included in the protocol.

Those states are becoming a battleground for industrialised countries struggling to meet their commitments and seeking to offset their emissions at a relatively low cost.

"We hope to have a bigger range of choices (in emission-cutting projects), but competition is fierce with many European countries also approaching them," said a Japanese government official, who asked not to be identified.

Under Kyoto, signatories can raise the cap on their carbon dioxide emissions by investing in measures to reduce emissions in other countries, such as CO2-reducing projects in developing countries.

Japan is struggling to meet its Kyoto commitments as its big businesses are already highly energy-efficient and oppose mandatory caps on emissions. Higher prices of carbon credits are forcing the government to spend more to purchase such credits to offset emissions.

Japan last year cut its greenhouse gas emissions by 1.3 percent thanks to a warm winter, but they were still 13 percent above the average level it must meet over the next five years, starting in 2008.

Japan plans to ask the Hungarian government to invest the proceeds from the GIS deal in environmental projects, the official said. (Reporting by Yuko Inoue; editing by Sophie Hardach)

Keywords: EMISSIONS/JAPAN

[TOKYO/Reuters/Finance.cz]