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UNCLAS SECTION 01 OF 12 TOKYO 000923 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA 
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST 
DIVISION; TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS 
OFFICE; SECDEF FOR JCS-J-5/JAPAN, 
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA 
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY 
ADVISOR; CINCPAC FLT/PA/ COMNAVFORJAPAN/PA. 
 
E.O. 12958: N/A 
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA
SUBJECT:  DAILY SUMMARY OF JAPANESE PRESS 02/22/06 
 
 
INDEX: 
 
(1) Minshuto up against wall over Horie e-mail controversy; Party- 
head debate today; LDP has upper hand 
 
(2) Shock waves of Livedoor incident 
 
(3) Minshuto revises its proposed policy opinion, removing the 
China-as-threat argument in response to objections in the party 
 
(4) Japan's diplomacy toward China now relies on ruling parties, 
with diplomatic standoff continuing over such issues as Yasukuni; 
China's interest shifting to post-Koizumi leaders 
 
(5) Editorial: Resuming US beef imports premature 
 
(6) Crude oil imports; Reliance on Middle East tops 90% last year 
for first time in 37 years; Imports from Asia drop 
 
(7) Government to buy CO2 emission credits from developing 
countries in return for assistance to them 
 
(8) Editorial: System that envisages post-Kyoto Protocol needed 
 
ARTICLES: 
 
(1) Minshuto up against wall over Horie e-mail controversy; Party- 
head debate today; LDP has upper hand 
 
ASAHI (Page 4) (Abridged slightly) 
February 22, 2006 
 
The major opposition Minshuto (Liberal Democratic Party of Japan) 
is in the hot seat over the authenticity of an e-mail allegedly 
sent by former Livedoor Co. President Takafumi Horie instructing 
his company to send money to the second son of Liberal Democratic 
Party (LDP) Secretary General Tsutomu Takebe. Minshuto has yet to 
respond to the LDP's demand for evidence to verify the 
authenticity of the e-mail. Minshuto President Seiji Maehara has 
said, "The ultimate responsibility for any matter concerning the 
party lies with me." Depending on how today's party-head debate 
unfolds, a call for his resignation as party president to take 
the blame may arise from within his own party. 
 
Maehara may be pressed to step down to take the blame 
 
The authenticity of the e-mail dominated the questions in 
Maehara's press conference yesterday. Asked by reporters for 
evidence, Maehara failed to reveal any specific information and 
only repeated, "It's a delicate matter. The e-mail is highly 
credible." 
 
Minshuto also presented a sheet of paper simply listing a set of 
four issues, including the Livedoor scandal, for the Feb. 22 
party-head debate. Asked for the contents, Maehara only said 
yesterday: "We are going to study them. Just wait till tomorrow." 
Minshuto Diet Affairs Committee Chairman Yoshihiko Noda, who had 
been anxious to see a heated debate, also noted: "We don't know 
if we are going to produce something new. A decision will be made 
by President Maehara after conducting a discussion until late at 
night." Some Minshuto members think Maehara should touch slightly 
on the e-mail and shift his attention immediately to other 
subjects. 
 
TOKYO 00000923  002 OF 012 
 
 
 
Irritation is mounting in Minshuto. In an officers' meeting 
yesterday morning, Azuma Koshiishi, who heads the Minshuto caucus 
in the Upper House, said curtly, "I would like to see the matter 
settled before the budget comes to the Upper House." In a press 
conference yesterday, Upper House Diet Affairs Committee Chairman 
Kenji Hirata touched on Maehara's responsibility, commenting, "In 
the end, the person in charge of the party (Maehara) should take 
the blame." 
 
The LDP apparently have the upper hand over Minshuto. Secretary 
General Tsutomu Takebe told a press conference yesterday, "It has 
become clear that the e-mail in question is groundless. We cannot 
leave the matter up in the air." 
 
LDP Lower House member Katsuei Hirasawa appeared on TV talk shows 
one after another from the night of Feb. 20 through noon of the 
following day. Armed with a copy of a similar e-mail he 
independently obtained, Hirasawa repeatedly called the e-mail 
allegedly sent by Horie a fake by pointing to the server software 
different from that used by Horie and other factors. 
 
Asked by reporters for his measures for the Feb. 22 party-head 
debate, Prime Minister Junichiro Koizumi said yesterday: 
"Opposition leaders are going to hurl questions at me. I will 
make decisions after hearing them." 
 
Efforts to find a way out by focusing on money flows 
 
Five days have passed since Minshuto lawmaker Hisayasu Nagata 
made public the e-mail allegedly sent by Horie. But he has not 
made a public appearance since last weekend. "I think he has been 
endeavoring to obtain new information," Maehara said. But Nagata 
is not in a condition to verify the authenticity of the e-mail, 
according to a senior Minshuto member. On the night of Feb. 20, 
senior Minshuto members discussed possible solutions with a 
lawyer, but they failed to come up with any innovative ideas 
other than the initial plan to persistently urge the ruling 
coalition to allow the Diet to exercise its investigative power. 
 
Minshuto aims for the invocation of the Diet's investigative 
power to disclose the bank account held by Takebe's son and the 
detailed records on all the money he received and spent. 
 
The LDP has rejected Minshuto's request, saying that there is no 
need to invoke such power once the bank account becomes clear. 
LDP Diet Affairs Committee Chairman Hiroyuki Hosoda revealed to 
reporters yesterday a plan to let LDP and Minshuto 
representatives and Takebe's son to check the bank account 
Minshuto has discovered. The plan is designed to allow the 
parties concerned to settle the matter once for all without 
invoking the Diet's investigative power. 
 
Finding itself at a disadvantage with the LDP, Minshuto intends 
to divert public attention from the controversial e-mail to the 
actual flows of money. The disclosure of the bank account and 
money transfer records Minshuto has allegedly obtained may give 
rise to new suspicions. Minshuto Diet affairs chief Yoshihiko 
Noda emphatically told a press conference yesterday: 
 
"We take a great interest in bank accounts in Japan and overseas. 
The flows of money around Mr. Takebe and Mr. Horie are far more 
serious than the e-mail in question. A clue lies in the e-mail." 
 
TOKYO 00000923  003 OF 012 
 
 
 
Some LDP executives believe that protracting the e-mail 
controversy would work to the party's advantage in managing Diet 
affairs. 
 
One Minshuto member noted, "Our patience is being tested. The 
tables will be turned someday, and the LDP will be in trouble," 
while another said, "We want to get away from this e-mail mess as 
soon as possible." Obviously, both optimism and pessimism exist 
in Minshuto. 
 
(2) Shock waves of Livedoor incident 
 
MAINICHI (Page 9) (Full) 
February 17, 2006 
 
Edward Lincoln, senior fellow at the Council on Foreign 
Relations: Concerned over emerging companies losing vitality; 
Establishing surveillance system also important 
 
-- How do you see the Livedoor incident? 
 
"I had the impression that Livedoor was the champion of Japan's 
emerging companies. Emerging companies will bring about new 
opportunities for growth to Japan's slack economy. Japan's aging 
society needs start-up companies. There is, however, concern that 
if emerging companies lose vitality in the wake of the incident, 
it will undermine growth of the Japanese economy. 
 
-- Japan's market system is also being put to the test. 
 
"The Tokyo Stock Exchange (TSE) deals with massive stock 
transactions, but that should not be the excuse for the breakdown 
of its computer stock trading processing system. Since an 
increase in stock trading is a recent phenomenon, the TSE should 
have checked its computer system, envisaging that trade volume 
would grow more than the regular level. It is surprising that the 
Japanese stock market has been dependent on such poor information 
and technology. The incident has presumably happened due to the 
advanced age of those who manage the market. 
 
-- A market surveillance system has become an issue, too. 
 
"Livedoor used stock splitting as a method to raise stock prices. 
In Japan, it used to take 50 days for stocks after splits to 
become available to investors. This is an outdated rule. This 
could not happen in the US. The TSE's Mothers, the scene of the 
incident, has made capital procurement by companies easy. At the 
same time, however, the government failed to apply surveillance 
pressure. Easing regulations is important, but it is also 
important for the government to fulfill its role. 
 
-- A possible impact of the incident on the Koizumi reform 
initiative has been pointed out. 
 
"A sharp increase in exports to China and management efforts by 
companies have given rise to the ongoing recovery of the Japanese 
economy. In my view, a similar result has been obtained whoever 
was prime minister. In my view, the incident this time does not 
have any direct relationship with the Koizumi reforms. There is 
nothing new about the vulnerability of the government's market 
surveillance system. 
 
 
TOKYO 00000923  004 OF 012 
 
 
Edward Lincoln: Serves as special economic advisor to US 
Ambassador to Japan Mondale from 1994 through 1996, after working 
at the Brookings Institute in the US. Expert on Japan. His works 
include many books on the Japanese economy. 56 years old. 
 
(Interviewer: Correspondent to Washington Jun Nakamura) 
 
Bill Emmot, editor of the Economist Magazine: Gives high praise 
to Horie's challenge to conventional society; Reform of 
accounting standards imperative 
 
-- Some have given high marks to former Livedoor president 
Takafumi Horie in the sense that he questioned the system in the 
stifling Japanese society. 
 
"He is a show manager. He was extremely good at using himself as 
a walking billboard. He drew public attention through his 
attempts to buy out a professional baseball team and Nippon 
Broadcasting System. He appeared to have been successful in 
creating a new Japan by opening a possible new approach to its 
economic society, which is closed to stockholders because of such 
barriers as backroom maneuvering and a license system. 
 
Horie is worthy of a high praise in the sense that he has 
challenged Japan's conventional economic society, which has 
disregarded the interests of shareholders. Shareholders' right 
must be strengthened in order to make corporate managers aware of 
their accountability and the need to secure transparency. Of 
course, such an effort will be meaningless, unless they have a 
law-abiding spirit. 
 
-- How can lessons be learned from the incident? 
 
"Livedoor used a small auditing corporation, which can avoid the 
control of regulations. Past scandals also indicate that Japan's 
accounting standards and auditing corporations are vulnerable. It 
is imperative to strengthen supervision over auditing 
corporations and reform accounting standards. It is also 
necessary to extensively reinforce the staff and funds of the 
Securities and Exchange Surveillance Commission, which is tasked 
with monitoring the market and listed companies. 
 
-- The Livedoor shock is still being felt by the emerging market. 
 
"The incident will have no impact on the economy as a whole. It 
may, however, dampen the morale of young people who want to 
become an entrepreneur. Since it is hard to understand IT 
companies' new technologies, investors will remain skeptical for 
the time being. Even so, new technologies are the source of 
vitality for society. I do not think that the impact of the 
Livedoor incident will be felt for more than a year. 
 
Bill Emmot: Graduated from Oxford University, Britain. Served as 
chief of the Tokyo branch office of the Economist Magazine of 
Britain. Incumbent post since 1993. He wrote many books, 
including "The Sun Also Sets" (1990). 49 years old. 
 
(Interview: Correspondent to London Yotaro Fujiyoshi) 
 
(3) Minshuto revises its proposed policy opinion, removing the 
China-as-threat argument in response to objections in the party 
 
ASAHI (Page 2) (Excerpts) 
 
TOKYO 00000923  005 OF 012 
 
 
Evening, February 22, 2006 
 
Minshuto (Democratic Party of Japan) has compiled a draft set of 
policy view toward China that revises the line that spread by 
party head Maehara of that country being a "real threat." The 
draft mentions includes such explanations as although "many 
Japanese" feel that China is a military threat, the party in the 
general sense does not perceive it as such. After debate in the a 
conference of the party's foreign and defense affairs divisions 
this afternoon, the set of views is scheduled to be included in 
the party's "Foreign and Security Affairs Vision," which Maehara 
aims to complete during the current Diet session. 
 
In the draft, increases in ballistic missiles and other arms, 
such moves as submarine intrusions into Japanese territory are 
cited as "reasons for many people to feel that China is a 
threat." In addition, the draft states: "There is a distinct 
difference between 'potential' and 'intent' to become a military 
threat, so in that sense, Minshuto does not perceive China to be 
a threat." 
 
(4) Japan's diplomacy toward China now relies on ruling parties, 
with diplomatic standoff continuing over such issues as Yasukuni; 
China's interest shifting to post-Koizumi leaders 
 
NIHON KEIZAI (Page 2) (Full) 
February 22, 2006 
 
Hiroshi Yomo, Beijing 
 
Trips to China by senior officials from the government and the 
ruling coalition are continuing. Their purpose is to look for 
ways to resolve the strained relations with China with the ruling 
coalition's diplomacy and other elements as leverage amid the 
worsening of Japan-China ties due mainly to Prime Minister 
Junichiro Koizumi's continued visits to Yasukuni Shrine. As China 
is positive about exchanges themselves, exchanges without the 
prime minister are continuing. However, at the outset of the 
first session yesterday of the ruling coalition's Exchange 
Council, both Japanese and Chinese officials exchanged jabs over 
the Yasukuni issue. China's interest is shifting to who will 
become the leader of Japan after Koizumi. It remains unclear what 
will happen to Japan-China relations in the future. 
 
Sharp exchanges of views 
 
"Following the spirit of ignoring minor differences for the 
common good, we will strive to expand common interests to the 
maximum." At the first meeting of the ruling coalition's Exchange 
Council held at a hotel in Beijing, Liberal Democratic Party 
(LDP) Chairman Hidenao Nakagawa emphasized the importance of 
building a future-oriented relationship in quoting a phrase from 
the 1998 Japan-China Joint Declaration. Nakagawa also came up 
with a set of seven proposals for stabilizing bilateral ties and 
illustrated specifics of a fund for exchanging 100 young people 
annually. 
 
Prior to Nakagawa's speech, Wang Jiarui, minister of the Chinese 
Communist Party's International Department, warned: "Continuing 
the shrine visits is not at all viewed as a minor difference." In 
response to Nakagawa's explanation that "the prime minister has 
made it clear he has visited the shrine in the capacity of a 
private citizen," a Chinese official argued: "It's impossible for 
 
TOKYO 00000923  006 OF 012 
 
 
political leaders to make a distinction between public capacity 
and private." A Japanese official rebutted, "China's repeated 
mention of the Yasukuni issue could be taken by the Japanese 
public as unreasonable pressure; as a result, handling it would 
become even more difficult." Thus both sides exchanged sharp 
views. 
 
Trade Minister Nikai arrives in Beijing 
 
Japan and China have suspended the exchange of senior-level 
officials from the government and the ruling parties since 
Koizumi's visit to Yasukuni Shrine last October, but this level 
of exchange has now been restored. 
 
Representing the government, Minister of Economy, Trade, and 
Industry Toshihiro Nikai, a pro-Chinese politician, arrived in 
Beijing yesterday. Meeting the press, Nikai indicated the need to 
have an overall dialogue between Japan and China, saying: 
"Politics and the economy are closely linked and inseparable." He 
plans to meet today with Premier Wen Jiabao and Commerce Minister 
Bo Xilai separately. He then will discuss the stalled 
negotiations on the gas field development in the East China Sea 
and other issues. In March, former Foreign Minister Masahiko 
Komura, former Prime Minister Ryutaro Hashimoto, and other 
Japanese leaders are expected to travel to China and hold talks 
with Chinese leaders, including President Hu Jintao. 
 
China is inflexible on the Yasukuni issue, so it is apparently 
impossible to arrange a summit meeting at present. Instead, 
members of the ruling parties and pro-China cabinet members are 
moving to repair ties with Beijing, but there is a wide gap 
between the two countries' motives. 
 
China continues to take a tough stance. A senior LDP member 
speculated: "Won't it work out a specific breakthrough measure 
after Koizumi steps down in September and a new prime minister 
takes office?" Li Zhangchun, a Standing Committee member of the 
Chinese Communist Party's Political Bureau, on Feb. 20 expressed 
hope for a post-Koizumi Japanese leader, telling Nakagawa: "I 
don't think the current chilly relationship will last long. It's 
important for the Japanese leader to show sincerity and take 
action." 
A set of seven proposals offered by Nakagawa to China for the 
stability of Japan-China ties 
 
¶1.   Promote a strategy for growth in the Japanese economy, 
including the conclusion of a Japan-China economic partnership 
agreement 
¶2.   Urge China to become a democratic nation slowly by 2030 by 
expanding its middle class. Japan will share its experience with 
China. 
¶3.   Establish a trouble-shooting framework in Asia, based on the 
common interests of Japan and China 
¶4.   Promote exchanges of experts and others by making good use 
of the fund for the annual exchange of 100 persons 
¶5.   Be aware of the importance of the mass media's 
responsibility in making sure that patriotism in the two nations 
contributes to the stability of bilateral relations 
¶6.   Launch joint research on the Sino-Japanese War and, if 
necessary, allow third-country researchers to participate in the 
research 
¶7.   Promote reform of the United Nations and cooperation in 
dealing with North Korea and on other issues 
 
TOKYO 00000923  007 OF 012 
 
 
 
Lawmakers and groups that visited China recently 
 
Date 
Lawmakers or groups 
 
Feb. 8-10 
Former Home Affairs Minister Takeshi Noda 
 
Feb. 19-23 
The ruling coalition's China mission led by LDP policy chief 
Hidenao Nakagawa and New Komeito policy chief Yoshihisa Inoue 
 
Feb. 21-23 
Economy, Trade, and Industry Minister Toshihiro Nikai 
 
March 30-April 1(Planned) 
The Association for Promotion of International Trade, Japan 
(JAPIT), headed by former Prime Minister Ryutaro Hashimoto and 
seven Japan-China friendship organizations, including the Japan- 
China Friendship Parliamentary League chaired by Masahiko Komura 
 
Coordination underway to arrange a visit in early May 
Former LDP Secretary General Koga 
 
Chief Cabinet Secretary Abe cautious about research on history 
with the participation of third-country experts 
 
At a press conference yesterday, speaking of Liberal Democratic 
Party (LDP) Policy Research Council Chairman Hidenao Nakagawa's 
proposal to start joint research on the Sino-Japanese War, Chief 
Cabinet Secretary Shinzo Abe stated: "That proposal is being 
discussed between the two governments. We'd like to launch such 
research as quickly as possible." When asked about verification 
of history on a multilateral basis with the participation of 
experts from third countries, Abe cautiously responded: "We need 
to discuss whether doing so is good or not." 
 
(5) Editorial: Resuming US beef imports premature 
 
TOKYO SHIMBUN (Page 5) (Full) 
February 22, 2006 
 
The investigative report on the inclusion of backbones, a 
specified risk material in a beef shipment to Japan, released by 
the US Department of Agriculture (USDA) reveals how the backbones 
were included but it does not make clear why they were included. 
Therefore, it is difficult for USDA to regain the trust of 
Japanese consumers in US beef. 
 
In short, the United States asserts in the report that the 
incident occurred due to a trifling mistakes, but since nobody 
was harmed, US beef imports should be resumed immediately. 
 
Japan conditioned the complete removal of specified risk 
materials that could transmit BSE (bovine spongiform 
encephalopathy) when it lifted a ban on US beef imports in late 
last year. 
 
The US government stresses that backbones were included in the 
beef shipment to Japan because a slaughterhouse, a meat- 
processing facility and USDA inspectors working at the two 
facilities did not fully know export conditions and that the 
 
TOKYO 00000923  008 OF 012 
 
 
inclusion of backbones in the beef shipment to Japan was an 
exceptional case. 
 
However, many Japanese consumers will probably not take the 
report at face value. 
 
The first reason is because the beef shipment to Japan included 
internal organs that USDA did not authorize. 
 
The second reason is because an auditing report the USDA released 
prior to the beef shipment incident had revealed that 29 downer 
cows were slaughtered for consumption in the US. Later, the 
report explained that injuries caused the cattle to be unable to 
walk but there remains no documentation on the cause for more 
than the half of the downer cattle. 
 
The third reason is that of the 40 meatpackers authorized by USDA 
to export beef to Japan, in addition to the two facilities 
involved in the inclusion of backbones in the beef bound for 
Japan, another facility lost its license to export Japan, having 
violated a USDA-approved quality control program. 
 
Given the situation, the US assertion that the inclusion of 
backbones in the beef shipment to Japan is an exceptional case is 
doubtful. 
 
We suspect that quality control by slaughterhouses, processors 
and USDA inspectors are sloppy and that there are structural 
defects in the observance of rules and the inspection system. 
 
USDA must respond to those questions. The department revealed a 
list of 15 measures to prevent a recurrence, along with the 
report. 
 
The prevention measures include: disseminate thoroughly Japan- 
bound beef export conditions to slaughterhouses and meatpackers; 
re-train inspectors; and increase from one to two the signatures 
of USDA officials necessary for export certifications. 
 
We highly value these prevention measures, but the Japanese 
government should determine whether the US systems are improved. 
The Ministry of Agriculture, Forestry and Fisheries and the 
Ministry of Health, Labor and Welfare, which plan to dispatch 
soon a fact-finding mission to the United States, need to keep 
wary eyes of Japanese consumers in mind. 
 
The US government intends to put an end to the beef incident this 
time with the issuance of the report, but it should not forget 
that Japanese consumers would be even more distrustful of US beef 
if it applies political pressure on Japan to resume beef imports. 
 
(6) Crude oil imports; Reliance on Middle East tops 90% last year 
for first time in 37 years; Imports from Asia drop 
 
MAINICHI (Page 3) (Full) 
February 19, 2006 
 
Crude oil imported from the Middle East, such as Saudi Arabia, 
accounted for 90.2% of the entire crude oil supply that Japan 
imported in 2005. A survey by the Ministry of Economy, Trade and 
Industry (METI) found that Japan's reliance on the Middle East 
for imports of crude oil imports topped 90% for the first time 
since 1968 before the 1970s oil crises. The reason is because 
 
TOKYO 00000923  009 OF 012 
 
 
such imports from China, whose excess export capacity is 
dwindling due to a sharp increase in domestic demand, have 
fallen. Japan has tried to diversify crude oil suppliers from an 
energy security perspective. It will likely be pressed to make a 
new approach in the future, including an effort to further reduce 
reliance on oil in meeting energy demand as a whole. 
 
Japan imported 245.19 million kiloliters of crude oil in 2005, up 
0.7% from the previous year, of which Middle Eastern products 
accounted for 221.26 million kiloliters, up 2.3% from the 
preceding year. Japan's reliance on crude oil from the Middle 
East topped the previous year's level (88.9%) by 1.3 points. 
 
Since the two oil crises in the 1970s, Japan has made efforts to 
import crude oil from various countries, instead of solely 
relying on the Middle East. As a result, imports from China, 
which had been nil up until that time, amounted to about 8% of 
the entire imports. The ratio of imports of Indonesian crude oil 
was boosted to about 16%. As a result, Japan's reliance on the 
Middle East, which peaked in 1968 at 90.9%, dropped to 67.4% in 
¶1987. 
 
However, demand for crude oil in Asian countries has sharply 
increased since the 1990s. China, which had been a major oil 
producing country, turned into an importing country in 1996. In 
2004, it virtually stopped exporting to Japan. The ratio of 
imports of Indonesian products has fallen since 1993 and reached 
the single-digit level, marking 2.9% in 2005. As a result, Japan 
has to rely on countries, such as Saudi Arabia, to cover the 
shortage, resulting in a rise in reliance on the Middle East. 
 
(7) Government to buy CO2 emission credits from developing 
countries in return for assistance to them 
 
ASAHI (Page 11) (Full) 
February 16, 2006 
 
The government will begin purchasing carbon dioxide credits 
starting this April under the Clean Development Mechanism (CDM) 
approved by the Kyoto Protocol. Behind this move is the prospects 
that even if Japan pursues greenhouse gas reduction projects at 
home, it cannot reduce approximately 100 millions of tons of 
emissions, or 27% of the mandatory reduction target set for it 
during a period from 2006 through 2012. The prices of emission 
credits are expected to soar in the years ahead. Japan, which 
lags behind European and other nations in terms of emission 
trading, would have to prepare a large financial outlay. 
 
Budget likely to be ballooned due to lagging behind other nations 
 
The New Energy and Industrial Technology Development Organization 
(NEDO) will buy emission credits, with the oil special account 
and the general account as financial sources. The government has 
already submitted to the current Diet session bills to revise 
relevant laws, including the Oil Special Account Law and the NEDO 
Law. 
 
NEDO will lead Japanese firms in advancing negotiations on 
emission trading, aiming to conclude in fiscal 2006 a contract on 
purchasing emission credits for some 20 millions of tons of 
emissions. It plans to complete the purchase of the target amount 
for eight years until fiscal 2013. 
 
 
TOKYO 00000923  010 OF 012 
 
 
The prices of emission credits are expected to rise two or four 
times over next several years. According to a survey by the World 
Bank, the average emission credit price of carbon dioxide was 
5.63 dollars per ton in 2005, but the price will rise to 11.4 
dollars -  double the current price - in 2010. The International 
Emissions Trading Association (IETA) forecasts the price will 
jump to 23.3 dollars. If last year's price level continues, Japan 
needs about 70 billion yen to purchase an emission credit for the 
100 millions of tons of carbon dioxide. But if the price surges 
as expected, the purchase price will run up to 200 billion yen or 
more, depending on circumstances. 
 
The reason why the price is likely to soar is because Canada, 
which has faced difficulties in cutting the emission of carbon 
dioxide, will start buying a large amount of emission credits in 
the near future. 
 
On emission trading under the CDM, European nations have taken a 
lead, for instance, the Netherlands (started it in 2000) followed 
by Spain and Italy (in 2003). The Netherlands, which aims to 
secure the emission credit for the same amount of 100 millions of 
tons as Japan's, seems to have already concluded by 2005 a 
purchasing contract on emission credits for 80 millions of tons 
or more, or 80% of the target. 
 
Japan has lagged behind other nations in emission trading because 
the Finance Ministry objected to budgetary action for emission 
trading before the Kyoto Protocol went into effect. 
 
The Kyoto Protocol obligates Japan to reduce greenhouse gases by 
6% on average annually from the 1990 levels during a period from 
2008 through 2012. Considering emission increases later 
calculated, Japan needs to reduce greenhouse gases by a total of 
12 % . According to the Target Attainment Plan for the Kyoto 
Protocol approved last April by the cabinet, a 10.4% greenhouse 
gas reduction is planned by stepping up energy-saving measures 
and strengthening, for instance, collection of Freon. The 
remaining 1.6% emission reduction is planned to be realized by 
emission trading. 
 
Firms active in implementing CDM projects 
 
In contrast to the government that is slow to take action, 
Japanese firms are active in implementing CDM-based projects. 
 
In order for Japanese firms to obtain emission credits, they need 
to receive approval from the Japanese government, the governments 
of developing nations where projects will be implemented, and the 
UN CDM Board. The Japanese government has certified 41 CDM 
projects. A total of traded emissions from those projects have 
greatly exceeded the government's purchase target and reached 
35.6 millions of tons. 
 
Of the 41 projects, 13 have already received UN approval, for 
instance, Sumitomo Corp.'s chemical plant improvement project in 
India (that will cut 3.38 millions of tons of emissions 
annually), a Nippon Oil-affiliated company's natural gas recovery 
project in Vietnam (680,000 tons) and Showa Shell's methane gas 
recovery project in Brazil (660,000 tons). Their emission credits 
will come to 16 millions of tons annually. 
 
Japanese firms are free to sell their emission credits to 
whatever countries they are. A senior official of the Ministry of 
 
TOKYO 00000923  011 OF 012 
 
 
Economy, Trade and Industry said warily: "Japanese firms' 
emission credits are highly reliable, so we could face a scramble 
for such credits with the Canadian government and European 
firms." 
 
(8) Editorial: System that envisages post-Kyoto Protocol needed 
 
NIHON KEIZAI (Page 2) (Full) 
February 2, 2006 
 
The Kyoto Protocol stipulates that industrialized countries take 
the lead in cutting back on emissions of such global warming 
gasses as carbon dioxide (CO2). The pact was adopted in late 
¶1997. In the spring of 1998, British industry, represented by 
such persons as Lord Marshall, president of the Confederation of 
British Industry), and the British government started talks on an 
effective system for emission cuts. 
 
This system, called a cap and trade program, combines a climate 
change tax and trade in emission rights. The EU adopted it last 
year. The system will set international standards as a mechanism 
for government to support the private sector's autonomous efforts 
to reduce emissions of greenhouse gasses. 
 
The Kyoto Protocol went into effect on Feb. 16, 2005, seven years 
after its adoption. What emission reduction programs has Japan 
implemented during that timeframe? 
 
Edo, the world's largest city more than 100 years ago, had a 
sophisticated society centered on recycling. Now Japan has the 
highest level of energy efficiency among industrialized countries 
as a result of energy-conservation efforts. It had been expected 
that Japan would set a model as an emission reduction society 
with the enactment of the Kyoto Protocol. 
 
The first commitment period of the pact starts in 2008. However, 
Japan has only partially started government-sponsored programs, 
including putting in motion a top-runner formula, energy- 
conserving guidelines for household electric appliances. Carbon 
emissions trading system is still at the experimental stage. The 
introduction of an environmental tax has been put off for the 
second consecutive year. 
 
It is time for Japan to introduce a system aimed to promote 
emission cutbacks in a sustainable manner, instead of waiting for 
industrial circles and consumers to act spontaneously. In that 
sense, it is worthy of attention that from among business 
circles, which had opposed the idea of introducing a new tax, the 
Japanese Association of Corporate Executives (Keizai Doyukai) has 
called for changing the present concept of taxation by 
drastically reviewing the current tax system, under which taxes 
are imposed where it is easy to do so. It has proposed 
introducing an environment-friendly carbon tax and incorporating 
it into general revenues. 
 
The global trend is definitely changing. Even in US Congress, 
there are almost no lawmakers who deny the argument that global 
warming has been caused by human activities. The US 
administration has opted out of the Kyoto Protocol and still 
remains outside the framework. However, various economic measures 
to cut emissions, based on market mechanisms, were worked out in 
detail during last year's meeting of the parties of the Kyoto 
Protocol, and they have now gotten under way. 
 
TOKYO 00000923  012 OF 012 
 
 
 
Discussions on the next framework that will replace the Kyoto 
Protocol have already started. Various forms for such a framework 
have been proposed and searched for. Japan should take the lead 
in such talks, while achieving reduction targets set in the Kyoto 
Protocol. 
 
SCHIEFFER