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Climate Change

Japan moves to mandate carbon trading for automakers

Sales quotas seen as crucial to boost shares of EVs and plug-in hybrids

Automobiles account for nearly 20% of carbon emissions in Japan. (Photo by Tomoki Mera)

TOKYO -- Japan begins talks next week on establishing a carbon offset market for the automobile industry as part of Prime Minister Yoshihide Suga's push for the country to achieve net-zero emissions by mid-century to combat climate change.

Automakers would be required to sell certain percentages of electrified vehicles within their product mix. Companies failing to meet the thresholds must buy greenhouse gas emissions credits from compliant industry peers. The market would be introduced in the late 2020s.

The Ministry of Economy, Trade and Industry will host a conference with automotive stakeholders Dec. 10 to discuss an emissions credit trading system as well as sales quotas for electrics. The talks will be reflected in a plan for cutting greenhouse gases to be published this month.

The carbon credit trading market likely would model the one used in the U.S. state of California. Automakers that fail to meet targets independently or through credit purchases face fines there.

Such frameworks have become a cash cow for Tesla. The electric vehicle producer made $397 million in the third quarter from emissions credit sales alone.

Automobiles hold the key to reducing Japan's carbon footprint, since they account for nearly 20% of the nation's carbon dioxide emissions. EVs and plug-in hybrids made up only 0.9% of the country's auto mix last year.

METI sees carbon credit trading as forming the backbone of the strategy to reduce automobile emissions. The ministry expects that the extra costs involved in purchasing credits or paying fines will encourage domestic automakers to adopt or improve environmentally friendly technologies.

The government aims to eliminate gas-burning autos from new-car sales by the mid-2030s, Nikkei reported Thursday. This likely will force a sea change in Japan's storied auto industry.

Gasoline-powered autos represent 60% of new vehicles in Japan while hybrids make up 30%. Though Japanese automakers are strong in hybrids, they risk lagging behind the shifting global industrial landscape.

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