DAILY SUMMARY OF JAPANESE PRESS 02/22/06

UNCLAS SECTION 01 OF 12 TOKYO 000923

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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.

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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."

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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.


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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.


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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.

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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