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Source: Reuters

Japan worries over CO2 deals after Ukraine mystery

Published: 06 May 2010 02:31:02 PST

* Japan wants funds used for clean energy projects

* Talks with other sellers depend on Ukraine outcome

TOKYO, May 6 - Japan's talks with nations including Poland on buying carbon emission rights are being overshadowed by a mystery over vanished funds it paid to Ukraine for such rights, a Japanese government source said.

Ukraine agreed in March 2009 to sell Japan 30 million tonnes of emissions rights for $375 million, and Japan paid half the amount, receiving half of such rights in return. The remainder was due to be bought this year.

The deal was made with the former government headed by Yulia Tymoshenko, but the new government in Kiev says the money has disappeared.

Ukraine's state prosecutor launched a criminal case in late April over what it said was misuse of funds by the previous government.

The affair has cast doubt over whether Japan will go ahead with the rest of the deal.

Tokyo is asking Kiev to make sure the missing money, when recovered, as well as any new funds it pays are used in clean energy projects as stated in the contract, said Eisaku Toda, head of the environment ministry's office of market mechanism.

"If Ukraine clears up all of the issues and promises no recurrence, we can move forward. But if no progress is made we may have to deal with it differently," Toda said. He did not elaborate.

Developed nations which are comfortably below greenhouse gas targets under the Kyoto Protocol can sell excess emission rights to other countries in one of the forms of Kyoto carbon credits, callled Assigned Amount Units (AAUs).

Tokyo does not have any plan to increase scrutiny of other AAU deals it has signed, said a government source who declined to be named.

"We're in talks with other (AAU) sellers. The talks largely depend on whether the remaining 15 million tonnes from Ukraine are delivered as planned or not," the source said.

Japanese companies have bought tens of millions of AAUs in the past.

But the Ukraine agreement is one of only three such deals made by Japan's government. Last year Tokyo also agreed to buy a total 40 million AAUs from the Czech Republic and paid for 25 million, with the other 15 million still outstanding. Another deal with Latvia for 1.5 million AAUs has been completed.

The Japanese government has so far procured 96.6 million tonnes of Kyoto-backed carbon credits from abroad, almost completing its plan to receive delivery of 100 million tonnes over Kyoto's 2008-2012 period to supplement domestic efforts to cut emissions.

According to the latest official data, companies in Japan paid for delivery of 14.6 million AAUs from Ukraine in 2009 after paying for 1.46 million AAUs a year earlier.

Japan as a whole received a total 81.0 million AAUs in 2009, compared with 16.6 million AAUs a year earlier.

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