Sumitomo Mitsui Banking Corp (SMBC) has expanded its carbon credit business by starting proprietary trading to stock credits for corporate customers, the bank said on Tuesday, becoming the first Japanese bank to do so.
The deregulation in December has enabled banks to do such business given growing demand by a variety of companies to buy carbon offsets from abroad to help Japan, the world's fifth-biggest greenhouse gas emitter, meet its goals under the Kyoto Protocol.
Newcomers to the business, so far dominated by trading firms, foreign banks and carbon brokers, are set to heat up competition in particular as the economic slowdown has curbed energy-origin CO2 emissions and so the need for carbon offsets.
But SMBC said it had no sales target for the new broking business.
It's not about how much of carbon credits we're buying to stock up, SMBC spokesman Naoya Matsumoto said. Our business model is to reflect the need of customers.
Previously, the core banking unit of Sumitomo Mitsui Financial Group, Japan's third-largest bank, has provided information on carbon credits to its corporate customers and helped them strike deals with overseas sellers.
Among the latest was its arrangement over a customer's purchase of sovereign carbon emissions rights from forest owners in New Zealand.
SMBC has helped its corporate customers, including power companies, to buy emissions credits upto a total of 20 billion yen ($210 million) from abroad, the value of accumulated deals since the bank started advisory business in 2006, Matsumoto said.
Unlike in Europe, where financial instruments based on carbon emissions are listed, Japan has only over-the-counter markets for either locally generated emissions offsets or offsets from countries with excess emission rights or from overseas clean energy projects.
The Japanese government and power companies and other major polluters have been active buyers of emissions offsets from abroad to supplement domestic energy-saving efforts to meet the country's Kyoto target.
Japan aims to cut greenhouse gas emissions by 6 percent below 1990 levels over Kyoto's 2008-2012 period. But in the year to March 2008, they rose 2.4 percent to a record of 1.374 billion tonnes, leaving hundreds of millions of tonnes to be offset over the five-year Kyoto period by carbon credits from abroad.
(Reporting by Risa Maeda in Tokyo; Additional reporting by Shradhha Sharma in Bangalore; Editing by Clarence Fernandez)