The issue of climate change and the development of international agreements around carbon targets such as the Paris agreement have engendered the prospect of a carbon constrained future. As a result, individual nations who are signatory to the Paris Agreement have developed ambitious carbon reduction targets in order to restrict temperature rises to two degrees Celsius compared to pre-industrial levels. To achieve these ambitious goals, nations have a variety of policy approaches at their disposal including feed in tariffs, fossil fuel restrictions, carbon capture and storage, renewable portfolio standards and carbon trading regimes. This study investigates carbon trading, and, using Japan as a case study assesses the economic feasibility and environmental efficiency of a carbon trading scheme underpinned by renewable energy deployment. The model employed uses an optimization approach, cognizant of technological, geographic and economic constraints. Findings identify that such an approach incorporating the 47 prefectures of Japan could engender a 42% reduction in emissions without resilience constraints and 34% incorporating a best-mix, resilient approach. Both approaches prove feasible at moderate carbon prices, considering international norms. The findings underpin policy implications for a future national Japanese emission trading scheme to improve previous single prefecture attempts which did not engender carbon trading.
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