UPDATE 1-Japan asks firms to find clean tech projects abroad

* Tokyo to pay $9.5 mln in subsidies for feasibility study

* Deadline for first-round applications due next Tuesday

* To see if primary market is viable for bilateral offsets

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By Risa Maeda

TOKYO, July 8 (Reuters) - Japan is forging ahead with developing an alternative to the U.N.'s complex carbon market, recruiting firms to study the viability of investing in bilateral emissions cutting projects abroad.

Japan, the world's fifth-largest greenhouse gas emitter, wants to encourage the use of home-grown technologies in projects that cut greenhouse gas emissions in developing countries, investments that could be worth billions of dollars.

In return, the offsets generated if and when bilateral agreements are reached could be used to help Japan meet a pledge to cut its emissions by 25 percent from 1990 levels by 2020. A senior government official has said domestic measures alone would make it very hard to meet the target. [ID:nTOE65L09F]

Japan's trade ministry said on Thursday it is recruiting up to 10 firms to study the feasibility of emission-cutting projects in developing countries.

"It's a process of getting know-how and finding out issues to address before making a scheme based on bilateral agreements," said Keisuke Murakami, director of the Ministry of Economy, Trade and Industry's global environmental affairs office.

The country is also looking at launching a compulsory national emissions trading scheme from 2012 at the earliest. [ID:nTOE65E05N] It is a major buyer of offsets from the U.N.'s Clean Development Mechanism (CDM) to help it meet its 2008-12 emission reduction target under the Kyoto Protocol.

JBIC'S LOAN FACILITY

Japan's Bank for International Cooperation (JBIC) last month issued guidelines for assessing the effectiveness of bilateral projects that could make it easier for the country to source offsets. [ID:nTOE65O04P]

The state-run bank has set up its own rules for measurement, reporting and verification (MRV) of emissions cuts in a bid to gain international acceptance for them and to encourage private banks to invest in clean-technology projects overseas.

The rules, to be supported by a 500 billion yen ($5.6 billion) loan facility, could provide a more investor-friendly alternative to the CDM, the rules of which many investors find rigid and inefficient.

The firms to be recruited by the trade ministry will study how to transfer Japan's clean-energy technology to developing countries, how to gauge the scheme's effectiveness in cutting emissions and how to finance it.

No firms have so far applied but the ministry expected many applications by next Tuesday's deadline.

Another recruiting tender for the same purpose is planned by September, making the usage of government subsidies totalling 831 million yen ($9.5 million) for a period now and next March.

The government has not decided if bilateral offsets will only be accepted in Japan's future emissions trading scheme or if they can be traded internationally.

The move to bilateral clean-energy and offset projects is seen as an alternative to the CDM in case stalled global climate talks fail to agree to a successor to Kyoto, whose first phase ends in 2012.

Europe, whose emissions trading scheme dominates the global carbon market, is also looking at the possibility of bilateral offset deals.

The CDM has been criticised as it takes up so much time for processing of projects and often limits the number of projects with the same methodology due to requirements for additionality.

For example, there has been only one approved CDM project for large-sized advanced coal power plant. But the International Energy Agency has said the largest CO2 savings in the power sector are from improving the efficiency of electricity generation from coal, the dirtiest energy source in terms of CO2 pollution but among the cheapest. ($1 = 87.75 Yen)