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The Tokyo Cap-and-Trade Program is the first of its kind that regulates CO2 emissions from all business sectors, where energy consumers are defined in terms of the business establishments they own. Tokyo’s initiative is largely seen as a reaction to the modest national commitment, following the tradition of center-local rivalry.

This study first explains the centre-local relationship in the history of Japan’s environmental governance. It then analyzes the development of the Tokyo’s flagship climate policy and its implications for national and other sub-national governments in Japan. The tactics used by the Tokyo Metropolitan Government to overcome business opposition typically seen in the introduction of GHG control, and future policy challenges are also discussed. The study finds that Tokyo’s policy encourages behavioral changes and technological improvement in the business sector, going a step beyond the existing culture of energy conservation in Japan. An emission trading scheme is often associated with the collapse of carbon markets and the “money game”, rather than a practical tool to reduce CO2 emissions, but the Tokyo Cap-and-Trade Program has demonstrated a policy impact that recasts such an image. A known case of policy diffusion to Saitama prefecture, an immediate neighbor of Tokyo with the fifth largest population in Japan, is also discussed to elaborate on the potential domestic diffusion of the policy.