In addition, electric power firms, such as Tokyo Electric Power Co. (TEPCO), will have to invest in more clean energy projects abroad to make up for carbon emitted from their own plants, because emission-free nuclear power generation is lower than expected, analysts said on Monday.

TEPCO's Kashiwazaki-Kariwa plant, the world's biggest nuclear power station, has been shut since July after being damaged by an earthquake, forcing TEPCO to work its thermal plants harder and to buy electricity from other firms.

"Apart from the government's planned purchase of offset credits, the private sector will have to buy double or more than that," said Yoichi Kaya, director-general of Research Institute of Innovative Technology for Earth.

"Electric power companies are in a tough situation as the 120 million tonnes (of offsets) they have secured would not be enough given a halt of the Kashiwazaki-Kariwa plant," said Kaya, who also chairs a newly-launched group investigating carbon trading for Japan's trade ministry.

Japan has said it intends to meet its obligations under the Kyoto Protocol on climate change by purchasing around 100 million tonnes of credits to be delivered between 2008 and 2012.

These credits could come from privately-owned clean energy projects in developing countries or from countries like Russia which, under the Kyoto Protocol, have a surplus of governmental carbon credits, called AAUs.

GREEN INVESTMENT

NEDO said last week it bought a further 16.7 million tonnes of carbon offset credits, called CERs, from UN-approved green projects in developing countries in the year ended in March after buying 6.4 million in fiscal 2006/07.

The agency is allowed to buy up to 81.2 billion yen ($803 million) worth of CERs in the year to next March, said Shuichi Fukuda, deputy director at the agency's Kyoto mechanism promotion department.

Fukuda declined to comment on the value CER purchases, but said NEDO consults a third-party committee on prices and ways to gauge country risk and project risk.

Benchmark CERs currently trade at around 16.20 euros a tonne, according to the Reuters CER Index.

Under the Kyoto Protocol, Japan must cut emissions to 1.19 billion tonnes in carbon dioxide equivalent a year on average between 2008 and 2012, or 6 percent below 1990 levels.

But rather than declining, Japan's most recent figures show greenhouse gas emissions hit 1.34 billion tonnes in the fiscal year to March 2007. These figures do not reflect the effects of the July 2007 quake that hit nuclear production.

Experts said electric power firms may have to invest in extra green projects abroad to obtain up to 36 million tonnes of CERs annually to 2012. This figure is dependent on when the Kashiwazaki-Kariwa plant resumes operation.

In the year ended in March 2008, Japanese nuclear plants on average ran at 61 percent of their capacity compared to a government-estimated 80 percent required when Tokyo first detailed its plan to meet its Kyoto commitments in 2005.

Analysts say that a one percentage point fall in the running ratio of Japan's nuclear power plants would result in an increase of around 3 million tonnes of CO2 emitted a year.

By October 2007, Japanese power firms had signed contracts securing some 120 million tonnes of project-related emission offsets abroad, although not all are UN approved.

The deals were a part of the industry's voluntary agreement with the government to cut CO2 output per kilowatt hour of electricity by 20 percent.

VOLUNTARY TARGETS