Emissions Trading Begins The Drive to Cut Greenhouse Gas Emissions Heats Up

Transcription

1 Japan Bank for International Cooperation: The Last Five Years of Effort, and Future Challenges Emissions Trading Begins The Drive to Cut Greenhouse Gas Emissions Heats Up JBIC Celebrates 5th Anniversary on October 1, 2004

2 Japan Bank for International Cooperation: The Last Five Years of Effort, and Future Challenges On October 1, 2004, the Japan Bank for International Cooperation (JBIC) celebrated the fifth anniversary of its establishment through a merger of the Export-Import Bank of Japan and the Overseas Economic Cooperation Fund. JBIC is an official financial institution mandated to provide a policy-based finance in support of Japan s external economic policies and its economic cooperation. By merging the functions of the two former institutions, JBIC takes advantage of synergies for the creation of a wide range of strategic policy financing initiatives that promote Japan s overseas economic activities, and the economic and social development and stability of developing countries. JBIC has continually refined and improved its functions and organizational management capacity, serving as a socially conscious screening instrument to ensure that social and environmental responsibilities are met. The following pages examine some of JBIC s efforts over the last five years, and discuss the role it should play in the future. Enhancing Synergies between International Financial Operations and Overseas Economic Cooperation Operations JBIC was established for the purpose of contributing to the sound development of Japanese economy as well as the international economy by conducting: (1) International Financial Operations, such as loans to promote Japanese exports and imports, overseas economic activities of Japanese corporations, and the stability of the international financial order; and (2) Overseas Economic Cooperation Operations, such as loans for the economic and social development of developing countries. JBIC operates under the principle that it will not compete with private sector financial institutions. Since the merger of the two institutions mentioned above and JBIC s establishment in October 1999, the Bank has been able to offer a wide-ranging One Stop Shop assistance menu that incorporates the operations of both former institutions. As a result, JBIC s services are more accessible and offer the best mix of financing instruments for effective, efficient assistance to developing countries. Synergy in Action Case study 1: Assistance for Viet Nam s Electrical Power Industry Since the 1990s, JBIC has been providing assistance for Viet Nam a country experiencing tremendous economic growth primarily targeting the power sector. This assistance has included ODA loans to a public enterprise called Electricity of Viet Nam for the construction of the Phu My 1 Thermal Power Plant. After the government of Viet Nam unveiled a policy to develop electric power facilities with the help of the private sector, JBIC expanded its support to include power projects driven by the private sector, and offered assistance in the form of project financing, under International Financial Operations, for the Phu My 2 and Phu My 3 Thermal Power Plants, which were to be constructed and managed as independent power producer (IPP) projects. JBIC offered comprehensive support for Viet Nam s electric power industry in other ways as well, using its extensive menu of financial services to, for example, provide ODA loans for the Vietnamese government s construction of transmission lines and distribution systems. Phu My 2 Thermal Power Plant 2 JBIC TODAY MARCH 2005

3 Synergy in Action Case study 2: Assistance for Oil Field Development and Electric Power Generation in Azerbaijan Azerbaijan, a country on the Caspian Sea, gained independence from the Soviet Union in Abundant reserves of crude oil and natural gas lie under the Caspian Sea, and Azerbaijan is now developing its oil fields. Japanese corporations are playing a leading role in part of this development, that of the three oil fields of Azeri, Chirag and Gunashli (known collectively as ACG). Crude oil from ACG will be transported by pipeline, and JBIC is providing financing through its International Financial Operations, much of which is being used for pipeline construction. Azerbaijan s electric power facilities dating from the time of the Soviet Union, had seriously deteriorated over time, and JBIC is now providing ODA loans for the construction of the latest gas-fired thermal electric power generating facilities. These facilities will burn Severnaya Gas Combined Cycle Power Plant natural gas produced as part of the oil field development, generating electricity with minimal environmental impact. Through a comprehensive application of both International Financial Operations and Overseas Economic Cooperation Operations, JBIC is contributing to the stabilization of Azerbaijan s energy supplies, while at the same time ensuring a supply of resources for Japan. Synergy in Action Case study 3: Assistance for Reform of the Electric Power Sector in Indonesia To prevent a severe shortage of electricity in the future, the government of Indonesia introduced comprehensive reforms of their electric power sector, as part of a new two-pronged policy to use private-sector capital for the development of electricity generation, and public funds for electric power infrastructure development. Prior to those reforms, JBIC s support for the development of Indonesia s electric power generation had included ODA loans, export loans and untied loans co-financed with multilateral institutions for the country s sectoral reform programs. After the reform policy was unveiled, JBIC took maximum advantage of the experience, knowledge and networking capacity it had gained through its International Financial Operations and Overseas Economic Cooperation Operations to make comprehensive proposals regarding the reform of Indonesia s electric power sector. These proposals were made in conjunction with the World Bank and the Asian Development Bank. Working with the export credit agencies of other countries, JBIC played a leading role in the restructuring of electric power projects by the private sector. In addition, JBIC provided ODA loans and export loans for new electric power projects to strengthen the power supply capacity in Indonesia. JBIC s assistance has been comprehensive, encompassing both policy-related issues particularly support for reform of Indonesia s electric power sector through policy dialogue and infrastructure-related issues, particularly assistance for electric power development using a range of financing instruments. Achieving Both Economic Development and Environmental Conservation To ensure both economic development and environmental conservation, which are essential for the sustainable development of the international economy and society, JBIC confirms that appropriate environmental and social considerations exist for JBIC-supported projects. JBIC also strongly supports projects that specifically target conservation and the improvement of the environment. JBIC has fully implemented its Japan Bank for International Cooperation Guidelines for Confirmation of Environmental and Social Considerations since October These Guidelines unified previous environmental guidelines for International Financial Operations and Overseas Economic Cooperation Operations. To ensure a high level of procedural transparency while applying the Guidelines, JBIC promotes the participation of local residents, places priority on dialogue with those residents, assesses environmental and social considerations, and provides information relevant to those considerations. Objection Procedures have been established as a further environmental safeguard. Examiners in Charge of Environmental Guidelines are appointed from outside the Bank to ensure fair application of the Guidelines. They adjudicate objections brought before them, as provided for by the objection procedures. JBIC TODAY MARCH

4 Japan Bank for International Cooperation: The Last Five Years of Effort, and Future Challenges Steps are taken to disclose information on proposed projects. Prior to making funding decisions, each project is categorized for screening purposes under one of four categories, depending on its potential environmental impact. JBIC provides many other opportunities to ensure good communications with various stakeholders. For example, it organizes seminars on environmental issues, and in 2002 it became the first Japanese governmental institution to issue an annual environmental report. Preferential terms are applied to both overseas investment loan and ODA loan projects targeting conservation and improvement of the environment. Assistance is provided for a wide range of projects, including: - Energy projects promoting the use of natural gas (which emits little carbon dioxide), and geothermal facilities and wind turbines (which are both eco-friendly power generation methods) - Forest conservation and afforestation projects that will prevent desertification, or that will protect or expand carbon-sink forested areas - Pollution prevention projects targeting the reduction of emissions of sulfur oxides and nitrogen oxides, which cause acid rain - Sewage system and waste disposal projects that will improve urban environments and prevent water pollution. Japan has ratified the Kyoto Protocol, an international agreement that aims to mitigate global warming by reducing emissions of carbon dioxide and other greenhouse gases (GHG). Fulfilling its role as a policy-based Japanese financial institution, JBIC makes use of the Kyoto Mechanisms to help achieve Japan s emissions reduction target, the sustainable development of developing countries, and the mitigation of global warming. JBIC has contributed capital to the Prototype Carbon Fund (PCF), which was established by the World Bank to support projects aimed at reducing GHG emissions. In addition, JBIC promotes the overseas environmental business activities of Japanese firms, and has supported the establishment of the Japan Greenhouse Gas Reduction Fund (JGRF) to enable them to acquire emission credits in an effective and stable manner. JBIC has also signed cooperation agreements with the governments of developing countries with a view to promoting Clean Development Mechanism (CDM) and Joint A seminar on Joint Implementation projects Implementation (JI) projects. Costume contest held to promote a project to clean up the Yamuna River in India The Kyoto Mechanisms By ratifying the Kyoto Protocol, Japan has committed itself to reducing, between 2008 and 2012, GHG emissions by an average of 6% below the 1990 level. The Japanese government is considering achieving this numerical target by reducing its domestic GHG emission rate by 4.4%, with the remaining 1.6% reduction to be achieved through the Kyoto Mechanisms. For example, under one of the Kyoto Mechanisms, the Clean Development Mechanism (CDM), Japan (or Japanese firms) would implement projects that reduce GHG emissions in developing countries, and Japan and the participating developing countries would share the emission reductions generated from such projects. This would help Japan achieve its numerical target, and would at the same time promote sustainable development in developing countries. JBIC is supporting projects encompassing the Kyoto Mechanisms. Present and Future Challenges Over the five years since JBIC s establishment, the economies of developing countries in Asia have, by and large, rapidly recovered from the Asian currency crisis, and they are now on a solid footing and performing well. However, weaknesses inherent in financial systems have still not been completely eliminated from these economies. Around the world, various problems remain to be addressed the most important goals include the eradication of poverty, universal education, the prevention of infectious diseases, and improvement in the status of women. 4 JBIC TODAY MARCH 2005

5 Today, global demand for resources and energy has been rising sharply, causing prices for crude oil, minerals and other resources to soar. As the process of globalization of the economy accelerates, Japanese firms are finding themselves in a highly competitive environment. Further, conflicts continue in many parts of the world, negatively impacting Japan s economy and society. Working to resolve such problems affecting the entire international community, JBIC is making the most of the broad network and financial instruments it has developed as an official financial institution. - Contributing to the stability of the international financial order To assist both the firms of Asian countries affected by the 1997 Asian currency crisis, and the Japanese firms operating in those countries, JBIC provided financial assistance, through March 2003, amounting to at total of more than 5.2 trillion for efforts to ameliorate the crisis and promote economic recovery. JBIC will work to prevent another similar crisis in the region, and will promote stable economic growth using all the tools it has available, including guarantees for bonds issued by Japanese firms active in the region, and issuing its own local-currency-denominated bonds. These efforts are designed to support growth in the Asian bond market. - Poverty reduction JBIC is taking vigorous steps to reduce poverty through sustainable economic growth, in the spirit of the UN Millennium Development Goals (MDGs), and in accordance with the New ODA Charter. These efforts include support for projects that will improve economic and social infrastructure, for projects that will further increase benefits for the poor, and for education and other human resource development projects that will contribute to alleviating poverty. Changing Composition of Commitments, FY1999-FY2003 International Financial Operations Export loans Import loans Overseas investment loans Untied loans Guarantees trillion Overseas Economic Cooperation Operations ODA loans Private sector investment finance (loans) Private sector investment finance (equity investments) Ratio of JBIC Involvement in Japan s Major Energy Resource Imports Oil (Thousand barrels/day) Natural gas (Thousand tons/year) Coal (Thousand tons/year) Source: JBIC Domestic demand 4,333 55, ,454 Import dependency rate 99.7% 96.7% 98.0% (FY) (Year: 2000) Ratio of JBIC involvement in imports 14.7% 94.2% 34.5% - Assistance for the resource and energy sectors Japan needs to ensure that it maintains a stable supply of energy, minerals and other resources, all the more now that global supply is so tight. JBIC is therefore actively and systematically supporting Japanese firms through financing energy and natural resources development for projects that will help them purchase or otherwise obtain resource rights and secure selling rights. JBIC is also providing various types of assistance for resource-producing countries, including untied and other ODA loans to improve their roads, railways, ports and other infrastructure. - Support for Japanese firms facing powerful global competition As an official institution, JBIC uses its network of contacts with international organizations and the governments and governmental institutions of other countries to promote the development of an environment in which Japanese corporations can avail themselves of more business opportunities. With its risk taking function, JBIC also helps Japanese firms promote their export of plants and export shipping, and their foreign direct investments. Assistance project Support for reconstruction in Sri Lanka Tapping natural gas reserves in Qatar's North Field JBIC TODAY MARCH

6 Japan Bank for International Cooperation: The Last Five Years of Effort, and Future Challenges - Promotion of the goals of Japan s New ODA Charter One of the basic principles of Japan s New ODA Charter is respect for the Perspective of Human Security, with peace-building being a vital goal. To promote peace-building, JBIC participates with other donor institutions in the planning process for reconstruction in Sri Lanka, Afghanistan, Iraq and elsewhere. JBIC s focus is on economic recovery after a conflict subsides. For example, JBIC is providing ODA loans for reconstruction projects in Mindanao, the Philippines, and in northeastern Sri Lanka and Macedonia. In addition, since April 2004, JBIC has offered preferential terms for ODA loans for countries where conflict was especially destructive, in order to improve humanitarian conditions and assist in rehabilitation and reconstruction efforts. For Greater Operational Transparency and Enhanced Communication with Stakeholders and Civil Society JBIC s activities are achieving very positive results, a fact that is widely known and appreciated in Japan and abroad. As an official institution pursuing an important mission, JBIC is of course obliged to take steps on its own to ensure the transparency of its operations and management. The performance measurement system entitled Performance Measurement for Strategic Management was introduced in fiscal 2002 in order to increase the transparency of JBIC s operations and to emphasize resultsfocused operations. JBIC sets operational targets and then uses the system to review performance. When developing the performance measurement system, JBIC examined sophisticated evaluation systems used in the West, sought advice from an external committee of experts, and solicited public comments In addition to the mandatory statutory financial statements based on its statues, JBIC has prepared and made public annually since fiscal year 2000 its adjusted financial statements in accordance with the accounting principles and practices for private Japanese banks. The Medium-Term Strategy for Overseas Economic Cooperation Operations, which represents JBIC s basic policy for ODA loan operations, is revised every three years to adapt to rapidly changing world circumstances and to the Japanese government s latest Medium-Term Strategy for Official Development Assistance. Quantitative indicators are used when setting targets for ODA loan projects prior to their implementation, and since fiscal 2001, exante project evaluation reports have been made available to the public. On another front, JBIC is strengthening its lines of communication with stakeholders in Japan and abroad. JBIC meets with NGOs on a regular basis, shares information with local governments, and has begun establishing new collaborative ties with Japanese universities with a view to applying their expertise in developing countries. JBIC also conducts activities involving a broad spectrum of the civil society. These include: (1) pilot studies for knowledge assistance and pilot studies for project formation based on proposals from NGOs, local governments and universities; (2) participatory aid promotion seminars to reflect public views and expertise; and (3) the JBIC Thesis Contest for graduate students. JBIC is responding to new challenges through a broad spectrum of activities, often by promoting projects in collaboration with international institutions such as the World Bank and UNESCO, with export credit agencies in Asia and elsewhere, and with other governmental organizations, such as the Japan International Cooperation Agency (JICA). Participatory Aid Promotion Seminar in the Philippines Efforts to preserve a world-class heritage site in Jordan 6 JBIC TODAY MARCH 2005

7 The Kyoto Protocol, which calls for mitigating global warming by reducing greenhouse gas (GHG) emissions, came into force in February Under the Protocol, Japan is obliged to reduce its GHG emissions 6% below the level of 1990, the base year. However, Japan s industrial sector, indeed the country as a whole, has little room to achieve this reduction domestically because energy resources are already being used efficiently. Japan s Guidelines for Measures to Prevent Global Warming propose that 4.4% of the 6% reduction be achieved through domestic measures, with the remainder being achieved by using the Kyoto Mechanisms to obtain emission credits from other countries. (The Guidelines are to be reevaluated and revised in 2004 and 2007.) Japan s GHG emissions are now well above base year levels, creating a further incentive to use the Kyoto Mechanisms. JBIC has long been interested in the Kyoto Mechanisms as a way for Japan to work toward achievement of its reduction targets while promoting sustainable development in developing countries. JBIC has contributed funds for, and is participating in, the Prototype Carbon Fund (PCF), which was established by the World Bank. Since 2004, JBIC has also played a leading role in the establishment of the Japan GHG Reduction Fund (JGRF), the first fund in Asia for the specific purpose of reducing GHG emissions using the Kyoto Mechanisms. The following articles examine JBIC s support for efforts to reduce GHG emissions through application of the Kyoto Mechanisms. International Efforts to Reduce GHG Emissions GHG include carbon dioxide (CO2), methane and chlorofluorocarbons (CFCs). The most common GHG is CO2, which is emitted as a by-product when using fossil fuels especially coal and oil for electric power generation, manufacturing, transportation, and even waste disposal. In 1992, members of the international community agreed on the need to reduce GHG emissions and adopted the United Nations Framework Convention on Climate Change (UNFCCC). So far, 189 countries have signed the Convention. The Convention s supreme body, the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP), met for the first time in 1995, and the Third Session of the Conference (COP3), held in Kyoto in 1997, adopted the Kyoto Protocol. The Kyoto Protocol commits industrialized countries to reducing their collective GHG emissions by at least 5% below the levels of 1990 (the base year). Their emission levels are to be calculated as annual averages for the years 2008 to The overall 5% target is to be met through cuts that vary by country and region for example, Japan is to cut its emissions by 6% below the base year, the EU by 8%, and the United States by 7%. One significant feature of the Protocol is that these target cuts are to be legally binding. Later, the United States stated that it is no longer committed to the Protocol, and this delayed the Protocol from coming into force. Russia ratified it in November 2004, fulfilling the conditions for its enforcement, and it came into force in February JBIC TODAY MARCH

8 Emissions Trading Begins The Drive to Cut Greenhouse Gas Emissions Heats Up Japan s GHG Emissions: Massive Cuts Needed to Counter Continued Increases As part of the process ratifying the Kyoto Protocol, in 2002 the Japanese government amended the Law Concerning the Promotion of Measures to Cope with Global Warming, and introduced the Guidelines for Measures to Prevent Global Warming. The Guidelines propose that Japan achieve 4.4% of its 6% reduction through domestic measures, with the remaining 1.6% to be achieved by using the Kyoto Mechanisms to obtain emission credits from other countries. (The Guidelines are to be reevaluated and revised in 2004 and 2007.) After the oil shocks of the 1970s, Japan enhanced its energy efficiency and launched aggressive efforts to conserve energy resources. As a result, there is now little room to cut GHG emissions much more. Actually, the use of energy resources continues to increase yearly to satisfy socioeconomic demands for greater convenience Japan s GHG emissions in 2003 were about 8% higher than the billion tons (CO2 equivalent) emitted in This means that if Japan is to achieve its Kyoto Protocol targets, it must reduce emissions to 14% below the 2003 level. The Kyoto Mechanisms offer a very cost-effective way to meet this formidable challenge, so it is natural that they are now attracting even more interest. Percentage of Carbon Dioxide Emitted by Major Countries, 2001 Others, 34% The United States, 24% China, 13% France, 2% Italy, 2% Russia, 6% Korea, 2% India, 4% Canada, 2% Britain, 2% Source: Statistics issued by the International Energy Agency Germany, 4% Japan, 5% Global Warming Global temperatures need to be maintained through a delicate balance, with the earth s surface radiating heat outward at the same rate it absorbs heat from the sun. GHG in the atmosphere absorb radiated heat energy, and if the concentration of these gases increases, the temperature of the earth as a whole will rise, resulting in severe global consequences. If current trends continue, it is predicted that by the year 2100, the global mean temperature could increase by up to 5.8 C over the 1990 level. (Information taken from Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change.) Use of Kyoto Mechanisms: A Growing Trend In 2000, the World Bank established the Prototype Carbon Fund (PCF) to pilot emission reductions within the Clean Development Mechanism (CDM) and Joint Implementation (JI) frameworks. The PCF invests contributions from national governments, government institutions and corporations in projects designed to reduce GHG emissions. Contributors receive a share of these emission reductions in the form of emission credits. JBIC contributed US$10 million to the PCF, and in 2003 it became the first domestic official institution to receive 5,640 tons of carbon dioxide Emission Reduction credits verified by a third-party operational entity, which were from the Bank s support for the PCF-funded Chacabuquito small hydropower project in Chile. This case points to new possibilities for capital procurement in developing countries. The trend toward using the Kyoto Mechanisms has been growing recently a number of funds promoting emissions trading have been established, and industrialized countries have launched a range of emission credit programs. It is expected that competition will continue to grow in the emissions trading market. 8 JBIC TODAY MARCH 2005

9 Greenhouse Gas Emissions in Japan: Targets and Actual Tonnages, (GHG emissions, million t) 1,400 1,300 Actual emissions, ,330.8 Base year 1, % increase 1,200 1,100 1,000 Base (FY) Carbon dioxide (CO2) Greenhouse gases other than CO2: Methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6) Base years: 1990 for CO2, CH4 and N2O; 1995 for HFCs, PFCs and SF6 6.0% decrease targets (annual average) 1,162.7 Carbon Dioxide Emissions in Japan, by Sector, (CO2 emissions, million t) 500 Fiscal 1990 and 2002 emissions, specific sectors (unit: million t) Industry (1.7% decrease) Transportation (20.4% increase) 200 Commercial business operations, etc (36.7% increase) Residential households (28.8% increase) (FY) Energy conversion Industrial processes Waste disposal (0.3% decrease) (14.0% decrease) (43.2% increase) Percentages in parentheses: Fiscal 2002 percentage increase or decrease, relative to fiscal 1900 figures Source: Ministry of the Environment, Japan The Kyoto Mechanisms The Third Conference of the Parties to the United Nations Framework Convention on Climate Change (COP3) adopted the Kyoto Mechanisms as a way for countries to collaborate in the achievement of Kyoto Protocol targets and the reduction of global GHG emissions. The Mechanisms permit the numerical targets of one country to include emission cuts in another country, and permit countries to trade emission credits among themselves. The following three mechanisms were agreed upon: Clean Development Mechanism (CDM): Industrialized countries promote projects in developing countries for the purpose of reducing GHG emissions or increasing carbon sinks there, in return for which the industrialized countries receive emission credits that they can apply to their own emission reduction commitments. Examples of CDM projects include: (1) projects promoting renewable energy generation using wind turbines, hydroelectric plants and methane gas recovered from landfills; (2) projects promoting a switch from coal to natural gas; and (3) projects to recover and decompose freons. Joint Implementation (JI): Industrialized countries and economies in transition collaborate on emissions-reduction projects and share the resulting emission credits among themselves, applying them to their reduction commitments. Examples of JI projects could include installing highly advanced generators in a certain country to rehabilitate an obsolete, energy-inefficient power station. Japan has some of the world s most efficient and energy-saving technologies, and is well positioned to play a significant role in JI projects. Emissions trading: This system facilitates the buying and selling of emission credits among industrialized countries and economies in transition. Countries that have reduced emissions more than required under agreed targets can sell their excess emission credits to other countries. Corporations can also engage in emissions trading among themselves. JBIC TODAY MARCH

10 Emissions Trading Begins The Drive to Cut Greenhouse Gas Emissions Heats Up Developing an International Network for Use of the Kyoto Mechanisms Even before the Kyoto Protocol came into force, JBIC wanted to examine the potential of the Kyoto Mechanisms as another way to contribute to the sustainable development of developing countries. It therefore organized seminars on Kyoto Mechanism initiatives, in collaboration with other international organizations with which it had developed strong ties, such as the World Bank, the International Finance Corporation and the Asian Development Bank. One such seminar was the Southeast Asia Forum on Global Warming, sponsored by JBIC, the Asian Development Bank and others in the Philippines in September Later, JBIC held seminars on CDM JI project seminar projects in India (February 2004), in Brazil (April), in Indonesia (June), in Mexico (August, September and October), and in Chile (December). And because central and eastern Europe are attracting attention as promising JI markets, JBIC organized JI project seminars in Hungary and Austria to provide an opportunity to exchange information. On the other hand, JBIC signed a cooperation agreement with the International Emissions Trading Association (IETA), a non-profit organization, in December Later, JBIC signed cooperation agreements with other institutions, with a view to establishing an international cooperative system to promote CDM projects. These cooperation agreements were signed in April 2004 with COMEGEI (Comite Mexicano para Proyectos de Reduccion de Emisiones y de Captura de Gases de Efecto Invernadero, Mexico s Committee for Emission Reduction and Sequestration GHG Projects, which is responsible for overall administration of the Kyoto Mechanisms in Mexico); in August 2004 with the Central American Bank for Economic Integration; in November 2004 with Chile s National Environmental Commission (which is responsible for overall administration of the Kyoto Mechanisms in Chile) and with ProChile (the Chilean Exports Promotion Bureau) and SOFOFA (La Sociedad de Fomento Fabril, the Federation of Chilean Industry) these latter two organizations are responsible for identifying and promoting CDM projects and in December 2004 with the World Bank. Also in December 2004, JBIC and the Bulgarian government pledged cooperation to promote the Kyoto Mechanisms, including JI projects. Two Candidate CDM Projects Supported by JBIC Case study 1 The Zafarana Wind Power Plant Project envisages the construction of an additional wind power facility with a capacity of 120 MW in Zafarana on the Red Sea coast, 220 km southeast of the capital city of Cairo, Egypt, which is approximately twice the capacity of Japan s largest Soya Wind Power Plant. JBIC and Egypt s New and Renewable Energy Authority have already begun the necessary procedures for the application of the CDM. While there remain issues to be resolved before obtaining approval for the application of the CDM, including Egypt s ratification of the Kyoto Protocol, etc., the project could well become the first CDM project financed by ODA loan. Case study 2 The Lahendong Geothermal Power Plant Project envisages the construction of a new geothermal electric generating facility (approximately 20 MW) at the existing geothermal power station in Lahendong, 20 km south of Manado, the capital of the Indonesian province of North Sulawesi. The CO2 emitted because of the use of diesel generators as an alternative in a case the project is not implemented, would still represent a significant GHG emission reduction. Existing wind turbines at Zafarana, Egypt Conceptual drawing of geothermal electric power generating facility in North Sulawesi, Indonesia 10 JBIC TODAY MARCH 2005

11 Asia s First Fund for Efforts to Reduce GHG Emissions As part of its efforts to promote GHG emission reductions through the Kyoto Mechanisms, JBIC joined forces with Japanese private corporations to establish the Japan GHG Reduction Fund (JGRF). Before the JGRF's establishment on December 1, 2004, JBIC and seven major JGRF contributors jointly established and financed Japan Carbon Finance, Ltd. (JCF). The JGRF is the first fund in Asia for the specific purpose of contributing to the achievement of Kyoto Protocol commitments. Its vision and programs were determined by the founders, which are 31 private corporations involved in various sectors including electric power generation, trade, iron and steel manufacturing, the production of electrical and electronic devices, and the automotive industry plus JBIC and the Development Bank of Japan (DBJ). JCF purchases emission credits, and then resells them to the JGRF, as shown in the below flow chart. As a government-affiliated financial institution, JBIC has developed close ties with developing countries through its financing for projects in their countries, and through its international network of contacts. JBIC has also acquired considerable expertise through its financial participation in the Prototype Carbon Fund (PCF). This wealth of knowledge is combined with that of Japanese private corporations with business experience in GHG reduction. In integrating this expertise from the public and private sectors, JBIC is in an excellent position to support and contribute to the achievement of Japan s GHG reduction commitments, to the success of the voluntary action plans of Japan s industrial sector, and to the GHG reduction efforts of developing countries and Japanese corporations. JGRF and JCF: Emission Reduction Purchase Agreement CDM/ JI Projects Emission Reduction Purchase Agreement Emission Reduction Resale Agreement Cooperative Agreements JCF JGRF (Joint stock (Voluntary Payment company) Payment cooperative) Payment (Special Board) Emission Reduction Emission Reduction Credits (Advisory Board) Credits Emission Reduction Credits Management Policy (Special, Advisory Board) Contributor (Japanese private company) (JBIC) (DBJ) Underlying Finance Project Monitoring JBIC Using network of JBIC and DBJ for project funding Cooperation with international organizations and development institutions JBIC, DBJ JGRF: Japan GHG Reduction Fund JCF: Japan Carbon Finance, Ltd. Reducing Japan s GHG Emissions While Supporting Sustainable Development in Developing Countries Within its organization, JBIC has established a Special Advisor for the Kyoto Mechanism position to strengthen the support systems for CDM and JI projects. The Advisor ensures that communication flows smoothly and that information is shared efficiently within JBIC, and coordinates the centralized distribution of information on JBIC activities to other countries. Officials in charge of Kyoto Mechanism operations have been appointed to JBIC s Financing Department and to 26 of its overseas offices. These officials help JBIC identify and formulate new projects, and strengthen ties with the governments of developing countries and multilateral institutions. These ties are also useful during the formation process of projects, and when JBIC organizes seminars and workshops on the Kyoto Mechanisms. Keeping efforts of sharing and release of information through seminars and workshops will also assist in the development of systems promoting the use of the Mechanisms in host countries. There are presumably risks involved in promoting CDM and JI projects in other countries, which are difficult to be undertaken by private sectors especially because the systems supporting such projects are new and cannot yet benefit from the experience of time. JBIC may therefore consider offering direct financial support for the CDM and JI projects themselves. Through efforts promoting effective use of the Kyoto Mechanisms, JBIC will help Japan achieve its Kyoto Protocol commitments and, at the same time, support the sustainable development of developing countries. JBIC TODAY MARCH

12 By Harumi Ao Malaysia Malaysia A Counterweight to the Many Who Studied in the West Jam Karet (Time is Elastic Like Rubber) : Today Just a Memory Malaysia s previous quiet, rural lifestyle is recalled in Jam Karet (Time is Elastic Like Rubber). Many Malaysian rubber plantations have disappeared in recent times, and been replaced with oil palm estates. Oil palm trees grow best within 5 degrees latitude north and south of the equator, making Malaysia and Indonesia ideal locations for oil palm production. If you fly over Malaysia today, in many areas you can look down on oil palm plantations laid out as far as the eye can see. The slow pace of life during the age of Jam Karet is no more. Today, palm oil is a big business, and many people would probably agree that working for that industry is a lot more hectic. Students Who Flocked to Japan Under the Look East Policy Beginning in the days of Jam Karet, and continuing through to the present day, Malaysia has sent many of its young people to study in Japan in the hope that they will better themselves and their country. Under the Look East policy introduced a good 20 years ago, many Malaysian students have gone to Japan to learn the Japanese life outlook and work ethic. Over the last two decades, more than 10,000 Malays have studied in Japan, and more than 1,000 students from Malaysia are normally studying at Japanese universities at any given time. So there is a chance that Japanese people in almost any neighborhood live quite close to a student from Malaysia. What happened to the thousands of graduates who returned to Malaysia from Japan over the last 20 years? Many work for Japanese companies in Malaysia, or in local government offices. Others have started their own companies. But one problem has become evident to many of them over time their time and studies in Japan have not translated into long-lasting contacts with Japan. In other words, they have not been able to develop strong networks to promote business activities benefiting both Malaysia and Japan. Under the Look East policy, Malaysians began studying in Japan some 20 years ago, so the ones in the first batch are now around 40 years old. Those who launched their own ventures are probably only now beginning to reap rewards in their chosen fields, which means that the time to establish strong ties with Japanese companies has just begun. A New Link with Japan Those ties are one step closer to becoming stronger following the formation of the Look East Venture (LEV), which is developing into a Chamber of Commerce. LEV was established by a group of businesspeople, most of who studied in Japan and now manage their own companies in Malaysia. Its main purpose is to develop a network of contacts with Japanese Chambers of Commerce, and to serve as a link supporting the business activities of Malaysian and Japanese enterprises. It has already begun meeting with a number of Japanese Chambers of Commerce, and is moving forward with its plan to develop contacts. It is gaining momentum and has recently signed a Networking Agreement with the Alumni Association of the Keio Business School. This movement is promising. I hope I will be able to offer them support in their endeavors. Those many overseas students took a chance by choosing Japan as their destination for study, rather than the United States, Britain or some other Western country. We wish LEV well as it sets out to develop new ties with Japan, establishing a counterbalance to the strong network already formed by those who studied in the West. These students arrived in Japan in March Informal discussion among representatives of Japanese corporations operating abroad, and an alumni association of former overseas students. Cover: The town of San Carlo de Bariloche in Rio Negro Province, Argentina No part of this magazine may be reproduced without the written permission of JBIC. For inquiries, please contact: JBIC Public Relations Office 4-1, Otemachi 1-Chome, Chiyoda-ku, Tokyo, Japan Tel URL This magazine is printed on recycled paper using environmental-friendly soy ink. Printed in Japan