The Japanese Business Communitys Initiatives to Tackle Climate

The Japanese Business Community's Initiatives to Tackle Climate Change December 2012 KEIDANREN

1. What have we done so far? ～Promotion of the Keidanren Action Plan～

The History of Keidanren Action Plan on the Environment 　April 1991 Keidanren Global Environment Charter Ø Each company must aim at being a good global corporate citizen, recognising that grappling with environmental problems is essential to its own existence and its activities. 　July 1996 Keidanren Appeal on Environment Ø We will take a voluntary, resolute and responsible approach in dealing with important tasks existing in the environmental field. 　June, 1997 Keidanren Action Plan on the Environment ØGlobal Warming Measures ØWaste Disposal Measures ＊December 1997 Adoption of Kyoto Protocol @ COP 3 The progress of the Action Plans is reviewed annually. 2

Keidanren Action Plan (Social commitment) Keidanren’s Action Plan on the Environment is a self regulatory programme to reduce CO 2 emissions voluntarily participated by 34 industries in industry and energy converting sectors. • Programme wide target: ‘to suppress the CO 2 emissions in 2008 -2012(on average) from industrial & energy-converting sectors below its 1990 level’ • Each of the 34 industries sets numerical targets for CO 2 emissions reduction. Targets can be set on a basis of; a) CO 2 emissions, b) CO 2 emissions intensity, c) energy consumption, d) energy intensity • The progress is reviewed annually. 3

Review Process The assessment of progress is conducted every year. The overall performance is publicised by Keidanren Secretariat. Company Data An Industrial Association Data Company Data Keidanren Pressure Aggregate data Calculation/Evaluation An Industrial Association Aggregate data Keidanren Secretariat Calculation & Report Evaluation Committee for the Plan Aggregate data Review of the Plan Peer Pressure An Industrial Association Reviews Expert Pressure Commitment Governmental Councils Public Pressure Public 4

P-D-C-A cycles of the Keidanren Action Plan ●Establishment of the Action Plans by Each Individual Association Numerical Target Setting & Specified Measures Actions for Climate Change Mitigation, etc. ●Compilation (with Verification by the Keidanren Committees) & Publication as the ‘Keidanren Action Plan on the Environment’ ●Constitution of Social Commitment Action ●Additional Measures for Further Actions to reduce CO 2) ●Publication of the Results, Ensuring Credibility & Transparency Do ●Implementation of the Action Plans by Each Individual Association ●International Cooperative Schemes (e. g. CDM, Joint Implementation, etc. ) Check ●Check the Progress of the Actions by the Actual Performance (e. g. CO 2 Emissions & Energy Consumption in the Previous Year) ●Review of the Follow-up Process by the Evaluation Committee to Improve Credibility and Transparency 5

Coverage of the Action Plan The coverage of the Action Plan is significantly large: the CO 2 emissions of 34 industries accounts for 44% of that of Japan’s. • 34 industries participated (566. 6 Mt CO 2) 34 industries 44% 34 industries 83% 6

Participating Industries 7

CO 2 Emissions by 34 Industries in the Industrial and Energy Converting Sectors u. CO 2 emissions from 34 industries in fiscal 2011 were 454. 26 million t CO 2, representing a 10. 1% decrease compared to fiscal 1990 (and a 2. 5% increase compared to fiscal 2009). u. Credits depreciated for the achievement of targets in fiscal 2011 was 30 million t CO 2 (57 million t CO 2 in fiscal 2011, 52 million t CO 2 in fiscal 2009 and 64 million t CO 2 in fiscal 2008) led to an improvement of the CO 2 emission factor accompanying electricity use. As a result, the CO 2 emissions of the 34 industries were 7. 3 million t CO 2 lower than the case where electric power companies had not depreciated their credits (corresponding to about 1. 6% of fiscal 2011 CO 2 emissions). （million t CO 2） Target level Kyoto Protocol commitment period 10. 1％ abatement compared to FY 1990 （FS）

The Attribution Analysis of the Follow-up u. An attribution analysis was made of the 10. 1% decrease in CO 2 emissions between fiscal 1990 and fiscal 2010 for the 34 industries in the industrial and energy conversion sectors. With the increase of production activity and CO 2 emissions factor between fiscal 1990 and fiscal 2011, CO 2 emissions increased 1. 1% and 1. 7%, and the reduction of CO 2 emission per unit factor contributed to decreases of 13. 0%. u. The low carbon rate (the improvement of the CO 2 emission factor compared to fiscal 1990 and the improvement of CO 2 emissions per unit of output compared to fiscal 1990), which reflects companies’ efforts to reduce emissions, was 11. 3%. Comparison to FY 1990 Comparison to FY 2010 Change in production activity*1 +1. 1% -4. 3% Change in CO 2 emission factor*2 +1. 7% +3. 6% Change in CO 2 emissions per unit of output (efficiency improvement) -13. 0% +3. 3% Total -10. 1% +2. 5% Efficiency improvement is the driving force to reduce CO 2 emissions *1 For change in production activity, the indices with the closest relation to energy consumption in each industry were selected. *2 CO 2/MJ for fuel use and CO 2/k. Wh for electricity consumption. 9

The role of Keidanren Action Plan in Japanese Government’s Climate Change Policy Quoted in the Government's Kyoto Protocol Target Achievement Plan (Government Decision: 28 March 2008) "These voluntary action plans by business operators have thus far produced results and the voluntary action plans of Nippon Keidanren are, in particular, playing a central role in countermeasures in the industrial community. The advantages of a voluntary instrument include the ease of selection of superior countermeasures for each actor based on its originality and ingenuity, the likelihood of providing incentives to pursue aggressive targets, and no procedural costs for both the Government and implementing actors. It is expected that these advantages will be further exploited in voluntary action plans by business operators. " 10

International Comparisons of Energy Efficiency in Industrial and Energy-conversion Sectors Japanese industry has been a forerunner in energy saving by launching efforts in the 1970 s following the oil shocks. According to the international comparisons of energy efficiency conducted by participating industries as part of the Fiscal 2010 Follow up, world leading levels of energy efficiency have been achieved once again in participating industries that carried out comparisons. Energy required to produce 1 k. Wh of electricity through thermal power generation （2009） Energy required to produce 1 ton of iron 　（2010) Japan　　　France　　Germany　　 US　　 　China　　　India Japan Korea　 China 　Canada Middle India　 US　　Western Eastern Mexico East Europe Energy required to produce 1 kl of oil products (2004) Japan　　　 Advanced Western 　 US , Canada Asian Countries　 Europe　 Energy required to produce 1 ton of electrolytic caustic soda（2009） Energy saving potential by adopting BAT (Pulp and Paper) （ＧＪ/T） 14 12 10 8 6 4 2 0 Energy saving potential by adopting BAT (Cement) （ＧＪ/T） 12. 9 8. 3 6. 5 0. 3 0. 1 1 3. 0 2. 3 Japan Germany Finland France US Canada Russia World Source: IEA Energy Technology Perspective 2012 Japan 　Brazil 　 India Europe　China　 Korea US World 11

CO 2 Emissions from Energy Consumption in Japan, by Sector (1990 -2009) An examination of trends of Japan’s total CO 2 emissions from energy consumption reveals that, based on final figures for fiscal 2009, such emissions increased 0. 03% compared to fiscal 1990 (a decrease of 4. 1% for all greenhouse gases including non energy consumption CO 2, methane, and alternatives to chlorofluoro carbons [CFCs]). A breakdown of. CO 2 emissions by sector shows that emissions from the industrial sector declined by 19. 9% whereas emissions from the offices and residential sectors increased a substantial 33. 6% and 26. 9%, respectively, compared to fiscal 1990. Total 0. 0% Waste 14. 1% Transport 5. 4% Residence 26. 9% Offices 33. 6% Energy Industries Industrial Processes 30. 4% Manufacturing Industries 19. 9% 40. 0% 16. 2% 30. 0% 20. 0% 10. 0% 20. 0% 30. 0% 40. 0% Source: Ministry of the Environment “Listing of GHG emissions and absorption” 12

Examples of Progress CO 2 emissions from manufactures is reducing steadily. Iron & Steel Paper 1990 2009 change CO 2 emissions (Mt CO 2) 200. 6 165. 6 ▲ 17. 5％ CO 2 intensity (1990=100) 100 92 CO 2 emissions (Mt CO 2) 25. 5 19. 3 CO 2 intensity (1990=100) 100 80 CO 2 emissions (Mt CO 2) 64. 6 59. 5 CO 2 intensity (1990=100) 100 80 CO 2 emissions (Mt CO 2) 27. 4 17. 4 CO 2 intensity (1990=100) 100 101 Automobiles CO 2 emissions (Mt CO 2) 8. 44 4. 53 CO 2 intensity (1990=100) 100 59 Chemical Cement ▲ 24. 5％ ▲ 7. 9％ ▲ 36. 7％ ▲ 46. 4％ 13

2. Where are we heading? ～ Keidanren's Commitment to a Low Carbon Society～

Industrial Sector Business Sector Transportation Sector ü Set reduction targets assuming widespread implementation of the best available technologies for the low carbon path. 　　* Demonstrate viability of targeted reduction levels. Domestic Measures Explore ways of guaranteeing reduction targets will be achieved. Stronger collaboration with consumers, etc. ü Development and commercial adoption of world-leading energy-saving products and services ü Efforts to educate employees and provide information to consumers International Contributions ü Transfers of advanced technology and expertise to motivated developing countries in compliance with international rules ü Reinforcement of private-led undertakings in international cooperation Development of Innovative Technologies ü Formulation and pursuit of sector-specific, medium- to long-range technology development road maps leading to the creation of a low carbon society on a global scale Contribution to the global goal of halving GHG emissions by the year 2050 Corporate Operations Year 2020: Strengthening of domestic GHG reduction measures Keidanren’s Commitment to a Low Carbon Society

"Keidanren's Commitment to a Low Carbon Society" Published in Dec. 2009 [Four pillars] 1. maximising the introduction of best available low carbon technologies in corporate activities, 2. developing and commercializing products and services that harness world leading energy saving technologies for consumers, 3. transferring technology and expertise to other countries, and 4. developing innovative technologies. 16

（1）： Basic Concept • Shared vision： our resolve as members of the Japanese business community to harness our technological prowess and assume an instrumental role in the drive to halve global GHG emissions by the year 2050. • In the coming decade to 2020, domestically, we will fully implement the best available technologies (BAT), and on that basis, strive for maximum reductions in CO 2 emissions from the business and household sectors. Furthermore, overseas, we will actively furnish assistance for motivated initiatives aimed at stemming climate change. And in the process, we will strategically develop innovative technologies that promise breakthroughs in the quest to halve CO 2 emissions by 2050. 17

（2）： Core Policies • Participating industries and companies (collectively, "participating industries") pledge to provide society with world leading low carbon technologies while maintaining and/or improving their own levels of energy efficiency. • Participating industries will publicly announce and pursue a set of voluntary initiatives in line with section 2. 2 below in the interest of fostering the development of a low carbon society of global scale. • Keidanren will pursue the PDCA cycle in partnership with government to ensure that the initiatives by participating industries are steadily and reliably implemented. 18

（3）： Establishment of reduction targets for domestic business operations up to the year 2020 – Set numerical CO 2 reduction targets for the year 2020 based on international comparisons of energy efficiency for each industrial sector in areas ranging from production and service provision to business operations and logistics, and on the assumption that BAT will be implemented whenever new facilities are built or existing facilities are updated. Targets will be expressed in CO 2 emissions intensity or as CO 2 emissions. – In setting numerical targets, utilise international comparisons of energy efficiency and disclose BAT details and implementation plans to demonstrate to the international community that the targets represent the deepest reduction levels attainable. – Additionally, explore ways of guaranteeing that targets will be achieved. 19

（4）： Strengthened cooperation with other interested groups – In the interest of paving the way to the creation of a low carbon society, participating industries will strengthen their cooperative ties with consumers, customers, employees, local communities, and other interested groups. Specifically, take steps to reduce CO 2 emissions through product life cycles, including the development and commercialisation of products and services that harness world leading energy saving technologies. – To complement these efforts, pursue independent initiatives in employee education, information disclosure to consumers (e. g. , highlighting levels of CO 2 emitted when products are used), forestation, and assistance to NPOs, and contribute to efforts to reduce CO 2 emissions across a broad spectrum of sectors, from business to transport to households. 20

（5）： Contributions on the international level – Actively participate in the Asia Pacific Partnership on Clean Development and Climate (APP) and other international frameworks for development assistance and actively transfer advanced Japanese technology and expertise to motivated developing countries in compliance with international rules. – Demonstrate stronger leadership and pursue collaborative ventures aimed at reinforcing private led cooperative international undertakings in electric power, steel, chemicals, cement, and other industrial sectors committed to the creation of a low carbon society on a global scale. 21

（6）： Development of innovative technologies • Japan needs to build a development strategy for the technologies that will facilitate the achievement of the long term goal of halving global GHG emissions by the year 2050. • To this end, each industrial sector should collaborate with universities and other centres of research, clearly identify the technical challenges as well as the GHG reduction potential of those innovations that should be developed and transformed into commercially viable technologies, and prepare and pursue a medium to long range road map for the development and dissemination of new technologies. 22

Towards 50% reduction in 2050 Worldwide CO 2 emission (100 million t-CO 2) BAU 500 400 Diffusion of existing technologies Innovative Technologies Diffusion of existing technologies 40% Innovative Technologies 60% 300 200 100 50% reduction in 2050 Ministry of Economy Trade and Industry, Cool Earth-. Innovative Energy Technology Program, March 2008

Low Carbon Technology Plan by Japanese Government (May, 2008) 24

3. Keidanren's positions on government's climate change policies/measures

Policy Proposal towards COP 18 1. Introduction October 16, 2012 KEIDANREN (Japan Business Federation) Ø Truly effective measures to address global warming will require both developed and emerging/developing countries to reduce emissions while balancing such efforts with economic growth. Ø At COP 17, agreements were made that a new framework applying to all countries will come into force in 2020. Keidanren regards this as the first step toward creating a truly effective international framework. . 2. Reducing GHGs on a Global Scale ØAs global energy demand grows, promoting energy conservation will be the most effective and essential tool. ØThe private sector, which plays a major role in developing technologies, holds the key to success. It is necessary to promote widespread adoption of existing low carbon technologies, products, and services, while developing and deploying innovative technologies. ØJapan has created a society that maximizes wealth while minimizing resource consumption (it has the lowest ratios to GDP of energy use and of CO 2 emissions). It is Japan’s mission to continue to maintain and enhance the world’s highest levels of energy efficiency. ØMeasures to address fluorocarbons, which are outside the scope of the Kyoto Protocol, are also vital from the perspective of controlling GHG emissions. 3. Towards a Truly Effective International F (1) Ar Singlea. Framework m with e All Major w Emitters o r k Participating Responsibly ØThe new framework to apply to all countries from 2020 should require each country to reduce emissions according to its respective capabilities, with no division between developed and developing nations. (2) Interim Efforts Required ØShare Japanese technology, expertise, and experience with a view to emerging and developing countries participating in the framework. ØOffer support via East Asia Low Carbon Growth Partnership Dialogue and African Green Growth Strategy, and sector specific cooperation via GSEP, etc.

4. Swift Construction of Frameworks for Technology Transfer and Financial Cooperation (1) Bilateral Offset Mechanism There is a need to improve CDM, while complementing it with new schemes such as a bilateral offset mechanism, ensuring simplicity, objectivity, and practicality. This requires the following: (a)Establish subcommittees under intergovernmental joint committees to involve and reflect the views of industry, which will take a lead role in projects. (b) Offer policy and financial support for smooth project implementation through measures such as two step loans. (c)Implement appropriate MRV systems and steadily build a solid track record to promote understanding in the international community. (2) Technical Cooperation Ø We hope that TEC and CTCN, which will encourage technology development and transfer, will take shape soon. Ø It will be important to incorporate technologies in which Japan excels into TEC technology maps, make CTCN a reality, and train personnel in developing countries. ØAt the same time, effective protection for intellectual property rights in developing countries is essential. (3) Financial Cooperation Ø We hope that GCF will act as a lever for advancing energy saving and low carbon projects in developing countries. Ø The private sector observers to the GCF board should be discussed and selected by the business community itself to reflect a wide range of views. 27

5. Views on Japan’s Medium-Term Targets Ø Government's “Innovative Strategy for Energy and the Environment” presents various problems, including feasibility. Ø The government should rewrite Japan’s energy strategy to make it realistic and subsequently re examine Japan’s medium term targets. 6. The Japanese Business Community’s Contribution to Achieving a Low-Carbon Society Ø To date, the Japanese business community has made efforts to cut emissions by reducing carbon intensity on the basis of voluntary action plans. Ø From 2013, it is determined to continue contributing to global emission reductions on the basis of Keidanren’s Commitment to a Low Carbon Society. Ø Efforts to fulfill this commitment are vital to contributing to low carbon growth on a global scale, and we hope that government policies will support this aim. Keidanren opposes the introduction of schemes, such as a national emissions trading system, that could hinder innovation. 28

Essential Elements of Japan's Mid-term Target 1. Premise ØThe participation of all major emitters (Without the participation of the major emitters, an international framework will not be effective in stemming climate change, and its fairness will be compromised as well. ) 2. Indispensable Elements (1) International Equity (2) Appropriate National Burden (3) Feasibility/Viability If Japan's abatement cost is excessive vis à vis the US and Europe, it will have a negative impact on macro economy, job & employment, regional economy, and international competitiveness, thereby deteriorating Japan's society. While there a number of important policy issues such as social security, employment, and regional revitalisation, it is imperative to make a decision under the national consensus, on how much resources should be apportioned to climate change. The achievement of the target of the commerce and households sectors is subject to consumers' behaviour. Given initial costs and increased burden of the electricity, a deliberate consideration is required for the coverage of low carbon goods and services.

To wrap up: Last but not least. . . The Japanese business community will: l continue to be the front runner to lead the world energy efficiency l promote the "Action Plan" as a social commitment during the KP l promote the "Keidanren's Commitment to a Low Carbon Society" for the PK l contribute to global emissions reduction through technology assistance/transfer l promote research and development in pursuit for breakthrough technologies l continue our efforts in reducing emissions from homes, offices and transport 30