GISPRI - Global Industrial and Social Progress Research Institute

Project sponsored by the Japan Keirin Association

　The Survey and Study Committee for Encouraging Businesses to Address CDM/JI Projects convened four times under the leadership of its Chair, Professor Mitsutsune Yamaguchi (Professor of Economics at the Teikyo University). Observing the principle that CDM and JI must be supplemental to domestic measures in complying with Japan’s Kyoto target cost-effectively, the Committee recognized the needs of using the Kyoto Mechanisms more appropriately. To encourage businesses to comply with their targets set under the Environmental Voluntary Action Plan of the Keidanren most cost-effectively, the Committee conducted the survey and study in order to identify possible barriers obstructing the more efficient use of the Kyoto Mechanisms, as well as to search solutions to remove such barriers from the viewpoint of finding the most effective kinds of measures under the current framework. Major findings and the result of the Committee’s discussions are described below:

■Trend of CERs supplies

　The number of CDM projects approved by the CDM Executive Board, and the overall quantity of CERs to be supplied by such projects have increased exponentially in 2005. As of March 16, 2006, 141 projects have been approved with the estimated CERs supply of 50.5Mt-CO2/year in average. This means that the estimated quantities of CERs issuance will be about 330Mt-CO2 by 2012. Among those CDM projects approved by the Government of Japan, 16 projects have received the approvals from the CDM Executive Board with the estimated CERs supply of 32.7Mt-CO2 per year in average. Despite the amount of CERs demand in Japan identified as about 25.06Mt-CO2 today, it is not easy to determine whether the CERs demand and supply will balance in the future, since above number of CERs from projects is an estimate, the share of the credits to be earned by Japanese companies participating in such projects are not 100%, and the aforementioned demand may increase in the future.

■Decisions made at COP/MOP1

　The COP/MOP1 held from November 28 to December 9, 2005, made several important decisions, which improved the prospects of CDM/JI’s future. To enumerate such decisions, there were the adoption of the Marrakech Accord, establishment of the Article 6 (JI) Supervisory Committee, easing of the use of retroactive credits, start of the review to allow carbon dioxide capture and storage projects as CDM projects, greater possibilities of bundling projects, further promotion of Future CDM proposed by Japan (fundamental measures to promote projects through the development of new methodologies in energy saving and transport, etc.), and review of definitions for small scale CDM projects. If these decisions are to be developed appropriately, they may lead to further increase in the supplies of CDM/JI credits.

■The result of the interviews with business entities

　In our study, we interviewed business entities, including seven power companies, one iron and steel manufacturer, one gas company, one trading company, one consultant company, and one accreditation organization, in order to identify possible barriers against the entities participation in CDM/JI projects. In addition, we invited an individual from the trading company, which have been actively addressing the CDM/JI projects, for intensive discussion at the Committee meeting. Among industries which had targets set by the Keidanren’s Voluntary Action Plan, most business entities have taken measures to actively address the CDM/JI projects in recognition of the needs of such projects from the viewpoint of corporate social responsibility. Some even addressed such projects not only from the viewpoint of complying with the voluntary target, but also in terms of developing businesses abroad for the future. Yet, there were vast differences among companies in terms of enthusiasms for participating in such projects.

■Functional measures

＜Review of a domestic reduction project (unilateral JI) system＞
　Essentially, the purpose of utilizing CDM/JI was to obtain credits cost-effectively. In this sense, there is no need to limit the sites of reduction projects to abroad. If there are any projects, whether abroad or domestically, that can allow the acquisition of maximum credits at minimum cost, then it is most efficient to implement such projects.
　 However, the Keidanren’s Voluntary Action Plan commits one target for all industries (under the Keidanren bubble), without assuming the trading of emissions between industries. The Plan does not specify a voluntary target for each industry. Under such Plan, it is not practical to introduce a system to trade credits earned by the implementation of projects between the participants of the Keidanren’s Plan. Still, it may be worthwhile to review the implementation of projects between the Plan’s participants and non-participants, as the Plan is not participated by every industry, business, or company.
　 Moreover, the past trend of emissions’ increase clearly indicates that the focus of future measures will be in residential and transport sectors. These sectors are thought to have considerable reduction potentials, but no significant initiatives have been placed in these sectors to reduce GHG emissions. Therefore, to implement emission reduction projects between the Plan participants and those in residential or transportation sectors with the possibilities to transfer credits may lead to the cost effective reduction of emissions at the Plan’s participants, while harmonizing with the policies of the Government of Japan that focus on residential and transport sectors.
　 In this sense, it is meaningful to review the possibility of domestic reduction projects. Of course it is necessary to determine the additionality of emissions reduction even in the case of domestic projects. In other words, we need to carefully identify the baseline emissions of residential and transport sectors, and to distinguish between the actual reductions resulted from the existing measures and the reductions resulted from unilateral JI projects.

＜Message toward post 2012＞

　No future framework beyond the commitment period of the Kyoto Protocol has been determined, yet, so it is not clear whether CDM/JI will continue in the future. Such uncertainty is regarded as a significant risk factor for businesses participating in CDM/JI. Although it is difficult for the public sector of Japan to clearly state the continuation of a concrete system, as it is out of their control, if it is possible to send out some kind of messages assuring the “practical continuation of CDM/JI and their credits,” then business entities may actively consider participating in CDM/JI.

＜Others＞

　In addition to the above, to consider CDM/JI from a viewpoint of global advancement in businesses may help business entities’ decision-making for the implementation of projects. Moreover, to encourage the participation of more and broader range of companies in CDM/JI through the share of knowledge and insights, and the activities of strategic capacity building may help develop Japan’s climate change measures more cost-effectively for a longer period of time.

Report on “the Survey and Study Committee for encouraging Businesses to Address CDM/JI Projects”