Japan Leverages Bilateral Agreements to Initiate Low-Carbon Businesses

Osaka – Sunday, August 8, 2010

Nikkei, Japanese newspaper specialized in business/economy, reported today that METI (Ministry of Economy, Trade and Industry) of Japan will make individual bilateral agreements with 9 countries of South East Asia etc., to initiate infrastructure import* leveraging GHG (global greenhouse gas) reduction technologies that Japanese companies possess.

As the first phase, total of 15 businesses will be put onto trial. Such companies including Tokyo Electric Power, Toshiba and Mitsubishi Corporation will be the main participants to start constructing high productivity coal-fired plant and geothermal plant. The agreement includes a system in which Japan purchases the GHG emission allocation equivalent to local GHG emission reduced by technological transfer from Japan, hence initiating and optimizing countermeasure of global greenhouse effect.

1. What is the plan/system?

The plan/system initiated by METI is called “Bilateral Off-Set Mechanism”, based on the agreement made in COP 15 (15th Conference of the Parties) held in Denmark, 2009. With the agreement, allocation of GHG emission can now be traded as long two countries agree.

In this system, Japanese companies implement low-carbon technologies and equipments to partner countries. The GHG reduced as a result will be managed as allocation of Japan. The partner government is to provide the allocation almost free of charge, but high technology level businesses are expected to be executed because the Japanese government will provide financial assistance to the partner countries and companies and send experts to partner countries to support establishment of businesses. Private companies will also benefit from this because they can increase business opportunities through negotiation by the Japanese government.

2. How is the system compared with previous similar ones?

The new system of trading of GHG emission allocation is more beneficial than the previous ones. For example, there have been systems such as CDM (clean development mechanism), in which the UN (United Nations) examine business; however, it took 2 years to be approved by the UN, even if it was approved. Trading allocation based on bilateral agreement is far quicker and more assure. It would be easier and more feasible for private companies to initiate related businesses.

3. Which Businesses were selected by METI?

METI selected 15 businesses among 32 overseas GHG reduction businesses proposed by private companies.

Major Infrastructure Export Businesses Selected by the Japanese Government
(Source: Nikkei, translated by the author)

Partner Country /Primary Private Companies / Business /Annual GHG Reduction Target (1000 ton)
Indonesia / J Power / High-efficient coal-fired plant / 500
Indonesia / Mitsubishi Corp / Geothermal plant / 80
Vietnam / Tokyo Electric Power, Marubeni Corp / High-efficient coal-fired plant / 500
Vietnam / Tokyo-Mitsubishi UFJ, Morgan Stanley / Efficient electrical power grid / 25,000
India / Mizuho Research Institute, Tohoku-Electric Power / High-efficient coal-fired plant / 500
India / Nippon Steel / Waste heat of iron and steel plant / 200
Philippines / Toshiba / Geothermal plant / 350
Philippines / JFE Steel / Waste heat of iron and steel plant / 50
Thailand / Yokogawa Electric / Energy saving of plants / 50
Laos, Myanmar / Taiheiyo Cement / Energy saving of cement plants / 100
China / Nomura Research Institute / Energy saving housing /17,000
Peru / Mitsubishi Corp / Forestry preservation / A few thousand

1) Status of agreement with partner countries

Of course the Japanese government need to agree with the partner countries on calculation of GHG emission reduction and businesses but basic agreement has been made already with 4 countries (Indonesia, Vietnam, Philippines and India) out of 9. Japan is to proceed with sequential negotiations with Thailand, Laos, Myanmar, China and Peru.

2) Partner country that implements the most businesses

Indonesia is the most with 4 businesses to be implemented. Mitsubishi Corporation etc. plan to construct geothermal plants, and J Power plans to construct High-efficient coal-fired plants.

3) Support from the Japanese government

Support including financial will be given from the Japanese government. For example, in the case of high-efficient coal-fired plant business that requires 125 – 150 billion yen to get to the stage of starting operation, private companies expects some financial support from the government. METI will collaborate with Foreign Ministry to support smooth execution of businesses by leveraging JBIC (Japan Bank for International Cooperation) and ODA (Official Development Assistance).

4. Effect of GHG emission reduction

If all 15 businesses are successfully put into practical use it is estimated that 5 – 10 million ton / year of GHG emission will be reduced, when 1.3 billion tons are emitted / year in Japan. It is also estimated that 15 – 20 billion yen is required to purchase the allocation of 10 million ton.


* Infrastructure Export (Source: Nikkei, translated by the author)

This is to leverage technologies etc. of Japanese companies and sell infrastructure facilities such as railway and nuclear plant to overseas countries. In many cases, target countries are developing and emerging countries. The new growth strategy of Japan approved by the cabinet in June 2010 includes initiating infrastructure export, and therefore public and private sectors are collaborating to acquire businesses from overseas countries and regions.

METI recently selected 11 focuses of infrastructure export.
1) Coal fired power generation, coal gasification
2) Electrical power grid
3) Nuclear power
4) Railway
5) Water
6) Recycle
7) Space
8) Smart grid, smart community
9) Renewable energy
10) Information and telecommunications
11) Urban development, industrial estate

The Japanese government is planning to implement all possible measures it has such as public financing and international trade insurance. However, global competition to acquire businesses of Asian countries such as China and Vietnam is extremely tough and in some cases falling behind Korea and other countries. Another risk/challenge is bloat private sector (e.g. public financial institutions).