Green Finance for Green Growth ~ Public Private Financial Partnership ~

1. Green Finance for Green Growth ~ Public Private Financial Partnership ~ 17November 2010 Takashi Hongo Special Advisor and Head of Environment Finance Engineering Department Japan Bank for International Cooperation

2. Green Finance for Green Growth 1

3. Triple Threats Economic Growth ofAsia Financial Crisis Energy Constraint Environment Constraint Green Stimulus Technology Driven Private Driven Market-base Mechanism Level Playing Fields Access to Clean Energy Green Growth

4. Demand and Supply of Additional Investment

5. Copenhagen Accord • Keep the increase in global temperature below 2 degrees. • Emissions targets of Annex I Parties for 2020 are to be submitted by 31 January 2010. • Nationally appropriate mitigation actions (NAMAs) by Non-Annex I Parties are to be communicated every two years. NAMAs seeking international support are to be recorded in a registry. • Crucial role of REDD-plus • Additional funding to developing countries: • USD 30 billion (2010-2012) • Mobilizing USD 100 billion a year by 2020 (public & private, bilateral & multilateral) • Copenhagen Green Climate Fund • Technology mechanism to accelerate technology development and transfer • Assessment of the implementation of this Accord is to be completed by 2015. Source: UNFCCC 4

6. Green Banking/Green Financing 3R, Low Carbon Operation Greening of Operation Greening of Finance Minimum Requirement Environment Guideline -Commercially Viable BAT -Measurement of CO2 Reduction (MRV) ProactiveFinancing Voluntary actions -Carbon Offset -Sustainable Forest Rating -Weather Index Insurance for Agriculture Contribution for New Mechanism CSR to New Business Model

7. JBIC’s Green Finance 6

8. JBIC for Environment and Bio Diversity (4 arrows approach) JBIC Finance Organizational Operation Finance Consideration of future system Environment Guideline (Avoid, minimize ) Environment Finance ( LIFE, GREEN) Knowledge contribution Project ・3R ・CO2 reductionplan Project ・Study ・Proposal Negative impact Positive contribution

9. “LIFE” (Leading Investment to Future Environment) Initiative by JBIC ●LIFE will … 　　　・support both public and private sectors, 　　　・cooperate with multilateral development banks (MDBs) and mobilize private financing. ●JBIC’s financial support under the Initiative will be around5 billion USD for the next 2 years. J B I C Loans / Equity Investment MDBs (ADB, World Bank Group, etc) Private financial institutions Cooperation (Co-finance, information sharing, etc) Catalytic role Loans, etc Loans, etc Four main targeted sectors of the Initiative are ... ・Clean power generation - Solar, geothermal, wind power, cleancoal power plant, etc ・Energy efficiency improvement- Upgrading of existing transmissions and distributions, modernization and heat recovery of steel furnaces and cement kilns, ESCO (energy service companies), etc. ・Water- Water purification and supply, sewage system, wastewater treatment, desalination and water processing, etc ・Urban transportation - Modal shift in densely populated areas, etc

10. New Financial Program (GREEN) and J-MRV (Global action for reconciling economic growth and environmental preservation) J-MRV ・Scaling up low carbon investment ・“simple, practical and internationally acceptable” guideline ・Following investor’s decision making process JBIC will review the followings 1. Climate change policy of the host country 2. Technology to be used 3. Reduction amount by J-MRV Commercially viable BAT (best available technology) JBIC “GREEN” GHG emission reduction projects Finance Deployment Reduction amount Dialogue Ownership J-MRV ・Industries ・Carbon Players ・Host Government Future carbon market Share Possibility GHG emission reductions (MRV: Measurement, reporting and verification)

11. J-MRV ・Scaling up low carbon investment ・“simple, practical and internationally acceptable” guideline ・Following investor’s decision making process Reduction amounts = Baseline emissions - Emissions from projects Baseline amounts = Emissions in the case without investment Option of Baseline a/ Actual emissions before investment, b/ Emissions from similar installations in operation in the country or in the region c/ Emissions from similar installations recently invested in the country or in the region Taking into account of ・investment climate such as economy, energy, technology, regulation. ・availability and reliability of data Sampling and theoretical value may be applicable http://www.jbic.go.jp/en/about/news/2010/0730-01/100730_mrv_guideline.pdf

12. Reduction Potential of Proven Technology (‘000 ton/Y ) Source: IEEJ CO2 emission reduction potential by using Japanese BAT 11

13. Heat Recovery System of Cement Plant Energy saving and CO2 reduction 18,410Kwh 120,000 ton/y (China, 5000ton X2 units) AQC Boiler PH Boiler Turbine / Generator Building Demineralizer building Cooling Tower Source Kawasaki 12

14. Environment Guideline ・Sustainability of Projects (Risk Mitigation) ・Responsibility of Financial Sector ・International Standard and Custom Local Regulation JBIC’s Environment Guideline ・Pollution control, Natural Environment, Social Environment ・Risk Analysis Department and Independent Third Party ・ECA Common Approach ・Alliance with more than 20 institutions Equator Principle ・Project Finance in developing countries ・Around60 institutions

15. Innovative Instrument for Green Finance 14

16. Forest Eco Fund Network Forest Eco Fund Service Contract Businesses Finances Academia Policies Citizens Management Contract Fund Manager The Good Bankers Rating Evaluation Advisory Investment Rating System 190 items reviewed Investment Fund Institutional and Individual Investors Advisory Board Financial Review Reviewing Forest Friendly Activities of companies Investment Stock Market Forest-friendly Assets Source : The Good Bankers Co., Ltd.

17. Weather Index Insurance for Agriculture (WIIA) Rain Fall No Insurance Payment Minimum Rain Fall (Contract) Insurance Payment (Compensation of drop of income) Rain Fall Monitoring Period month Premium Development of] WIIA Farmers BAAC Sonpo Japan Payment MOU Participation Host JBIC Study （２００８）

18. Value of biodiversity We enjoy biodiversity services. ・Many medicines originate through or were developed by studying biodiversity services. ・Fishing and agriculture depend on biodiversity services. We need to maintain biodiversity for future generations. ・They will need to use biodiversity services just as now, such as genetic businesses developed through science and technology. Today we enjoy biodiversity freely because of its externalities, but without sustainable usage it would be exhausted. Biodiversity must be internalized to the economy

19. Biodiversity-Related Risk for Financial Institutions Risk Mitigation Short term risk Financial risk Environmental due diligence including biodiversity Financial losses realized on projects because of inadequate management of biodiversity-related risk Reputation and funding risk Proactive finance for projects with biodiversity components Loss of reputation and financial strength through improper management of biodiversity-related risk CSR activities for biodiversity components Mission risk Failure to realize sustainable growth through project financing Contribute to mechanism for BES Long term risk

20. New Technology and Finance Estimation of precipitation by the integrated satellite monitoring system Can we use this system for dam operation or weather derivative?

21. New Technology and Finance Biomass stock monitoring system Can we use this for forest management and forest credit system?

22. Green Finance Proposal 21

23. Green Finance Awareness of Environment Constraint Review of environment impact Proactive Action Risk Mitigation Climate Finance (with MRV) Water Finance Environment Guideline (safe guard) ・Pollution control ・Natural environment ・Social environment Green Finance Alliance (consideration and proposal) System for the future Creating new market (Forest, Biodiversity etc)

24. Public Private Financial Partnership Capacity of Our Planet Change of Lifestyle Use of Technology Better investment climate, More investment Public Sector (Improvement of investment climate) Private Sector (Driving force) Financial Sector (Push last one mile) 23