JBIC’s Business Model forsupporting Kyoto Mechanism Projects

Takashi HongoDirector General and Special Advisor

for Kyoto MechanismsJapan Bank for International Cooperation

“Asia-Pacific Regional Approach toClimate Friendly and Climate Change-resilient Society”

at Jakarta, Indonesia, 5-8 September 2006

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1. An Official Financial Institution with Special Mandate owned by the Japanese government

2. Major Financing Tools･Export Finance･Overseas Investment Loans･Untied Loans･ODA Loans

3. Outstanding Lending as of the End of March 2005USD201,181 million equivalent (cf. World Bank: USD223,177 million)

4. International Network4 Resident Executive Directors and 27 Representative offices

About JBICJapan Bank for International Cooperation

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JBIC’s role at Carbon Market

1. Financing

2. Arranging carbon credits for Japanese buyers( for JCF and Japanese government)

3. Initiation of new structuree.g.. Green Investment Scheme

Demand Side Management CDMContribution for Asian Pacific partnership for Climate Change and Clean

Development and Gleneagles Initiative for Clean Energy

4. Organizing and supporting business seminar1) CO2 Seminar (CO2 Caravan)

• London, Paris, Brussels, Frankfurt, Vienna, Hong Kong, Sao Paulo, Manaus

• Tokyo, Osaka, Nagoya, Sapporo, Kitakyushu2) Co-works with Japan Institute for Overseas Investment (JOI) and JETRO

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CO2 Caravan by JBIC

May 2006 in Hong Kong. From April 2005 JBIC held CO2 Caravan in 16 cities in and out of Japan

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Carbon Expo Asia

First big carbon emission business messe in Asia. ---- 26- 27 October 2006 in Beijing

JBIC participate it as a partner under the cooperation with World Bank, Asian Development Bank. Around 800 people from 30 countries are expected.

Presentation about the policy and market climate.Exhibition and side events by governments, public institutions,

sellers, investors.Networking meeting

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General Background of

Kyoto Mechanisms

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What are Merits of the Kyoto Mechanisms?

1 To reduce GHG emissions at a reasonable costJapan has already achieved the high level of energy efficiency and further

reduction in energy consumption is very expensive. In contrast, developing countries have substantial headroom for improving energy efficiency at a reasonable cost.

2 To contribute to environmental improvement and economic development in developing countriesThe Kyoto Mechanisms are good instruments for attracting foreign direct

investment and increasing technology transfer from developed countries.

3 To provide business opportunityProjects will generate greater cash flows through sales of carbon credits. Thus more projects can be realized.

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Japan’s commitment to Kyoto Protocol

Reduction target under Kyoto Protocol --- 6 %

by domestic measuresenergy efficiency investment at industryefforts to energy savings at households and offices( such as ‘cool-biz’)

Around 170 million ton equivalent is over the Kyoto Target

Use of carbon credits from Green House Gas emission reduction projects for compliance

• Government’s target : 100 million ton equivalent

• Industry under voluntary reduction commitment

Others2323%

Nerderlands8

8.0%Italy11

11.0%

Spain5

5.0%

UK15

15.0%

Japan38

38.0%

Japan’s presence on the Carbon Market Carbon credit contract between Jan.2005-March 2006

Source : World Bank report, May 2006

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Number of the projects registered at UNFCCC

1 10

63

256

0

50

100

150

200

250

300

End of Dec.04 End of Jun.05 End of Dec.05 As of 4 August

Spain74%

France64%

Others1912%

Canada8

5.1%Japan

2314.6%

Sweden7

4.5%

U.K40

25.5%

Nerderlands47

29.9%

Source UNFCCC

By country as of 4 August 2006

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Carbon Credits price

Source European Climate Exchange

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

05/0

5/24

05/0

6/06

05/0

6/16

05/0

6/28

05/0

7/08

05/0

7/20

05/0

8/01

05/0

8/11

05/0

8/23

05/0

9/05

05/0

9/15

05/0

9/27

05/1

0/07

05/1

0/19

05/1

0/31

05/1

1/10

05/1

1/22

05/1

2/02

05/1

2/15

06/0

1/06

06/0

1/18

06/0

1/30

06/0

2/09

06/0

2/21

06/0

3/03

06/0

3/15

06/0

3/27

06/0

4/06

06/0

4/20

06/0

5/02

06/0

5/12

06/0

5/24

06/0

6/06

06/0

6/16

06/0

6/28

06/0

7/10

06/0

7/20

06/0

8/01

transaction datection date

Price

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JBIC’s Support for GHG Emission Reduction Projects

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Transfer of Credits

Cooperation Agreement

Supply of Equipment & Technology

Support

Finance

〔Investor Country〕〔Host Country〕

JBIC’s Business Model forGHG Emission Reduction Project

Japanese Government

Supplier

JBIC

Government

GHG Emission Reduction Project

JCF

CreditParticipation

Participation,Information

Carbon Credits

Carbon Credit Buyer

Kyoto Mechanism( UNFCCC )

< International Rule >

Approval andRegistration

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Methane Gas Recovery Project in China

ADB

Japanese companies

Cooperation Agreement

Loan (USD20million)

Chinese Government

JBIC

PCF

World Bank

Coal Mine

Power Generationfor the Project JCF

Carbon Credits

Carbon Credits

Methane GasCDM Project

Participationand CarbonCredits

Loan

Carbon Credits

Carbon Credits

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Transfer of Credits

Cooperation Agreement

Supply of Equipment & Technology and Investment

Letter of Endorsement

Finance

〔Investor Country〕〔Host Country〕

Wind Power Project-Joint Implementation Project-

Japanese Government

Japanese Company

JBIC

Government ofBulgaria

Wind Power Project(Japanese Bulgarian Joint Venture)

JCF

CreditsParticipation

Carbon Credits

Carbon Credit Buyer

MOU

Kyoto Mechanisms( UNFCCC )

< International Rule >

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CDM Enhancement Loan by JBIC

Cooperation Agreement

Loan (USD100M)

Cooperation andInformation

JBICJapanese Commercial BanksBCIE

CDM Projects JCF

OtherCredit Buyers

Carbon Credits

Carbon Credits

On-Lending Banks

Sub-Loan

Eligible countries : 5 countries

Guatemala, El Salvador, Honduras,

Nicaragua, Costa Rica

Potential projects

Small hydro, biomass, etc.

Sub-Loan

JapanesePrivate

CompaniesCredits

Participation

Preferred Status

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JBIC’s Challenge in Demand Side Approach

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Financial Support for Energy Chain

Coal Mine

ECAs

TransmissionDistribution

Financing

Coal fired

Renewable

Gas fired

Electricity

ProductsGas FieldLNG

ProductionFacility

Energy Strategy

Government

Household

Electricity

Electricity

Demand SideLess Demand

Less DemandFinancial Advice

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Implementation Agency

Energy Efficiency Program at Consumer products

AGovernment

JBIC

JCFCarbon Credits

Advisory Committee for energy efficiency program

Suppliers Consumer

Payment

Cash Back

Request for cash back with green seal

Loan for implementation cost and incentivesInstruction for implementation of

energy efficiency program andIncentive

high energy efficiency productswith green seal

MOU on Energy Efficiency Program

Eligible criteria for energy efficiency

MOU on EnergyEfficiency Program

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Merit of Demand Side ApproachCase Study– Switch to Compact Florescent Lamps

< Assumption >A city with 10 million population with 3 million households and8 lamps per house50 % of lamps are replaced by energy-saving lamps.

< Merits >500 MW power peak load plant will become redundant.USD400 to 450 million will be saved after deducting the cost of

government incentives

< Lesson >Not only working on the supply side but also demand

side energy management is an effective approach to reducing GHG emissions.

5%

Household13%

Transportation21%

Other industry16%

Energy,Industry

45%

Japanese CO2 emission by sectors ( Y2000 )

Source ; Japanese government

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JBIC Signed Cooperation Agreements

withInternational Organizations:

World BankCABEI (Central American Bank for Economic Integration)CAF (Corporación Andina de Fomento )Regional Environment Center (REC)

Foreign Governments:Bulgaria , Romania, Mexico, Chile, Colombia, Vietnam, Morocco, Brazil, Peru, Paraguay, Indonesia, Sri Lanka

Others Partners:IETA, ICICI Bank(India), TMB Bank(Thailand), RHB

Bank(Malaysia)

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Contact InformationJapan Bank for International Cooperation

Takashi HongoDirector General and Special Advisor for

Kyoto Mechanisms1-4-1 Otemachi, Chiyoda-ku, Tokyo

Tel.81-3-5218-3159Fax. 81-3-5218-3433