PLENARY 1 – “Visioning the Strategic Role of DFIs”

Takashi HongoSpecial Advisor and Head of

Environment Finance Engineering DepartmentJapan Bank for International Cooperation

Takashi HongoSpecial Advisor and Head of

Environment Finance Engineering DepartmentJapan Bank for International Cooperation

34th ADFIAP Annual Meeting April 20 to 23, 2011 Acapulco Beach Club & Resort Hotel, Kyrenia, North Cyprus

Green Finance~ Business Opportunities and Role of Financial Institutions

2

Reduction Potential

After 2020, the share of energy efficiency in total abatement declines,while more costly options like biofuels and CCS increase their share

20

25

30

35

40

45

2008 2015 2020 2025 2030 2035

Gt

450 Scenario

Current Policies Scenario

202020302035

Efficiency 71% 49% 48%– End-use (direct) 34% 24% 24%– End-use (indirect)33% 23% 23%

– Power plants 3% 2% 1%

Renewable 18% 21% 21%

Biofuels 1% 3% 3%

Nuclear 7% 9% 8%

CCS 2% 17% 19%

Total (Gt CO2) 3.5 15.1 20.9

Abatement

World energy-related CO2 emissions savings in the 450 Scenariocompared with the Current Policies Scenario, by measure

Source: IEA WEO 2010Source: IEA WEO 2010

-400

-350

-300

-250

-200

-150

-100

-50

0

SteelIndustry

Cement Paper & Pulp Refrigerator AirConditioner

Lighting

Developed Countries Developing Countries

Source: IEEJ CO2 emission reduction potential by using Japanese BAT

(‘000 ton/Y )

Reduction Potential of Proven Technology（ Commercially Viable Best Available Technology)

Reduction Potential of Proven Technology（ Commercially Viable Best Available Technology)

1.5 Billion ton CO2 saving per year >1.3 billion ton CO2 emission a year in Japan

1.5 Billion ton CO2 saving per year >1.3 billion ton CO2 emission a year in Japan

4

Energy saving and CO2 reduction 18,410Kwh120,000 ton/y(China, 5000ton X2 units)

Cooling Tower

PHBoiler

Demineralizer building

AQC Boiler

Turbine / GeneratorBuilding

Source Kawasaki

Heat Recovery System of Cement PlantHeat Recovery System of Cement Plant

0

200

400

600

800

1 000

1 200

2015 2020 2025 2030

Bill

ion d

olla

rs

(20

08

)

Other Countries

Other Major Economies

OECD+

0

500

1,000

1,500

2,000

2,500

3,000

3,500

DevelopingAsia

US J apan

AseanIndiaChina

USD billion

Source IEA

Additional Investment Demand 2010-2030

Low Carbon Investment

Financial Institutions

InvestorsInvestment

Projects

Affluent society

Mission of Financial Institutions

Mission of Financial Institutions

Financial Institutions should support economic growth to realize affluent society under environment constraint. Balancing economy and environment is crucial.

Risk Mitigation

Improve economic return

Improve investment climate

Role of Public Finance for Climate Change

Mobilizing private funding is a key role

Guarantee/InsuranceCo-financing

Low cost funding for co-financingMezzanineInterest subsidies

Policy dialogue for incentive/regulationInformation service/business matching

8

Green Growth and Technology CycleGreen Growth and Technology Cycle

Green Growth

R&D Investment

CommercializationEconomic Return

Diffusion

0 2 4 6 8

Asean

India

China

Japan

ＵＳ

2007

1990

Per Capita Energy Demand

Source IEA. ASEAN is 1980 and 2007

Toe0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1 400

Ele

ctrif

icat

ion

rate

Population without access to electricity (million)

MalawiUgandaBurkina FasoDR of CongoTanzaniaMozambiqueMyanmarAfghanistanKenyaEthiopiaAngolaCameroonSudanYemenBangladeshNigeriaPakistanIndonesiaIndiaOthers

Average electrification rate in developing countries = 72%

1456

Source IEA WEO2009

India300+ million

Access to clean energy

“Emission” or “Reduction”?

Reductions

Emission from invested projects

Emission from invested projects

Emission from Existent facilities

ＬＩＦＥ ＧＲＥＥＮ

Date March 2009 March 2010

Amount USD 5 billion (2years) USD 4 billion (3years)

Eligible area

・ Clean Energy・ Energy Efficiency・ Water Infrastructure・ Urban transportation

JBIC reviews the followings 1. Climate change policy of the host country 2. Technology to be used 3. Reduction amount by J-MRV

RemarksJapanese involvement is a precondition

Government or financial institutions shall be borrower

Green and ＬＩＦＥ

・ Scaling up low carbon investment・“ simple, practical and internationally acceptable” guideline

・ Following investor’s decision-making process

Baseline amounts = Emissions in the case without investment

Option of Baselinea/ 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

Reduction amounts = Baseline emissions - Emissions from projects

Taking into account:・ 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

J-MRVJ-MRV

Reductions

Before Investment After Investment

Taking into account of the capacity increase of the facility by the investmentIn case of new facility, CO2 emission amount of new facility will be compared with the national average of the same type of facility

CO2 emission amount

J-MRV Methodology- Rehabilitation of Coal Fired Power Plant (J-MRV002) -

Reductions

National Average

New Plant

CO2 emission

National Average

J-MRV Methodology- New Coal Fire Power Plant (J-MRV004) -

PrinciplePrinciple

National Average

New Plant

PrinciplePrincipleUnder

ConstraintUnder

ConstraintUnder

RegulationUnder

Regulation

National Average

(Coal)

Regulation,De facto standard

ReductionsReductions

Taking into account constraints, such as energy security, supply and investment economicsAccepting and endorsing establishment of global de facto standard and regulation

ProjectPreparation

ProjectPreparation ConstructionConstruction Project

ImplementationProject

Implementation

JBICJBICRetained

ConsultantRetained

Consultant

Advisory CommitteeAdvisory

CommitteeJ-MRVJ-MRV

For Financial Due DiligenceFor Financial Due Diligence

Operation phase( 1 year after commissioning)

Operation phase( 1 year after commissioning)

At CommissioningAt Commissioning

J-MRV Process

15

Structure of Green Credit Line

J-MRV

J-MRVAdvisory

CommitteeJBIC

RetainedConsultant

Bank

Project

FinanceFinance

FinanceFinance

DataDataData(Planned and actual,Energy consumption,Power generation)

Data(Planned and actual,Energy consumption,Power generation)

DataData CO2 reductionsCO2 reductions

CO2 reductionsCO2 reductions

OpinionOpinion

Share of J-MRVShare of J-MRVCO2 reductionsCO2 reductions

Benefit of MRV for Financial Institutions

Reputational benefit (CSR)

Preparation for regulatory framework

Better Funding

Investment on the opportunities

Future Carbon Market

Green Finance Alliance

Voluntary Participation

Sharing Good Practice

MRV and Disclosure

Message to Industry and Regulators

New Market Mechanism

18

MRV as International Public Goods

FinanceFinance

Carbon MarketCarbon MarketStake HolderStake Holder

RatingRating IndustryIndustry

PolicyPolicy

May, 2010 Cologne, GermanyMay, 2010 Cologne, Germany

Dec, 2010 Cancun, MexicoDec, 2010 Cancun, Mexico

June, 2010 Tokyo, JapanJune, 2010 Tokyo, Japan

Nov, 2010 Siam Reap, CambodiaNov, 2010 Siam Reap, Cambodia

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Public Sector(Improvement of investment climate)

Private Sector(Driving force)

Financial Sector (Push last one mile)

Capacity of Our Planet

Change of Lifestyle

Better investment climate, More investment

Use of Technology

Public Private Financial Partnership