Development Bank of Japan
Research Report
No. 42

Promoting Corporate Measures to Combat Global
Warming:
An Analysis of Innovative Activities in the Field

September 2003

Economic and Industrial Research Department
Development Bank of Japan

This report was originally published in Japanese as Chosa No. 53
in May 2003.

Overview
Since the Kyoto Protocol is expected to enter into force in the near future, this report analyzes many
corporate programs designed to deal with the problem of global warming, particularly thoseconsidered innovative from the point of energy saving.
It examines the characteristics of these different measures and the framework that underpins them,and considers what further action should be taken to encourage corporate activities to contribute toboth the environment and the economy.

ii

Development Bank of Japan Research Report/ No. 31Contents
Summary ............................................................................................................................................... iii
Introduction ................................................................................................................................. 1

I

Global Warming and the Kyoto Protocol .................................................................................... 2
1. What Is Global Warming? ........................................................................................................ 2
2. How the International Community Is Combating Global Warming: The Kyoto Protocol ....... 2
3. Importance of Corporate Efforts to Combat Global Warming ................................................. 4
4. Difficulty of Combating Global Warming under the Kyoto Protocol ...................................... 4

II

What Japanese Corporations Are Doing to Combat Global Warming .................................. 10
1. Action by Japanese Corporations to Combat Global Warming.............................................. 10
2. Characteristics of Measures Companies Are Currently Taking to Combat Global Warming. 13

III Characteristics of Measures to Combat Global Warming and Barriers
to Implementation ....................................................................................................................... 16
1. Characteristics of Measures to Combat Global Warming ...................................................... 16
2. Barriers to Implementing Measures to Combat Global Warming .......................................... 20
IV Mechanisms Underpinning Innovative Measures to Combat Global Warming.................... 23
1. Motives for Adopting Innovative Measures to Combat Global Warming.............................. 23
2. The Framework Underpinning Innovative Measures to Combat Global Warming................ 25V

The Domestic Corporate Climate................................................................................................. 29
1. Energy Use in Different Industries and the Risks of a Carbon Tax........................................ 29
2. Level of Investment by Different Industries in Combating Global Warming ........................ 34
3. Progress of Different Industries in Meeting ISO 14001......................................................... 36

VI Characteristics of Measures to Combat Global Warming As Exemplified by Innovative
Programs in the Field .................................................................................................................. 39
1. Survey of Winning Entries to the Nationwide Contest for Outstanding Energy-saving
Programs................................................................................................................................. 39
2. Characteristics of Winning Energy Conservation Programs .................................................. 44
3. Features Common to Innovative Programs in the Field ......................................................... 47
4. Fostering Further Innovative Measures to Combat Global Warming..................................... 49
Conclusions .......................................................................................................................................... 51
References ............................................................................................................................................ 52

Development Bank of Japan Research Report/ No. 42iPromoting Corporate Measures to Combat Global Warming:
An Analysis of Innovative Activities in the Field
Summary
1. Japan’s greenhouse gas emissions (of whichapproximately 90% comprise carbon dioxide[CO2]) continue to climb: in FY 2000 they stood
14% above the reduction targets set by the Kyoto
Protocol. Thus, Japan will need to take further
steps to cut emissions in order to meet its
obligations. In this regard corporate measures tocombat global warming assume prime
importance, for the industrial sector accounts for
40% of total emissions (when emissions fromindustrial use power generation are factored in),and companies are also deeply involved inemissions in the commercial and residential andtransportation sectors not only as a direct emitterbut also as suppliers of products and services. On
the other hand, the Kyoto Protocol in its present
form has some limitations as it imposes
substantive emission reductions on only certain
countries, which together produce a mere
10-20% of the world’s total greenhouse gas
emissions flow. That not only creates problems
in terms of the international competitiveness ofcompanies in carbon constrained countries; italso leads to concerns about the effectiveness of
the Kyoto Protocol in preventing global warming.
A multifaceted approach is therefore needed.
2. As can be seen from the Survey ofEnvironmentally Friendly Corporate Activities
compiled by the Ministry of the Environment,
Japanese companies differ considerably in the
degree to which they are taking measures tocombat global warming depending on industry
and volume of sales. Current measures against
global warming are largely confined to major
corporations in certain specific industries. Those
measures typically involve rationalizing energy
demand by reducing wasteful energy usage; inmany cases they are designed at the same time toyield short-term economic returns that do notentail capital investment.

3. Some 80% of Japan’s greenhouse gas
emissions consist of energy-derived CO2. Thatamount is calculated as the product of (1) activity
volumes, (2) energy use efficiency, and (3)carbon content per unit of energy. Therefore any
attempt to achieve greater reductions than arefeasible in the fields of (2) and (3) risks sparking
serious economic and social consequences.
Energy conservation measures are designed tohelp strike a balance between environmental
protection and the economy, an idea that Japan
has made a cornerstone of its thinking, but many
obstacles stand in the way of achieving that goal,
and the country will need to redouble its efforts
to remove them.
4. Despite the uncertain policy climate
resulting from the fact that the Kyoto Protocol
has not yet come into force, certain companies
have thrown off the trammels and taken
ambitious steps to fight global warming. The
basic frameworks underpinning these efforts canbe divided into the following three major factors:(1) incentives (short-term cost reductions,short-tem returns, long-term returns); (2) theinternal management structure buttressing thoseincentives (commitment of top management,
employee awareness, mechanism for managing
greenhouse gas emissions, personnel, technology,
facilities, funding, etc.); and (3) the externalbusiness climate in which the company finds
itself (government policies, shareholders,consumers, local residents, public opinion, themedia, major events, abnormal weather,economic trends, etc.).
These factors interact with one another, andthey differ depending on the industry, the size ofthe company, and the particular circumstances inwhich it stands. Today, with the future course ofgovernment policy still uncertain, internalmanagement structure is a particularly crucial
factor. Even if incentives are weak, companies
can make progress in implementing measuresagainst global warming as long as their internalmanagement structure is solid.

Development Bank of Japan Research Report/ No. 42iii

5. In order to provide a better understanding of
the distinguishing characteristics of theinnovative measures to combat global warmingthat companies are currently implementing, weanalyze the circumstances in which majorindustries find themselves based on the above
model framework. Specifically, we examine therisk of a carbon tax, capital investment, R&D
spending, and the number of certifications for
ISO 14001. Considerable differences are to beobserved between industries in the level of risk
associated with measures against global warmingand how easy they are to reduce emissions. Evenif a carbon tax is brought in and energy prices
rise, it is possible that the manufacturing industry
as a whole will not suffer that much impact, but
the effect will be considerable on certain
branches of the manufacturing industry and theareas where their plants are located.
6. As specific examples of innovative
measures to combat global warming, we examine
in detail 239 programs that between FY
1997-2001 received awards at a nationwide
contest for outstanding energy-saving programs
run by the Energy Conservation Center of Japan.
The industries that won the most awards were, inorder, ordinary steel, four-wheel vehicles,
electronicequipment,
petroleum,andcomponents and chassis. Companies in theseparticular industries were consistent winners, but
their example has failed to catch on, in part
because incentives to fight global warming are atpresent weak. The majority of winning energy
conservation programs focused on rationalizing
energy demand. As for means of implementation,
most programs made the best use of existing
facilities, and there were not so many winners
involved installing new facilities. Even
companies with a strong commitment toconserving energy to some extent continue to beable to pursue such low-cost measures. There
were a fair number of cases of companies
restructuring their internal mechanisms for
managing energy costs. Many energy
conservation programs were implemented fromthe bottom up, with employees taking theinitiative. Almost all the few programs that won
awards in the non-manufacturing sector, whichlags behind in its efforts, were implemented on aiv

Development Bank of Japan Research Report/ No. 42

top-down basis and started with a reassessmentof the amount of energy the company was using.
This suggests that, if more companies are to join
the fight against global warming, it is importantthat first they put in place the necessary internal
emission management structure.
7. The above analysis leads us to offer thefollowing
three
recommendationsforencouraging companies to adopt measuresagainst global warming:(1) Enhance incentives.
Current efforts to fight global warming are
confined to major corporations in certain
industries. Encouraging the corporate community
as a whole to join the fight will require providing
stronger incentives to a broad range of players
while taking into consideration the current
constraints of the Kyoto Protocol. Meanwhile, inorder to facilitate development and disseminationof more advanced technology and know-how
thanisavailable
today,
institutionalarrangements such as providing various
protection for intellectual property rights andpecuniary prizes should be made to enable
companies to recover development costs. That
will, it is hoped, lead to a proliferation ofoutstanding technologies and know-how that canbe shared by society as a whole.
(2) Furtherance of corporate internal GHG
management structure.
Even if incentives are weak, companies can still
make progress in implementing measures against
global warming as long as they have in place aninternal mechanism for managing their GHG
emissions — what might be described ascorporate infrastructure for the fight against
global warming. The conditions also need to beright for bottom-up action, with the company
having committed itself to a policy of taking
measures against global warming. Companies in
the non-manufacturing sector in particular, whichcurrently is doing little on this front and still has
plenty of leeway to make reductions, should be
encouraged to adopt the necessary internalmanagement structure.

(3) Fair evaluation from outside.
One of the reasons that companies are reluctant
to commit themselves to measures against global
warming is that they are not always given due
credit for serious efforts to help prevent global
warming in the long run and for emission cuts asdetermined by product lifecycle assessments(LCAs). Companies need to be fairly evaluated,
and that will require adjusting evaluation
benchmarks and granting LCA emission permits.

All three ideas are interrelated and should
preferably be pursued simultaneously. By
installing the internal infrastructure needed tocombat global warming and disseminating
outstanding
technology
andknow-how,companies can take the first step to decouple
global warming mitigation and economic
activities. Let us hope that progress will besteady.
[Takao Aiba (E-mail: taaiba@dbj.go.jp)]

Development Bank of Japan Research Report/ No. 42v

Introduction
Much concern has been expressed about
Japan’s ability to achieve the targets for
reducing greenhouse gas emissions set in the
Kyoto Protocol, which the country ratified inJune 2002. With greenhouse gas emissions
continuing to climb even after 1990, Japanremains far short of meeting its Kyoto reduction
targets despite implementing a series of policies
in line with the Guidelines for Measures toPrevent Global Warming (below termed the“New Guidelines”) adopted on March 19, 2002,
which form the cornerstone of the Japanese
government’s strategy on preventing global
warming. The New Guidelines call for a review
of progress at certain key junctures (2004,
2007) based on future emission trends as Japan
strives to fulfil its Kyoto obligations, andadditional measures will likely come up for
discussion.
Japan thus needs to redouble its efforts tofight global warming, and industry will be
expected to play a major role. But many sectors
and firms have been hesitant to commit
themselves to taking action on this front, for the
future direction of government policy remains
unclear, plus there is the question of thepotential costs involved. Nonetheless, certain
companies are implementing innovative
programs in the field. This report examines
specific cases of such corporate programs tocombat global warming. It analyzes theirbackground and the framework that underpins
them, then suggests the future course of policy
for promoting corporate measures against
global warming.

Chapter I summarizes certain points
relevant to our discussion that pertain to
fighting global warming within the frameworkof the Kyoto Protocol. Chapter II surveys what
Japanese corporations are doing to combat
global warming. Chapter III identifies thecharacteristics of these measures against global
warming and barriers to their implementation,
while Chapter IV examines the mechanismsthat buttress innovative measures in the field,
identifies key factors involved, and considers
how those factors are interrelated. Chapter V
looks at the domestic corporate climate:specifically, it analyzes the risk to corporate
profits should a carbon tax be introduced andexamines investment by different industries inmeasures to combat global warming. Chapter
VI builds on the preceding discussion by
scrutinizing further into the question of what
exactly characterizes measures against global
warming as exemplified by innovative
programs in the field and identifying points thatthey have in common. The paper concludes
with three broad recommendations, based on
the foregoing analysis, on how to promote
corporate measures against global warming.

Development Bank of Japan Research Report/ No. 42

1

I Global Warming and the Kyoto
Protocol1. What Is Global Warming?
Global warming refers to the additional rise in
the temperature of the earth’s surface andatmosphere across the globe caused byincreased atmospheric concentrations ofgreenhouse gases (GHGs) 1 generated byhuman activity, especially CO2. It has anadverse impact on the natural ecosystem andhuman life and indeed threatens the foundationsof humankind’s very survival. Because its
potential impact is so grave, it is considered oneof the most serious problems facing theenvironment today.
According to the Third Assessment Reportissued in 2001 by the Intergovernmental Panelon Climate Change (IPCC),2 the world’s mostprestigious body in the field, the global averagesurface temperature has increased 0.6 ± 0.2˚Csince 1861, while during the 20th century
average global sea level rose 10-20 cm, andregional climate changes have already affected
a wide range of physical and biological systems
in many areas of the globe. Moreover, thereport cites new, more compelling evidence thatthe warming observed over the past fifty years
can be attributed in the main to human activity.
As for the future, it projects that the global
1

The Kyoto Protocol calls for reductions in six gases:
carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O),
hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), andsulfur hexafluoride (SF6). While the exact breakdown
differs from country to country, CO2 accounts for thelargest share of emissions — over 90% in the case of Japan.
2
The IPCC was set up in 1988 by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP). The role of the IPCC is toconduct an authoritative assessment, on a comprehensive,
objective, open, and transparent basis, of scientific, technical, and socio-economic information on the risk of human-induced climate change, its potential impacts, andoptions for mitigation and adaptation. The IPCC does notcarry out research itself, nor does it monitor climate-related data. It bases its assessment mainly on
peer-reviewed and published scientific/technical literature.
The IPCC enlists the aid of several hundred scientists fromacross the globe in compiling its reports, which are reviewed by experts from around the world.
2

Development Bank of Japan Research Report/ No. 42

average surface temperature will rise 0.4-1.1˚Cover the period 1990-2025, 0.8-2.6˚C over theperiod 1990-2050, and 1.4-5.8˚C over theperiod 1990-2100. It also projects a rise in sea
level of 3-14 cm between 1990 and 2025, 5-32
cm between 1990 and 2050, and 9-88 cm
between 1990 and 2100. The adverse effects ofglobal warming cited in the report include
disruptions in climate, the impact on theecosystem, outbreaks of infectious diseases
such as malaria, and an increase in the numberof people who fall victim to flooding. Then
there is the impact on the market, which thereport measures in terms of the effect on GDP.
No matter what the rise in temperature, many
developing nations will, the report forecasts,
experience a net loss (although this projection isof low reliability), and, if the rise is of morethan a few degrees Celsius, the developed
economies will suffer a net loss as well (which
projection is of low to medium reliability);
moreover, the North-South gap will widen.
2. How the International Community Is
Combating Global Warming: The Kyoto
ProtocolIn May 1992, in an effort to stem the problem
of global warming, the international community
adopted the United Nations Framework
Convention on Climate Change, which took
force in March 1994. (Japan ratified the treaty
in May 1993; to date over 180 countries have
ratified.) The convention’s ultimate objective as
defined in Article 2 is to achieve stabilization ofgreenhouse gas concentrations in theatmosphere at a level that would prevent
dangerous anthropogenic interference with theclimate system. Such a level, the convention
states, should be achieved within a time-frame
sufficient to allow ecosystems to adapt
naturally to climate change, to ensure that foodproduction is not threatened, and to enableeconomic development to proceed in asustainable manner. The convention also callson the developed countries to take the lead incombating climate change in accordance withthe principle of “common but differentiatedresponsibilities.”

GHG
CO2
1,350

1,300

8%
14%

1,250

6%

Level of emissions for base year

1,200

10.5%
1,150

Reduction target for 2008-2012

1,100

1,050

Note: Under the Kyoto Protocol Japan has committed itself to reducing
emissions for 2008-2012 to 94% of the base year. For three gases, HFCs,
PFCs, and SF6, the base year is 1995. Because no data have been released
for the five years 1990-1994, the graph gives the impression of a major
drop in emissions between the base year and 1990.

1,000
基準年
Base
Year

1991

1993

1995

1997

1999

Figure 1-1. Japan’s Greenhouse Gas Emissions
Notes: 1. As of FY 2000, Japan’s greenhouse gas (GHG) emissions stood at 8.0% above those for the base year, thisdespite the slump in the economy. Emissions of CO2 alone (which account for over 90% of the total) were up
10.5%.
2. In terms of individual sectors, emissions were up 0.9% in the industrial sector, 21.3% in the commercial andresidential sector, and 20.6% in the transportation sector.
3. Japan is already 14% above its Kyoto reduction target of 94% of the base year.
4. It can however claim a maximum deduction of 3.9% due to absorption by forest management.
5. There are six GHGs covered by the Kyoto Protocol: CO2, methane, N2O, and HFC and two other gases.
Source:Compiled by DBJ from government and other data.

As prescribed by this accord, in 1995 theFirst Session of the Conference of the Parties(COP1) conducted an initial review of whether
the commitment made by the developed
countries under the convention to return theiremissions to 1990 levels by the year 2000 was
adequate to achieving the convention’s
long-term objective. The signatory states
concluded that this commitment was inadequate
and agreed to adopt a protocol, in which further
measures were to be stipulated, by the time of
COP3.
COP3, which convened in Kyoto in
December 1997, adopted the Kyoto Protocol as

the first step in a sustained, long-term strategy
to cut emissions of greenhouse gases. The
Kyoto Protocol gave legal force to numericaltargets for reductions in emissions by thedeveloped countries.
Japan ratified the Kyoto Protocol in June
2002. It thereby made an international
commitment to reducing greenhouse gas
emissions for 2008-2012 by at least 6% ascompared to the base year (basically 1990) (Fig.
1-1).
Yet Japan’s greenhouse gas emissions
continue to rise. Despite an array of measuresand the slump in the economy, emissions forDevelopment Bank of Japan Research Report/ No. 423

FY 2000 stood 8% above those for the baseyear, which means that the country is already
14% in excess of its Kyoto target.3 Emissions
can be expected to rise further as thecommitment period of 2008-2012 approaches.
Under the Guidelines for Measures to Prevent
Global Warming 4 (below termed simply the“Guidelines”), the Japanese government’s
blueprint for achieving its Kyoto reduction
targets, current policies will continue through2004; then, should they prove inadequate,
additional measures are to be implemented inand after FY 2005. No doubt Japan will finditself having to bolster its efforts to meet its
obligations with a further series of measures in
FY 2005 and beyond.
3. Importance of Corporate Efforts to Combat Global Warming
CO2 accounts for 93% of Japan’s total emissions of the six greenhouse gases covered by
the Kyoto Protocol (as of FY 2000). The industrial sector accounts for 40% of CO2 emissions(when emissions from industrial use power
generation are factored in), the energy conversion sector — power stations and the like —31% (before emissions from power generation
are factored in) (Fig. 1-2). In the commercial
and residential sector (households, commercial
buildings, etc.) and the transportation sector,
not only does corporate activity exert a considerable impact per se; products and services
supplied by corporations also generate thelion’s share of emissions in those sectors. It istherefore of the utmost importance that compa3

According to preliminary figures released by the General Policy Division of the Agency for Natural Resources
and Energy on January 31, 2003 in conjunction with thepreliminary figures on energy supply and demand for FY
2001, energy-derived emissions of CO2 for FY 2001 were
down 2.7% from the previous fiscal year, in part becauseof the worsening economic climate and the effects of acool summer and warm winter. But that does not meanthat emissions have gone into permanent decline, since arise is projected for FY 2002. According to the same set of
figures, energy-derived CO2 emissions for FY 2001 wereup 6.3% over those for FY 1990 — although directcomparison with the figures in Fig. 1-1 is not possible due
to changes in how emissions are measured.
4
The tentative translation of this guideline was “The New
Climate Change Policy Programme.”
4

Development Bank of Japan Research Report/ No. 42

nies make an effort to prevent global warmingon all fronts, not just in their production activities. On the other hand, certain matters lie beyond corporate control, such as consumer preferences, and the scope of companies’ productliability should not extend beyond what is reasonable. An effort should therefore be made toachieve a balanced division of responsibilities
between company and consumer as determinedby what each can best control.
The Guidelines set some rough targets forhow much each sector is to reduce emissions by
FY 2010 as compared to FY 1990: -7% in theindustrial sector, -2% in the commercial andresidential sector, and +17% in thetransportation sector. As of FY 2000, theindustrial sector was 0.9% over the level for thebase year, the commercial and residential sector
21.3%, and the transportation sector 20.6%.
The commercial and residential sector has thus
fallen particularly far behind target.
4. Difficulty of Combating Global Warming
under the Kyoto Protocol
Global warming is a truly global problem thattranscends national boundaries, and the international community needs to work together infighting it. In that regard the Kyoto Protocol
marks the beginning of a new epoch, for it constitutes the first step in framing an international
response to the problem. It has numerous advantages. It makes use of a groundbreaking
market-based mechanism to minimize theworldwide costs of combating global warming— the so-called Kyoto Mechanism — in what
is a first on the international stage. Nonetheless,the Kyoto Protocol agreed upon by the over 180
signatories to the Framework Convention on
Climate Change also possesses many limitations. The United States has withdrawn fromthe accord, and developing countries such as
China, India, and some developed countries
such as South Korea face no obligation to cut
their emissions, even though together they account for over 40% of the world’s total greenhouse gas emissions flow (Figure 1-3). Somehave expressed hopes that the US will return tothe fold, but it would be wise to act on the assumption that there is little prospect of that

Waste disposal(incineration of plastics and waste oil)
2.0%
(2.0%)
Industrial processing

Other (non-fuels etc.)
0.4%(0.4%)(limestone consumption etc.)
4.3%(4.3%)

Energy conversion sector(power stations etc.)
6.9%(30.9%)

Transportation sector(automobiles, ships, aircraft)
20.7%(20.2%)

Industrial sector
40.0%(31.0%)Total
CO2 emissions
FY 2000
1.237 billion tons

Commercial sector
12.3%(5.2%)
Residential sector
13.5%(6.0%)

Figure 1-2
Notes: 1. Inner circle: Percentage of direct emissions by each sector (lower figure in parentheses).
Outer circle: Percentage after emissions by power utilities are redistributed to the different sectors according
to the amount of power each consumes (upper figure).
2. The percentages do not necessarily add up to 100 due to statistical error and rounding of fractions.
3. “Other” includes consumption of lubricants and such, errors in redistribution of emissions from power generation, etc.
Source: Ministry of the Environment, Greenhouse Gas Emissions in FY 2000

happening, as it would be extremely difficult
for that country to meet its Kyoto targets anyway.5
So the Kyoto Protocol covers at most amodest 30% of the world’s total CO2 emissions
flow. Furthermore, countries in the process oftransition to a market economy such as Russia
and Ukraine, which generate over 10% of theworld’s emissions, are not required to make any
special effort to achieve reductions, since theProtocol merely imposes a cap far in excess of
their current emissions. It is therefore expectedthat countries like Russia will enjoy massive
excess emissions quotas known as “hot air.”6 It
5According to projections by the White House and the
US Department of Energy, by around 2010 US greenhousegas emissions will rise to over 30% above their 1990 level.
That is some 40% in excess of Kyoto targets.
6
It is projected that, even if Russia makes no effort tohas been estimated that Russia could rake in asmuch as $25 billion in revenue by selling offthat excess to Japan and other countries.7
achieve reductions, it will still gain an excess emissions
quota equivalent to 20-30% of emissions in the base year.
That excess is termed “hot air.”
7
Much still remains obscure in this regard, since theamount of revenue generated will depend on the selling
price, and it is not clear how much of the excess can actually be sold off. Russia’s base year emissions are roughly
double those of Japan. Therefore, if, say, 20% of thoseemissions prove in excess, Russia will have a surplus
equivalent of 40% of Japan’s base year emissions, or some
500 million tons of CO2, over the five-year period beginning in 2008. That means that a total of 2.5 billion tons of
CO2 will become available for sale without any special
effort on Russia’s part. If that amount can all be sold, it isestimated that, assuming a sales price of $10 per ton ofCO2, it will generate total revenues of $25 billion. But
many questions still remain. Russia’s excess quota is said
to exceed total world demand for emission allowances
Development Bank of Japan Research Report/ No. 42

5JapanCountries other than Japan thatneed to achieve at least 20%
reductions
0.3%

Countries that need to reduce their
without measure emissions by 520% (Canada, the Netherlands,
etc.)

4.9%
7.5%
8.4%

Other developing countries etc.
25.6%Countries with an emissions quota
20-50% greater than their present
level of emissions, which may beable to make a profit by selling
their surplus emission allowances(Russia etc.)
Total emissions of all
countries subject toemissions reduction targets
under the Kyoto Protocol:
maximum 31.8%

10.7%
India
4.0%
Total emissions of developing
countries etc. not subject toemissions reduction targets under
the Kyoto Protocol: 42.6%(basically they are just to receive
transfers of money and technology
from the developed countries)

China
13.0%

Countries that have a reduction
target, but either need to do almost
nothing to achieve it, or need do no
more than reduce their without
measures emissions by 5% or less(the UK, Germany, etc.)

24.2%

Australia: Intends to forgo
ratification
1.4%
US: Intends to forgo ratification on
the grounds that the Kyoto Protocol
is fatally flawed

Figure 1-3. Coverage of the Kyoto Protocol
Note:
Sources:

The figures do not add up to 100% due to rounding of fractions.
Compiled by DBJ from such sources as UNFCCC data, IEA figures on CO2 emissions for 2000, and Aiba andSaijo, The Kyoto Protocol and Global Environmental Strategies of the EU, the U.S. and Japan.

Of the countries that produce theremaining 20% of emissions, i.e., those otherthan Russia and Eastern Europe, quite a few,
including the United Kingdom and Germany,
will either almost not have to do anything or, at
most, need to reduce their level of emissions by
5% from the business as usual emissions or soin order to meet their targets. Therefore, on astrict estimate, just a few countries accounting
for a mere 10% of world emissions flow will
have to grapple in dead earnest, like Japan, withthe reduction of global GHG emissions; even
now that the US has withdrawn from the Kyoto framework; the surplus may command a higher price if kept inreserve until 2013 and beyond, depending on what new
reduction targets are set; and Russia may one day need totap the surplus itself in order to achieve its own reductions.
Nonetheless, there is a good chance that Russia will exercise a monopoly on emission allowance thanks to its massive surplus, and by controlling the world market foremission allowance it may be able to demand a high price.
A senior Russian official has been quoted as stating thatthe country will accept no less than $50 per ton of CO2. It
will be interesting to see what moves Japan, regarded as
the biggest potential buyer, makes in response.
6

Development Bank of Japan Research Report/ No. 42

by a looser definition, only a number ofcountries producing roughly 20% of global
emissions are required to make serious
emission abatement effort.
An international agreement that calls on
the developed countries to take the lead infighting global warming stands to reason inlight of how the problem first arose and thetechnical and financial resources required todeal with it. Still, the Kyoto Protocol in its
present form imposes substantial emission
reductions on only certain countries, which
together produce a mere 10-20% of the world’s
total emissions flow. That has led to concerns
not only about the international competitivenessof companies in carbon-constrained countries,
but even about the actual effectiveness of theaccord itself. Even if a 5% reduction isachieved in 10-20% of global emissions, that is
not going to translate into an overall drop inemissions if there is an increase in theremaining 80-90%. In actual fact it is forecast
that by 2010 emissions in the US and certain
developing countries will rise to over 30%

Carbon leakage is a consequence whereby, when only certain countries undertake measures tocombat global warming, greenhouse gas emissions increase elsewhere. The major channels
through which this may happen include the following three:(1) The imposition of high carbon taxes or equivalent regulations in developed countries
subject to the Kyoto Protocol induces energy-intensive industries to relocate todeveloping countries (which makes it harder for them to join the Protocol later).
(2) Even if industries do not actually relocate, production declines in the developed countries
subject to the Protocol and increases in the developing countries.
(3) Energy consumption in the developing countries rises as energy prices fall.
Assuming that energy efficiency is high in the developed countries and low in thedeveloping countries as is the case today, overall global emissions could rise due to lessenergy-efficient production activity in the developing world. In the worst-case scenario,
developed countries could end up reducing the value added of their goods and losing jobs,
while overall global emissions actually rise.
Figure 1-4. Carbon Leakage
Source:compiled by DBJ.

above their 1990 level. Therefore excessive
hopes should not be placed in the Kyoto
Protocol’s potential benefits in preventing
global warming. It will, it is said, merely reduce
the rise in global average surface temperatureby 0.1-0.2˚C.
Greenhouse gases linger in the atmospherefor 50-200 years; hence global warming is acumulative problem from the past caused by theongoing buildup of greenhouse gases. In thatregard the developed countries cannot escaperesponsibility, even if they were not aware thatenergy consumption causes global warming
beforehand. And the international consensus on
the need for the developed countries to take thelead in combating global warming makes a fairamount of sense, since they are the ones thatpossess the technology and money needed todeal with the problem. However, if only somecountries around the globe are going to adopt
measures to fight global warming, then anumber points need to be kept in mind.
According to one theory, if only somecountries take action to fight global warming,
total global emissions will actually rise due towhat is called carbon leakage. There are various
channels through which carbon leakage may
occur: for example, energy-intensive industries
may relocate from regions on which the Kyoto
Protocol imposes reduction targets to those withno such targets, or energy consumption could
rise in countries not subject to restrictions asmeasures to combat global warming drive downenergy prices (Fig. 1-4). Little practicalresearch has been conducted on the subject ofcarbon leakage, and much remains to beclarified. Still, the fact of the matter is thatJapan has industries like the steel industry, inwhich energy accounts for a high percentage ofthe cost of production and which, moreover, is
exposed to competition from countries such as
the US, China, and South Korea (Fig. 1-5). In
the manufacturing industry as a whole, on theother hand, energy does not account for a very
high percentage of the cost of fuel and raw
materials; one should therefore carefully assess
the impact separately for each type of product(see Fig. 5-1).
As illustrated in Table 1-1, which shows
the destinations of major countries’ exports,
most of Japan’s exports go to the US anddeveloping countries in Asia and elsewhere,
which are not subject to reduction targets under
the Kyoto Protocol. Japan is therefore not in aposition to undertake emission reduction
measures that entail major cost increases. On
the other hand, 60% of EU exports go to otherEU countries, while the percentage of exports
to the US and the developing countries is fairly
low; thus, if the countries within the EU pursue
Development Bank of Japan Research Report/ No. 42

7

In millions of tons
35

Other

30
25
20

North America

15
10Asia excluding China

5

China
Chin

0
92

93

94

95

96

97

98

99

00

01

Figure 1-5. Japanese Steel Exports by Destination
Source:Compiled by DBJ based on Japan Iron and Steel Federation data.

similar policies, the impact on them will be
relatively limited. Moreover, according toestimates by the European Commission, themarginal abatement cost needed to meet the
EU’s Kyoto reduction targets is fairly low, andthe economic burden should not be that great.8
By contrast, many observers project that themarginal abatement cost for Japan will be atleast two to four times that amount.9 That cost
8
See European Commission, European Climate Change
Programme Long Report, June 2001, and European
Commission, “EU can affordably reach Kyoto target according to new report,” 11 June 2001, DN: IP/01/816. This
report states that the EU can afford to cut emissions by
twice the necessary amount with measures costing up to
20 euros per ton of CO2.
9The Interim Report of the Subcommittee for Establishinga Scenario for Achieving the Kyoto Target, which was
issued in July 2001 by the Global Environment Council of
the Central Environment Council, Ministry of the Environment, states as follows: “According to the results ofeconomic analysis using a quantitative model, a 2% reduction in CO2 emission compared to 1990 could be achieved
as of 2010 by imposing a carbon tax of somewhere between 13,000 and 35,000 yen per carbon ton.” The figureof ¥13,000-35,000 works out to ¥3,545-9,545 ($30-$80 at
a rate of ¥120 to the dollar) per ton of CO2. According to
the bottom-up economic analysis contained in this interim
report, which employs the same method of calculation as
the above European Commission report, once private-sector investment risk is factored in, measures costing
more than ¥100,000 per carbon ton ($230 per ton of CO2)
may in certain cases accomplish no more than reducing
emissions to their level in the base year; hence it is possible that Japan will have to take measures costing morethan ten times what the EU has to spend.

8

Development Bank of Japan Research Report/ No. 42

gap could well become reality if Japan insists
on pursuing high-cost measures at home andfails to make use of the Kyoto Mechanism toimplement measures that offer a high level ofcost-efficiency.
In one way the ideal would be for all
countries to demonstrate the same levelcommitment simultaneously, but there is very
little likelihood of that happening, for different
countries have widely diverging circumstances
and interests. Certain countries therefore needto take the initiative. But the wrong approach
will not just do nothing to prevent global
warming; it could set a bad precedent.10 It is
not beyond the realm of possibility that, even if
Japan succeeds in cutting emissions, overall
global emissions could actually rise, so that thecountry will have ended up merely sacrificing
jobs and reducing the value added of its goods.
That is not to advocate doing nothing; far fromit, it is incumbent upon Japan, as the hostcountry of the Kyoto Protocol, to lead the worldin the right direction over the long term. The
fact is that, by making effective use of the
Kyoto Mechanism, it is possible to implement
measures that strike a balance between
environmental protection and the economy.
Recognizing that fact, Japan needs to examine
10

If, say, trading in hot air results in massive transfers ofcash, or reductions in greenhouse gas emissions comemerely in consequence of the hollowing out of industry,these could act as bad precedents that hamper future international efforts to prevent global warming.

carefully its policy options and take action
across a wide range of fronts in order to help

prevent global warming in the true sense of theterm.

Table 1-1. Destinations of Exports from Major Countries and Regions
Exporter

To US

To developing world

To EU

To JapanTo elsewhere

7.6%

20.3%

62.9%

1.9%

7.2%

Germany

8.3%

23.5%

58.2%

2.4%

7.6%

UK

13.2%

20.3%

55.3%

2.2%

9.0%

Japan

29.5%

48.0%

17.3%

42.2%

22.4%

EU

US
Note:
Source:

5.2%
10.0%

25.5%

Average for 1990-2001.
Compiled by DBJ based on IMF, Direction of Trade Statistics.

Development Bank of Japan Research Report/ No. 42

9II What Japanese Corporations
Are Doing to Combat Global
Warming
1. Action by Japanese Corporations to
Combat Global Warming
Here we assess what action Japanese
corporations are taking to prevent global
warming by examining the responses on that
subject contained in the Survey ofEnvironmentally Friendly Corporate Activities
conducted by the Ministry of the Environment
in FY 2001. This is the largest survey of its
kind in Japan. It was administered to (1) 2644
companies listed on the first and second
sections of the Tokyo, Osaka, and Nagoya stock
exchanges and (2) 3716 unlisted companies andbusinesses with 500 or more employees.
Answers were received from 48.8% of (1) and
43.2% of (2).
Fig. 2-1 shows what action listed andunlisted companies are taking to prevent global
warming. A large percentage of listedcompanies answered that they have formulated
a policy and are taking action to prevent global

warming. Over the past three years the numberof listed companies in this category has inched
up, though the increase has not been large. The
same holds for unlisted companies. Since lessthan 50% of the companies surveyed submitted
responses, and it is fair to assume thatcompanies that did not respond lag behind thosethat did in taking action against global warming,
the real number of companies that haveformulated a policy and are taking action isprobably less than the 45% figure seen in the
FY 2001 survey. Conversely, the survey
indicates that over 30% of companies are taking
no concrete action on this front.
Fig. 2-2 shows what action listedcompanies in different industries are taking toprevent global warming. There is a fair amountof discrepancy among them. The electricity andgas supply industry in particular stands out,
with virtually all companies in the field having
formulated a policy and taking action. The
manufacturing sector comes in second, withagain a relatively large number of companies
taking action — though in percentage terms
they constitute only roughly half the total. On
the other hand, in the services sector, real estate,and banking and insurance around half the(Percentage of companies in each category)

50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
①Have formulated apolicy and are taking
action to prevent global
warming②Have formulated a ③Have not formulated a ④Have not formulated apolicy, but are taking
specific policy and arepolicy in so far as
action in so far as
not taking any actual
possible, but are notpossible
actiontaking concrete action⑤Other

FY 2001 (listed firms)

FY 2000 (listed firms)

FY 1999 (listed firms)

FY 2001 (unlisted firms)

FY 2000 (unlisted firms)

FY 1999 (unlisted firms)

Figure 2-1. Action by Japanese Corporations to Prevent Global Warming as Tabulated by Year
Source:10Compiled by DBJ from Ministry of the Environment, Survey of Environmentally Friendly Corporate Activities, FY 2001.

Development Bank of Japan Research Report/ No. 42

(Percentage of companies in each category)

90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

①Have formulated a ②Have formulated a ③Have not formulated ④Have not formulated
policy and are taking
policy in so far asa specific policy and a policy, but are taking
action to prevent global possible, but are notare not taking any
action in so far as
warmingtaking concrete action
actual action
possibleElectricity and gas supply
Retail and food services
All industries
全産業

Manufacturing
Banking and insurance⑤OtherTransport and communications
Services

Figure 2-2. Action to Prevent Global Warming: Cross Tabulation of Listed Companies by Industry
Source:As in Fig. 2-1.
(Percentage of companies in each category)

60.0
50.0
40.0
30.0
20.0
10.0
0.0
①Have
②Have
formulated and formulated planspublicized plans
but not
publicized them

③Underdiscussion

Electricity and gas supply
Transport and communications
Wholesale
Retail and food services
Real estate④No intention to ⑤Unaware of
do so
the Law⑥OtherManufacturing
Banking and insurance
Construction
Services

Figure 2-3. Plans to Limit Greenhouse Gas Emissions: Cross Tabulation of Listed Companies by Industry
Source:As in Fig. 2-1.

number of firms are not taking any action, andonce those companies that failed to respond to
the survey are factored in, it may be concluded
that the majority are doing nothing. In general,
then, the non-manufacturing sector lags behindenergy and manufacturing in taking action toprevent global warming, which means it hasthat much more room for improvement.
Fig. 2-3 shows what action companies indifferent industries are taking to fulfil their
obligation to “make an effort to formulate planson measures to restrain greenhouse gas emissions

Development Bank of Japan Research Report/ No. 42

11(Percentage of companies in each category)

60.0
50.0
40.0
30.0
20.0
10.0
0.0

①Have formulated ②Have formulated ③Under discussion ④No intention toand publicizedplans but not
do so
plans
publicized them¥500 billion - ¥1 trillion¥50 billion - ¥100 billion

Over ¥1 trillion
Under ¥50 billion⑤Unaware of theLaw⑥Other¥100 billion - ¥500 billion

Figure 2-4. Plans to Restraint Greenhouse Gas Emissions: Cross Tabulation of Listed Companies
by Volume of Sales
Source:As in Fig. 2-1.

(Percentage of companies in each category)

35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
①Have
②Have
formulated andformulated
publicized plans plans but not
publicized them

③Underdiscussion④No intention
to do so

⑤Unaware of
the Law

Over ¥100 billion¥50 billion - ¥100 billion¥5 billion - ¥10 billion

Under ¥5 billion⑥OtherNo answer¥10 billion - ¥50 billion

Figure 2-5. Plans to Restraint Greenhouse Gas Emissions: Cross Tabulation of Unlisted Companies
by Volume of Sales
Source:As in Fig. 2-1.

and to publicize those plans” as prescribed in
the Law Concerning the Promotion of Measures
to Cope with Global Warming enacted in 1998.
A mere 15% of listed firms have bothformulated and publicized such plans. In thecase of unlisted firms the figure drops to 7%.
Even among listed firms, despite progress inindustries like electricity and gas supply, inbanking and insurance, services, and retail andfood services the number of companies thathave both formulated and publicized plans is

12

Development Bank of Japan Research Report/ No. 42

zero, and many companies have no intention toformulate such plans or are even unaware of the
Law.
Fig. 2-4 shows how differences in volume
of sales affect corporate action against global
warming. It clearly indicates that companies
with larger sales volumes tend to be further
ahead in dealing with the issue. Roughly half oflisted firms with sales of ¥500 billion or more
have formulated and publicized plans, but that
number slips to one quarter for companies with

sales of between ¥100 billion and ¥500 billion,
and a mere 10% for companies with sales ofbetween ¥50 billion and ¥100 billion.
Fig. 2-5 shows the effect of differences insales volume among unlisted firms. Again, thelower a company’s sales volume, the less likely
it is to have formulated and publicized plans,
and the more likely it is to be at the discussion
stage or have no intention of formulating suchplans at all. Note in particular that less than 5%of firms with sales of under ¥50 billion haveformulated and publicized plans.
As the above overview demonstrates,
today the lion’s share of action to combat
global warming is being taken by major
corporations in certain specific industries.
Meanwhile small and medium-sized businesses,
which make up the majority of companies, andthe non-manufacturing sector excluding energy
lag seriously behind in dealing with the issue.
2. Characteristics of Measures Companies
Are Currently Taking to Combat Global
Warming
Here, based on the same Environment Ministry
survey, we examine the details of measures tocombat global warming that Japanesecompanies are currently taking.
Fig. 2-6 shows the types of measures that
listed companies are taking at the
manufacturing stage. The most common

measure is (3) Streamlining the manufacturing
process, followed by (1) Eliminating wastefulenergy usage. These are the kinds of measuresthat directly translate into short-term profits by
cutting costs, and they can be interpreted as not
involving capital investment in that they makeeffective use of existing facilities. In third placecomes (2) Upgrading facilities, though in FY
2001 the number of companies pursuing thisroute dropped by about 10% compared to
FY2000. Next comes (4) Stopping use ofgreenhouse gases, and, finally, (5) Reducing
production volumes, which a mere handful ofcompanies chose. These categories appear tocover pretty well all the main types of measures,
since only a few firms chose (6) Other.
Fig. 2-7 shows types of measures being
taken in the transport sector. The overwhelming
favorite is (1) Boosting transport efficiency,
followed by (4) Reducing number of runs, (3)Switching to low-pollution vehicles, and (2)Modal shift. Again, measures that makeeffective use of existing facilities and entail
little initial investment appear to dominate. (2)Modal shift accounts for a relatively low
percentage, being presumably the most difficult
to implement. These categories appear to coverpretty well all the main types of measures in thetransport sector, since again only a few firms
chose (5) Other.
Fig. 2-8 shows types of measures being
taken in the commercial sector. The(Percentage of companies in each category)

80
70
60
50
40
30
20
10
0
①Eliminating
wasteful energy
usage②Upgrading
facilities

FY 2001③Streamlining ④Stopping use of
the manufacturing greenhouse gases
process

FY 2000⑤Reducingproduction
volumes⑥Other

FY 1999

Figure 2-6. Measures Being Taken to Cut and Stabilize Greenhouse Gas Emissions at the Manufacturing
Stage: Tabulation of Listed Firms by Year
Source:As in Fig. 2-1.

Development Bank of Japan Research Report/ No. 42

13(Percentage of companies in each category)

70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
①Boostingtransport
efficiency②Modalshift③Switching ④Reducing
number of
to lowruns
pollution
vehiclesFY 2001

FY 2000⑤Other

FY 1999

Figure 2-7. Measures Being Taken to Cut and Stabilize Greenhouse Gas Emissions
in the Transport Sector: Tabulation of Listed Firms by Year
Source:As in Fig. 2-1.
(Percentage of companies in each category)

100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
①Conserving ②Installingenergy-savingenergyequipment
FY 2001③Reducing
operatinghours

FY 2000④Other

FY 1999

Figure 2-8. Measures Being Taken to Cut and Stabilize Greenhouse Gas Emissions in the Commercial
Sector: Tabulation of Listed Firms by Year
Source:As in Fig. 2-1.

overwhelming favorite is (1) Conserving energy,and (2) Installing energy-saving equipment also
chalks up a high percentage. A mere handful ofcompanies chose (3) Reducing operating hours.
These categories appear to cover pretty well all
the main types of measures in the commercial
sector, since again only a few firms chose (4)Other. Conserving energy can take manydifferent forms, and one should be cautious
about making categorical statements, since it isdifficult to know exactly what types ofmeasures are meant; nonetheless, given the factthat (2) Installing energy-saving equipment
14

Development Bank of Japan Research Report/ No. 42

forms a separate category, it seems reasonable
to conjecture that most energy conservation
measures in the commercial sector do not
involve the purchase of energy-saving
equipment and therefore entail little initialinvestment. (2) Installing energy-saving
equipment accounts for a higher percentage ofthe total in the commercial sector than dosimilar measures in the manufacturing andtransport sectors involving the installation of
new equipment; this can probably be attributed
to the relatively lower unit price ofenergy-saving equipment in this sector.

Table 2-1. Characteristics of Measures against Global Warming Commonly Pursued in the Corporate
SectorDesigned to
Designed toPercentage,
rationalize energy improve equipFY 2001
demand?
ment efficiency?

Popular measures

1st

Streamlining the manufacturing
process

Manufacturing
Stage
2nd Eliminating wasteful energy usage

Transport
SectorNote:
Source:

○

43.6%

○

3rd

Upgrading facilities

28.1%

1st

Boosting transport efficiency

61.7%

○

28.6%

○

2nd Reducing number of runs

Commercial
Sector

55.4%

3rd

Switching to low-pollution vehicles

28.0%

1st

Conserving energy

89.5%

2nd

Installing energy-saving equipment

62.8%

3rd

Reducing operating hours

4.4%

Yes = ○
To some extent = △As in Fig. 2-1.

○

○

△

Entails capital
investment?

No
No

○

Yes

△

No
No

○

Yes

△

No

○

Yes
No

No = blank

Table 2-1 classifies the above types ofmeasures being taken at the manufacturing
stage, in the transport sector, and in thecommercial sector according to three criteria:
whether they are designed to rationalize energy
demand, whether they are designed to improveequipment efficiency, and whether they entail
capital investment. It is immediately obviousthat few measures entail capital investment,
while the majority are designed to rationalize
energy demand by eliminating wasteful energy

use. In overall terms, the most common
measures are those that involve rationalizing
energy demand without the need for capital
investment; next come improvements inequipment efficiency, which often do entail
such investment.11 So it is fair to say that mostmeasures being taken to combat global
warming today typically involve little cost andare at the same time designed to yieldshort-term economic returns.

11

Improving equipment efficiency also includes running
existing equipment more efficiently.
Development Bank of Japan Research Report/ No. 42

15

Climate Change, which forms the basis of the
Kyoto Protocol, and in accordance withresolutions adopted by the Third Session of theConference of the Parties (COP3) and the
Fourth Session of the Conference of the Parties,
each signatory nation is to compile a national
inventory of greenhouse gas emissions bysources and removals by sinks using the
Revised 1996 IPCC Guidelines. These sameguidelines are used in computing emissions
under the Kyoto Protocol adopted by COP3,
and they form the basis of the Japanese
government’s calculations as well.
As illustrated in Fig. 3-1, under theguidelines emissions of energy-derived CO2 are
calculated as the product of fuel consumption,
net calorific value, and carbon emission factor
based on calorific value. This formula can be
modified to simplify matters, with emissions
calculated as the product of (1) activity volumes,(2) energy use efficiency, and (3) carbon
content per unit of energy. Approaches may be

III Characteristics of Measures
to Combat Global Warming andBarriers to Implementation
1. Characteristics of Measures to Combat
Global Warming
So far we have examined what types ofmeasures Japanese companies have been taking
to fight global warming. In this chapter we turnto the question of what characterizes measures
to combat global warming in general.
Since greenhouse gases come in suchvariety, measures to combat global warming
can take many different forms. Here we
consider strategies for reducing emissions ofwhat is the most important greenhouse gas forJapan, energy-derived CO2, which accounts forsome 80% of the country’s total greenhouse gas
emissions.
Under Article 4.1 and Article 12 of theUnited Nations Framework Convention on
Method of calculation
stipulated in the IPCC
Guidelines prescribedunder the Kyoto Protocol
Modified method of
calculation

Main approaches toachieving reductions(greenhouse gas emissions) = ∑ [(fuel consumption) X (net calorific value) X (carbon emission factor based on calorific value)]= ∑ [((1) activity volumes) X ((2) energy use efficiency) X ((3) carbon content per unit of energy)]

Reduce activity volumes(production volumes, energy
consumption, distances traveled,etc.)

Boost efficiency of energy
use

Energy conservation

Economic and social activity suffers→ Decrease in utility / People’s
enduranceor

Use energy with lower
carbon content

Measures other than energy
conservation*

Strike a balance between environmental
protection and the economy

To what extent can physical, technological, social, economic, and market barriers be overcome in the quest to achievesustainable reductions?

* Measures other thanenergy conservation,i.e., those not directly
relating to fuelconsumption, include
acquisition ofemissions credits fromabroad using the Kyoto
Mechanism, removalsof carbon by forestsand other sinks, andfixation of carbon in
the ocean and soil.

Figure 3-1. Methods of Calculating Fuel-related Emissions of CO2 Etc. and Approaches to Reductions
Notes: 1. IPCC: Intergovernmental Panel on Climate Change.
2. Using energy with lower carbon content: Using electricity produced using wind power, nuclear power, or
biomass generation, switching from coal to natural gas, etc.
Source:Compiled by DBJ.

16

Development Bank of Japan Research Report/ No. 42

considered to reducing emissions that target
each of these three items. To address Item (1),the possibility of reducing activity volumes(production volumes, energy consumption,
distances traveled by car, etc.) presents itself tomind. Eliminating excess activity volumes
forms part of energy conservation. Boosting
efficiency of energy use is designed to address
Item (2). This involves upgrading to more
efficient equipment or running existing
equipment more efficiently; as such it falls into
the category of energy conservation in general.
Although certain technologies do exist thatoffer dramatic improvements in efficiency,
generally speaking a 10-20% gain in efficiency
is the norm when using available technologies
or improving running of existing equipment,
and major cuts in emissions are not to be
expected. Addressing Item (3) means using
forms of energy with lower carbon content.
That includes using oil rather than coal andnatural gas rather than oil, and tapping such
sources as nuclear and wind power and solar
rays. Using energy with lower carbon content isa highly effective way of preventing global
warming without changing level of energy
consumption, but Japan stands at a
disadvantage in this regard as compared toEurope and North America. In those countries
natural gas with its lower carbon content isavailable at a fairly low price via pipeline, andthey have made much progress in switchingover from coal to cheap natural gas12 thanks to
the liberalization of the energy market during
the 1990s. Thus prevention of global warming
has proceeded naturally. Japan, by contrast, has
few sources of natural gas at home or nearby,and so the gas has to be liquefied and brought
in by LNG tanker, which drives up the price.
There seems to be no immediate way out of this
impasse, and Japan will likely be paying more
for natural gas than do Europe and North
America for the foreseeable future. For Japanthe cheapest energy source, and the one mostconducive to the country’s energy security, iscoal, and liberalizing the energy market would
end up driving up coal consumption. When it
12
Natural gas contains about 60% of the carbon of coal.
Thus switching fuels from coal to natural gas can help
greatly reduce greenhouse gas emissions.

comes to wind power, one of the mostpromising new sources of energy, Japan isagain at a disadvantage, with fewer viable sites
than in Europe and North America. Japan is theworld leader in the field of solar power, butsolar power is expensive, costing six to tentimes as much to generate as the equivalentamount of electricity from a thermal power
plant. So there is little prospect of solar power
making extensive inroads in the near future.
Under the Special Law on the Use of New
Types of Energy by Electric Utility Companies(the so-called RPS Law), which comes into
effect in FY 2003, in FY 2010 power from newenergy sources like wind will total a mere 12.2
billion kWh13 — just 1.35% of Japan’s total
power generation. On this front as well, then,there is little likelihood of major gains by 2012.
Broadly speaking, therefore, there are threebasic approaches to combating global warming
targeting respectively Items (1)-(3). However,pursuing strategies (2) (boosting efficiency ofenergy use) and (3) (switching to energy withlower carbon content) beyond what isrealistically achievable could deal a serious
blow to the economy and society.14 There is an
economic limit to how much can be done toboost efficiency of energy use. The ease withwhich improvements can be made on this front
varies depending on the industry and type ofoperation, and the time frame allowed also
affects the outcome. Energy-intensive industries
find it a formidable task to achieve even a 1%
improvement in efficiency per unit ofproduction or sales over the course of a year.
On the other hand, certain innovative firms
manage to make gains of over 5% in the courseof a year.
13

Even if the figure of 12.2 billion kWh is achieved, thatwill be a fairly expensive way of combating global warming, since emission credit pricing assumes an RPS (Renewable Portfolio Standard) credit may reach around $250
per ton of CO2.
14
If (3) is interpreted broadly to include measures tocombat global warming not directly related to fuel consumption, then it also embraces acquisition of emissions
credits from abroad using the Kyoto Mechanism, removalsof carbon by forests and other sinks, and sequestration ofcarbon in the ocean and soil. All of these have considerable potential, but it is still highly uncertain how effective
they may be.
Development Bank of Japan Research Report/ No. 42

17Box 1. The Case of BP p.l.c., a Leader in the Environmental Field

BP was the first major international oil company to recognize the issue of global warming andtake precautionary action to deal with it. It thus earned itself a reputation as a leader in the fightagainst global warming.
In 1998 BP set itself the target of reducing direct emissions of greenhouse gases by 10 per
cent from 1990 by the year 2010. It achieved that target by 2001 (90.1 million tons of CO2 in 1990
→ 80.5 million tons of CO2), and engaged two independent outside auditors (KPMG and DNV) toverify the results, making public its emission figures in conjunction with the auditors’ report. Since
the company had recently merged with Amoco, it had some difficulty coming up with a way ofobjectively modifying the figures for volume of emissions for 1990, the baseline year. By reducing
fuel consumption, combustion, and exhaust gas emissions, it also achieved economic benefits tothe tune of $650 million in current net prices (¥78 billion at an exchange rate of 120 to the dollar).
Just under half the measures taken to reduce emissions involved improvements in energy
efficiency, while the remainder involved cutting gas combustion and ventilation. Reductions inemissions during exploration and production accounted for the lion’s share, it may be surmised,since some 40% of direct emissions in 2001 came from exploration and production of petroleum
and the like, while another 40% came from refining and 15% from chemicals. In 2000 and 2001
improvements in energy efficiency accounted for roughly 50% of reductions: in recent years BP
appears to be making a shift to boosting energy efficiency, including adoption of cogeneration.
In the process of achieving its emissions reduction target, BP set up a trial internal emissions
trading system in September 1998 with 12 BP business units, then, in January 2000, launched afull-fledged corporate emissions trading system linking some 150 major BP business units acrossthe globe. During 2000 2.7 million tons of CO2 were traded at an average price of $7.6 per ton; in2001 4.6 million tons of CO2 were traded at an average price of $39.60 per ton (ranging from $7 to$99). According to BP, the cost of emissions abatement did not rise during 2001; rather, the priceshot up at certain times of the year due to shortages of sellers resulting from a tougher target set for
the year. Money did not actually change hands due to tax issues and other factors, and that too
appears to have contributed to the gap between emission reduction costs and selling price. BP
suspended this internal trading system in January 2002 after achieving its target. It found it was
better for it’s business units to fully prepare for the onset of external emissions trading systems
such as the scheme that the UK launched in April 2002. Nonetheless, the experience proved
valuable, for it enabled BP to play a key role in organizing the British emissions trading scheme
and make adequate preparations to join it even before it was launched (the company spent a year
and a half setting up its own full-fledged internal trading system).
In 2002 BP set itself a new target: to maintain 2001 emissions levels through 2012. That may
sound easy at first, but it assumes around 5% expansion in operations every year, which on asimple calculation translates into an increase in emissions of close to 60% over the course of adecade; drastic cuts in emissions will therefore be required. BP will continue to search for
mitigation options available in house, and while it plans to achieve half those emissions cuts byboosting energy efficiency and so forth within the company, it intends to achieve the other half ofthe reductions through the use of flexible mechanisms such as emissions trading and project based
mechanisms. Even a firm of BP’s caliber is needing to face the challenge of striking a balance
between sustaining business growth and implementing absolute reductions in emissions ofgreenhouse gases.
Sources:

18

Compiled by DBJ based on BP’s environment and social reporting for 2002 and Beyond Petroleum: Businessand the Environment in the 21st Century, a speech delivered by Lord Browne, CEO of BP, on March 11,
2002.

Development Bank of Japan Research Report/ No. 42

The case of BP described in Box 1
involved both (1) reducing wasteful energy use
and (2) boosting efficiency of energy use, andat the outset the strategy offered numerous
economic benefits as well. But such cheap,
low-hanging-fruit measures are quickly
exhausted, and at the present level oftechnology companies are going to find it
difficult to achieve medium- to long-termbusiness growth at the same time as
implementing absolute reductions in emissions.
Companies should be induced to compete with
one another in combating global warming inorder to promote development of newtechnologies. So adding point principle is better
than widespread deducting point principle inthis field.
Japan has committed itself to reducing
average emissions for the years 2008-2012 by
6% as compared to the base year (basically1990). But it is projected that, emissions willrise to 1.2 times those of the base year by about2010 without measures; 15 therefore Japanactually needs to cut emissions by roughly aquarter. Of course, the exact prospects vary
between different sectors and players. Still,
Japan already boasts just about the highest levelof energy efficiency in the world, for ever since
the oil shock it has done everything it can toconserve energy, and it is going to have a hardtime cutting emissions by a whopping one
quarter, without damaging to the economy, justby pursuing (2) and (3) (excluding the Kyoto
Mechanism) alone.
(3) (switching to forms of energy withlower carbon content) in almost all cases entails
additional costs, and it is often of limited
practicality. That is because, since the days
before fighting global warming became a major
concern, many companies have been switching
to coal and otherwise striving to minimize theirenergy costs, and changing their energy
structure now would in many instances result inincreased costs.
Therefore, if companies are obliged to cut

back their emissions drastically, they could findtheir activity volumes restricted. But reducing
activity volumes beyond what is necessary
would lead to dwindling production and sales
and a decrease in utility. Individuals may beable to make do with less and just endure overthe short term, but such an approach is notgoing to be a sustainable or effective way forcompanies to fight global warming, which
requires a commitment of decades. Herein lies
the real reason that companies are so adamantly
opposed to cap & trade.16 Activity volumes are
not going to be that restricted as long as trade inemission allowances runs smoothly, the market
for those allowances is sufficiently liquid, andthey are always available at a reasonable pricein the quantities that firms need. Still, it is little
wonder that companies are worried that theiractivity volumes could be restricted if concerns
about market liquidity arise and they are unsure
whether they will be able to obtain theallowances they need when they need them, orif they face the prospect of paying an exorbitantprice to get them.
For many firms sustainable development
means sustainable growth. But, given thecurrent state of technology, it is certainly going
to be difficult for companies to pursue
simultaneously, over the medium to long term,
both cuts in absolute volume of emissions andongoing revenue growth (expansion in businessactivities). Yet, if companies fail to achievesustainable growth, then Japan can hardly claim
to have struck a balance between environmental
protection and the economy, an idea that the
government has made a cornerstone of its
thinking in the Guidelines for Measures toPrevent Global Warming.
If increased corporate operations result in
an increase in the absolute volume of emissions,then it will be necessary to demonstrate thatthose operations, at least, observe the highest
global standards of efficiency. Say Company B
is able to perform a particular operation withfewer emissions than Company A. Obviously

15

16

Study Committee for Establishing a Scenario on Technologies for Reducing Greenhouse Gases, Global Environment Bureau, Ministry of the Environment, Report on
Discussions for Establishing a Scenario on Technologies
for Reducing Greenhouse Gases, March 2001.

A system for trading emissions whereby each company
is allocated an emission allowance, or cap; companies canthen trade allowances by selling off any surplus they generate through reductions in emissions or buying extra if
their present quota is not enough.
Development Bank of Japan Research Report/ No. 42

19Company B is the better choice. However, inorder to make the comparison more objective, it
is better if Company B observes the highest
global standards of efficiency in implementing
its operations; otherwise it will be difficult tojustify the increase in emissions. An interestingcase in point in that regard is how, in the
cement industry, leading companies fromaround the world have risen above nationalboundaries and come together to take suchaction as developing a common yardstickfor measuring efficiency of emissions. 17 In
businesses where practices vary widely, it will
not be easy to establish a single internationalyardstick. Nevertheless, it needs to be kept inmind that, unless companies can develop theirown yardstick to serve as objective proof, they
will run the risk of seeing restrictions placed on
their ability to pursue sustainable growth.
In order to prevent such an outcome, it isimportant that companies steadily implement
energy conservation measures and the like inorder to address (2) and (3). But numerous
barriers and constraints stand in the way,
including those enumerated above; therefore it
will be difficult to achieve, in the span of adecade, even the kind of reductions inemissions that may seem technological feasible.
2. Barriers to Implementing Measures to
Combat Global Warming
When the question of how to combat global
warming arises, there is a tendency to focus on
the technological potential for achieving cuts inemissions. But it is an established fact that, as a
general rule, the level of cuts that can actually
be realized on the market is far lower than what
is technological feasible, for a host of barriers
stands in the way of adopting technologies andpractices that might contribute to the fightagainst global warming.
Fig. 3-2 reproduces the chart “Penetrationof environmentally sound technologies (in17

The Cement Sustainability Initiative, which is being
pursued under the helmsmanship of the Working Group
Cement (WGC) of the World Business Council for Sustainable Development (WBCSD). See The Cement Sustainability Initiative – our agenda for action unveiled by
the WBCSD in July 2002.
20

Development Bank of Japan Research Report/ No. 42

cluding practices): a conceptual framework”
from the Third Assessment Report of the IPCC.
It shows how, because so many types ofbarriers exist, there are different levels ofpotential, and those potentials that can actually
be realized in a market economy constitute but
a fraction of the whole. Feasibility of
implementation steadily narrows at each level,from socio-economic potential as embodied
in behavior, lifestyles, and socio-economic
structure and institutions, through economic
potential as limited by market failures etc., andfinally market potential as manifested in actual
implementation of technologies on the market.
The maximum potential that can be achieved ona sustainable, long-term basis is the market
potential, which is highlighted in color in thechart.
The Kyoto targets also face rigid time
constraints in that they must be achieved by
2008-2012. Yet power stations and buildings
frequently have a life of more than thirty years;
thus such facilities have an extremely longreplacement cycle.
The Interim Report of the Subcommittee
for Establishing a Scenario for Achieving the
Kyoto Target issued by the Central
Environment Council points out that in manycases little progress has been made in
implementing technologies for fighting global
warming even when the cost of doing so would
be negative (i.e., adopting them would result ina profit) (Table 3-1). The Report cites thefollowing reasons for this:• Not enough information is available on
mitigation technologies.
• Institutional and social constraints stand in
the way.
• Certain costs and drawbacks have not beenfactored in.
• Equipment currently in use has not yet fully
depreciated.
• The technology in question has only justemerged, or resource constraints prevent
enough of a supply to meet demand.
• Companies are forgoing capital investment
because production volumes are down andtheir future is uncertain.
Therefore further promoting corporate
action against global warming will requireidentifying what barriers exist to achieving
technological and other potentials, determining
how to remove them, and then doing so one byone. Thus further analysis is needed on suchbarriers and how to overcome them.

<EXAMPLES OF BARRIERS> <EXAMPLES OF ACTIONS TO OVERCOME BARRIERS>RESEARCH, DEVELOPMENTDEMONSTRATION OF NEW TECHNOLOGIES

Physical potential:
Theoretical upper bound, may shift over time

Mitigation potential

NETWORK CREATION

Technological potential:
Approached by implementing technologythat has already been demonstrated

Socio-economic potential: Approached byadoption of changes in behavior, lifestyles,
social structure, and institutions

LIMITEDAVAILABILITY AND
KNOWLEDGE
SOCIAL NORMSINDIVIDUAL HABITS
ATTITUDESVALUESVESTED INTERESTSCOMMUNITY INVOLVEMENT IN POLICY MAKINGALTERNATIVE LIFESTYLESEDUCATIONPOLICY INITIATIVESINSTITUTIONAL REFORMSUBSIDY REFORMLACK OF COMPETITION
TRADE BARRIERSMICRO-CREDIT
Economic potential:
UNDEFINED PROPERTY RIGHTS
Approached by creation of markets, reduction
RURAL ELECTRIFICATIONINADEQUATE INFORMATION
of market failures, and increased financial andtechnology transfers
COOPERATIVE AGREEMENTS

Achieved
potential
Today

NEW MEASURES(TAXES, INCENTIVES)

Market potential:
Actual use of environmentally soundtechnologies and practices

MULTI- AND BILATERAL PROJECTSTime

Figure 3-2. Penetration of Environmentally Sound Technologies (Including Practices): A Conceptual
Framework
Source: Climate Change 2001: Synthesis Report – Contribution of Working Groups I, II, and III to the Third Assessment Report of the International Panel on Climate Change (Cambridge University Press, 2001), Figure 7-1:
Penetration of environmentally sound technologies (including practices): a conceptual framework (p. 111).

Development Bank of Japan Research Report/ No. 42

21

Table 3-1. Technologies for Fighting Global Warming Whose Cost Is Estimated To Be Negative (I.e.,
Adopting Them Would Result in a Profit)
SectorTechnology to be adopted

High-performance industrial furnaces (which cut energy
Industrial use by over 30% using hot air combustion; commerciallyavailable in the form of regenerative burners)
Reducing standby power (the technology now exists toCom./res.
cut it to 1/10)

Cost ofadditional
reductions (yenper ton of CO2)

Mitigation
potential(’000s of tonsof CO2)

Issues to be addressed

Quality preservation risk involved in overhauling equipment, since-8,1828,300 80% of industrial furnaces are not general-purpose. Initial cost etc.

-70,909

4,100 power requirements need to be labeled or otherwise identified etc.

Recycling waste plastics into raw material for blast
Industrial furnaces (using waste plastic as a substitute for the
reducing agents coke and pulverized coal)-4,9092,700 plastic recovery systems. Siting of facilities that use waste plastics

Household water boilers that recover latent heatCom./res. (recovering latent heat from exhaust boosts efficiency
from 85% to 95%)

-9,5452,100 Initial investment etc.

Industrial

Converting waste plastic into raw material and fuel for
cement plants-8,7271,900 Containers and Packaging Recycling Law forbids use of waste

Nonenergy

Mixed cement (blast furnace cement, fly ash cement,
limestone filler cement)-1,1451,400 not be negative in some areas. Quality of fly ash etc.

Com./res.

Conserving energy used by vending machines (54%energy savings are possible)-70,9091,300 since beverage firms rent out vending machines to operators, who

Industrial

Combined generation (using a gas turbine and heat fromexhaust gas)

-6,0001,300

Industrial

Reducing electric furnace power consumption by feeding
scrap iron into steel converters-8,727840

A cooking stove with inner flame vents (locating theCom./res. flame vents inside improves heat efficiency by 18%, plus
enhances safety)-54,545780 type etc.

Nonenergy

Promoting use of eco-cement (made with ash fromincinerating municipal garbage)

Reducing power loss during transmission anddistribution through installation of low-loss poletransformers
Highly efficient anaerobic effluent treatment technology
Industrial (which recovers methane gas from effluents for use as asupplementary fuel in boilers)High-luminance guide lights for emergency exits(switching from a conventional fluorescent lamp to aCom./res.
cold cathode fluorescent tube reduces power
consumption to 1/4)
Conversion

Standby power is invisible to consumers. Products with low standby
Processing capacity of facilities for crushing, sorting, anddechlorination of waste plastics. Dechlorination technology. Waste
etc.

-5

Incentives to scrap existing boilers and purchase the new type.
Chlorine bypass in kilns. Preprocessing (dechlorination). The

plastics from non-industrial garbage in making cement etc.
Falling purchase price of granulated blast furnace slag. Cost may

Economic benefits of conserving energy fail to trickle through,then pay the electricity bill etc.
Relaxation of regular inspections and plant planning. Relaxation of
siting restrictions. Relaxation of environmental assessment
operations etc.
Problem of inferior converter steel quality. Facilities for removing
impurities. Fluctuating price of scrap iron. Market-share balance
between blast furnaces and electric furnaces etc.
Incentives to scrap old models of cooking stove and buy the new
Siting restrictions under the Factory Location Law. Obtaining
consent of communities where facilities are to be located.

500 Generating demand and developing sales channels. Processing ash

over a wide enough geographical area etc.
The slump in the heavy electric machinery industry makes it
difficult for transformer manufacturers to invest in switching to
low-loss equipment. Initial cost etc.

-10,364420-7,364360 Initial cost etc.

-70,909

310 Phasing out sales of conventional lamps etc.

-12,000

300 for it. Securing contracts to sell off surplus power etc.

-54,545250 hospitals, restaurants and bars) etc.

-51,818

190 Switching over from manufacturing the old style of elevator etc.

-40,909

170 life of 30 years but are often in service for longer etc.

Com./res. Economizers for water boilers (which save 10% energy)-51,818160 manufacturers and users etc.

Inverter control of water supply treatment facilities(power for water pumps)-21,000

140 Initial cost etc.

Industrial Recovering electricity from ethylene plant gas turbines
Water boilers that recover latent heat (these boost
Com./res. efficiency from 80% to 95% by recovering fuel gas
exhaust from gas boilers)Conserving energy used by elevators (by installing
Com./res.
machine-roomless elevators, which also saves space)
Installing ultra-high-efficiency transformers (amorphousCom./res.
transformers cut total loss to 60%)

Com./res.

Daylight saving time (moving the clocks forward one
Com./res. hour between April and October to reduce lighting andair conditioning demand)
Boosting efficiency of separators inside vertical mills(for producing cement)
Inverter control of sewage treatment facilities (airCom./res.
blowers for anaerobic reactor tanks)
Industrial

Optimizing each plant and selecting the best model of gas turbine
User awareness (hotels and other accommodation facilities,

Falling equipment costs. Initial cost. Transformers have a nominal
Replacing existing boilers is a problem. Awareness on the part of-463,63685-10,091

58-491

Establishing special provisions for working hours on the day clocks
switch over and making the necessary adjustments in transport
timetables. How to interpret the provisions of non-life insurance
and other agreements that specify times. What to do about the times
specified in fisheries agreements etc.
Profitability may fall in the case of plants that supply all their own
power. Initial cost etc.

15 Initial cost etc.

Notes: 1. Sectors are abbreviates as follows: Industrial = industrial sector; Com./res. = commercial and residential sector;
Non-energy = CO2, CH4, and N2O emissions from non-energy sources; Conversion = energy conversion sector.
2. Estimated volume of additional reductions in emissions (mitigation potential) is calculated using the average
emissions factor for all power sources.
Source: Compiled by DBJ from Global Environment Council, Central Environment Council, Ministry of the Environment,Interim Report of the Subcommittee for Establishing a Scenario for Achieving the Kyoto Target.

22

Development Bank of Japan Research Report/ No. 42

IV Mechanisms Underpinning
Innovative Measures to Combat
Global Warming
1. Motives for Adopting Innovative Measures to Combat Global Warming
Despite the uncertain policy climate resulting
from the fact that the Kyoto Protocol has not
yet come into force, certain companies are
already taking ambitious steps to fight global
warming. The basic frameworks underpinningthese innovative efforts can be divided into
three major factors:(1) Incentives (short-term cost reductions,short-tem returns, long-term returns, etc.)(2) The internal management structure
buttressing those incentives (commitmentof top management, employee awareness,mechanism for managing greenhouse gas
emissions, personnel, technology, facilities,
funding, etc.)(3) The external business climate in which thecompany finds itself (government policies,
shareholders, consumers, local residents,
public opinion, the media, major events,
abnormal weather, economic trends, etc.)
These factors vary depending on theindustry, the size of the company, and theparticular circumstances in which it stands.
Table 4-1 shows in matrix format the chief
motives that prompt companies to adopt
specific measures to combat global warming as
revealed from interviews and other sources. The
symbols (◎, ○ and △) indicate the degree towhich each motive applies. Motives are often
intertwined, and it is sometimes difficult todetermine how exactly they interrelate.
At the present stage direct incentives
appear to constitute a major motivation — “Theenergy-saving advantages are considerable,”“The economic risks will be considerable if
government policies are strengthened in the
future,” “New business prospects exist and firstmover advantage stands to be significant,” andso forth. Emissions allowance brokers,
certification agencies, accounting firms,
consulting firms and the like, which are
motivated by the prospect of new business

opportunities and the profits to be enjoyed byfirst-comers, are particularly enthusiastic aboutfighting global warming, for a virgin market
awaits them and they have nothing to lose. But
with the Kyoto Protocol yet to take force themarket for their services is still not that large.
Under current conditions — the Kyoto
Protocol has not come into force, nor has thegovernment implemented any sweeping
policies such as imposing a heavy carbon tax— most firms are choosing to follow a “noregrets” strategy that involves simultaneously
pursuing short-term cost cuts. Other companies,
eager to achieve sustainable growth, are laying
the groundwork for long-term profits down theroad with up-front investment designed to build
an image as an eco-friendly corporation or
establish good relations with environmental
NGOs and local residents.
However, incentives on their own do notmaterialize into actual corporate action. An
internal mechanism to underpin such action is
also of the essence. Particularly today, when
incentives remain weak, it is vital thatcompanies possesses the proper internalmanagement structure, or what might bedescribed as the corporate infrastructure for thefight against global warming. As long as they
have such a structure in place, they will find it
reasonably easy to take actual action even if
incentives are somewhat weak. The question is,
how committed is top management, and what
stance has the company adopted to fighting
global warming. If it has obtained ISO 14001
certification or has Type 1 designation under
the Energy Conservation Law, it presumably
has already made a fair amount of progress insetting up an internal system for managing dataon energy use and for formulating andimplementing measures for reducing emissions;
it will then be in a far better position than otherfirms not so well prepared in this regard. If a
company does not know how much emissions it
is actually producing, or, even if it does know,
has no way of formulating and implementing astrategy in response, then it is not going to
make much headway.
Some of the motives in Table 4-1 fall into
two or more of the categories “Incentives,”“Internal structure,” and “External climate.”

Development Bank of Japan Research Report/ No. 42

23Incentives are often swayed by the external
climate: outside developments have a critical
impact on incentives alongside internal
company considerations, and that impact
typically takes the form of the circumstances ofa particular industry. Again, companies
motivated by “incentives” frequently have an“internal structure” already in place, for which
reason the two tend to overlap. Companies that
set up such an internal structure do so because
taking action against global warming isimportant to their business; thus theirmotivation often lies in the particular
circumstances in which they find themselves.

Table 4-1. Chief Motives for Taking Measures to Combat Global Warming
Motives
The energy-saving advantages are
considerable.
The economic risks will be considerable if
policies are strengthened in the future.

Industry

Particularcompany
circumstances

24

Energy-intensive industries◎◎○

Energy-intensive industries
Emissions allowance brokers, certification
agencies, accounting firms, consulting firms,
trading firms, certain energy-intensive
industries, etc.
Energy-intensive industries etc.
Electrical power, electrical machinery,transport equipment, trading firms, etc.
Industries that conduct a high percentage of
their production overseas, e.g., transport
equipment and electrical machinery
Non-manufacturing industries, non-profit
organizations, etc.

◎

Subsidies are available.

○○

Competitors have taken actions already.

△

○

○

○

○

○

○

○

Electrical machinery, transport equipment, etc.

○

Electrical power, chemicals, etc.

The firm has an internal mechanism in place
for managing energy use, e.g., it has received
Type 1 designation under the Energy
Conservation Law.
The firm has ISO 14001 certification.
The firm conducts extensive R&D and caneasily adopt new technology.
The firm conducts extensive capital investment
and turnover of facilities is rapid.
It was time to upgrade facilities anyway.

Sources:

Applicable businesses

New business prospects exist and first-comers
stand to profit.

An increase in domestic production seems
unlikely, so there is room to achieve absolute
reductions in domestic emissions.
Easily accessible technologies and options areavailable.
Reaction of buyers of goods and services;
corporate image.
Taking ecological measures is important forbusiness.
The energy-saving advantages are considerable
because the company is so large.
As a large corporation the firm has the humanresources and organization to keep abreast ofdevelopments abroad.
As a large corporation the firm needs to takeecological measures and disclose information
by, e.g., publishing an environmental report.
As a large company the firm has a heavy social
responsibility.
The firm has an international presence and isaffected by, e.g., environmental policy inEurope.
Commitment of top management
Taking action against global warming is an
important aspect of corporate strategy.
Employee awareness (corporate culture etc.)

Size ofcompany

Incen- Internal External
tives structure climate

○

○

○

△
○

○

See Figs. 2-4 and 2-5.

○
○
△

○

○

○
○

○

○

○

○

Energy-intensive industries (before being
revised in spring 2003, the Energy
Conservation Law applied to only five sectors:
manufacturing, mining, and supply ofelectricity, gas, and heat), large corporations
Varies also depending on the industry.

△○

Varies also depending on the industry.

△○

Varies also depending on the industry.

○△

Compiled by DBJ based on interviews and various documentation.

Development Bank of Japan Research Report/ No. 42

Varies also depending on the industry.

2. The Framework Underpinning Innovative
Measures to Combat Global Warming
Fig. 4-1 shows the interrelationship between the
different factors identified in Table 4-1.
The incentives that directly trigger
corporate action to fight global warming arerooted primarily in the pursuit of short-term
returns such as lower costs. Then comeconsiderations of long-term returns such as the
profits awaiting first-comers and questions ofsocial responsibility and reputation.
The internal management structure forpursuing those incentives is also important. The
term internal management structure as usedhere embraces the mechanisms for managing
emissions of greenhouse gases, the commitmentof top management, employee awareness, thepresence on staff of people with the necessary
expertise and technical ability, the availabilityof technologies and facilities to implement
steps to combat global warming, and access to
the required funds. Even if incentives are thesame, different companies’ ability to overcome

Domestic policies as
formulated ingovernment guidelines
and the Energy
Conservation Law(regulations etc.)

Influence

Actionby pioneering
corporations
Pioneering
corporateactions(1) Incentives

Short-term returns(lower costs etc.)

Global trends suchas the Kyoto
Protocolobstacles and implement concrete measures tocombat global warming will ultimately be
determined by their internal management
structure. This internal management structure,
which can be characterized as corporate
infrastructure for the fight against global
warming, costs money to sustain, and firms
below a certain size will find it difficult toafford. This is among the reasons for thedifference in level of corporate action against
global warming that we noted in Chapter II
between companies of different sizes.
The external climate in which companies
operate also exerts an impact in various forms:
national and local governments, the media,
shareholders, local residents, NGOs, economic
trends such as energy prices, major events likethe Kyoto Conference on Global Warming, andabnormal weather such as unseasonably warm
winters. Rapidly emerging new developments
like environmental rating and the issuing ofenvironmental reports are also having an impact.
Fig. 4-2 plots crude oil prices side by side withnumber of submissions to the contest forMedia and public
opinionLong-term returns(first-mover advantage,
avoiding risk, developing
technology, social
responsibility and reputation,etc.)(2) Internal management structure(mechanism for managing greenhouse gas emissions,awareness on the part of top management and employees,
personnel, technology, facilities, funding, etc.)

Shareholders
and consumers

Environmental
management andenvironmental rating(3) External climate(national and local governments, local residents, NGOs,
economic trends, major events, abnormal weather, etc.)

Figure 4-1. Conceptual Diagram of the Framework Underpinning Innovative Corporate Measures
to Combat Global Warming
Source:Compiled by DBJ.

Development Bank of Japan Research Report/ No. 42

25

(Submissions)(yen/kl)

300

60000

Number of submissions

250

50000

Price of crude oil (yen/kl)

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

0
1983

0
1982

10000

1981

50

1980

20000

1979

100

1978

30000

1977

150

1976

40000

1975

200

(FY)

Figure 4-2. Crude Oil Prices and Number of Submissions to the Contest for Outstanding Energy-saving
Programs
Notes: 1. Price of crude oil gives the CIF price.
2. Number of submissions gives the number of submissions to the nationwide contest for outstanding energy-saving programs run by the Energy Conservation Center of Japan (see Box 3).
Sources: Compiled by DBJ based on Energy Data and Modeling Center, Institute of Energy Economics, Japan (ed.),
EDMC Handbook of Energy & Economic Statistics in Japan (2002 edition) and documentation from the Energy Conservation Center of Japan.

outstanding energy-saving programs run by the
Energy Conservation Center of Japan. It
suggests that external factors like skyrocketing
crude oil prices triggered by the oil shock andthe December 1997 Kyoto Conference on
Global Warming have a major impact on
corporate behavior.
The three major factors underpinningcorporate measures against global warming— (1) incentives, (2) internal management
structure, and (3) external climate — interact
with one another as indicated by the arrows in
Fig. 4-1. In some cases incentives emerge fromgovernment policy or some other facet of theexternal climate; in other cases, conversely,companies will lobby the government in pursuitof a particular incentive such as the goal ofdeveloping a new field of business. If the
incentives exist, companies will make progressin installing the necessary internal management
structure, while the existence of such amanagement structure may affect incentives.
External climate may lead companies to set up
an internal management structure, as whenpolicies like the Energy Conservation Law spurthem to take such action, while on the other
hand the development of an internal

26

Development Bank of Japan Research Report/ No. 42

management structure may have an impact on
the external climate. These factors thus interact,
though the exact degree of their impact mayvary. At present, as the size of the arrows
indicates, the biggest impact is that of theexternal climate on incentives and internalmanagement structure; this is followed by the
impact of incentives on internal management
structure.
Today, with the Kyoto Protocol yet to takeeffect and the government’s long-term policies
still up in the air, companies’ short-term
incentives are not that strong, as demonstrated
by the fact that fewer than half of firms havetaken any action to date. The policy uncertainty
has a tremendous impact, since the fight against
global warming may involve the government
limiting emissions of greenhouse gases, which
until now have cost nothing, by putting a priceon them. Companies often complain that thelack of a clear signal from government ismaking it difficult to take action. Far fromleading to new business opportunities, many ofthe measures available today would have anegative impact on the bottom line in that theyentail extra costs, and that fact makes
companies all the more susceptible to theeffects of uncertainties in the external climate.
Domestic
policyandinternational
developments that affect it thus assume prime
importance.
Also important is sending the right signals
to the corporate sector by means of policy(external climate). Nobody will take theinitiative in fighting global warming anymore if
companies that have for many years been
making a conscientious effort to save energy
are given no credit for their pains but are
required to achieve the same level of cuts asother firms that have done nothing, and they
thereby end up sustaining a loss by having to
make a greater economic sacrifice. The ideal
situation is one in which all parties vie
enthusiastically to combat global warming, andcreating that situation will require sending theproper signals from outside. Companies should
be encouraged to compete in reducing theabsolute level of greenhouse gas emissions theygenerate per unit of production. Those that lag
behind should be given incentives to catch up to
the head of the pack, those out in front to vie
with one another in achieving further cuts.
Ideally costs should be heavier for the
stragglers and lighter for the front runners. The
first task will be to develop an objective
yardstick that enables international comparisonsof greenhouse gas emissions per unit ofproduction.
The arrangement that is becoming thenorm in emissions trading in Europe —assigning emission allowance for free based on
past levels of emissions — provides dead the
opposite incentives to the system outlined in thepreceding paragraph. A scheme that rewards
inefficient companies in this way could well
end up distorting long-term efforts to fightglobal warming.
Sending the right signals to companies
from outside means not just promoting
measures in individual sectors like industry andtransport, but also providing incentives to cut
total emissions by means of lifecycle
assessments(LCAs).
For
example,manufacturing fuel-efficient vehicles such as
hybrid cars results in significant reductions inemissions once emissions on the road arefactored in on top of those during assembly, as

revealed by an LCA;18 but, when viewed inisolation, emissions on the assembly line
actually increase because of the need for
additional components and extra steps in the
manufacturing process. A system like thepresent one, which only requires manufacturers
to cut emissions at the manufacturing stage anddoes not give due credit to efforts to reduce
emissions during actual vehicle operation,
provides companies with no incentive to design
products that perform better throughout theirlifecycle; thus it may end up actually
discouraging
truly
desirable
corporate
behavior.19 One option would be to grant LCA
emission permits (equivalent to the amount ofemissions cut over the course of the productlifecycle) to companies that manufacture andsell products with lower LCA emissions. If a
specialized outside agency measured amount ofemissions based on objective criteria and every
year companies were then assigned anallowance ex post facto equivalent to theamount by which their products reduced
emissions, they could be properly rewarded fortheir efforts on the ecological front. Such asystem would be compatible with existing18
For example, Toyota’s Prius and Estima Hybrids andHonda’s Civic Hybrid produce approximately 30% fewer
CO2 emissions over the course of their lifecycle than doconventional vehicles, according to data from environmental reports, but hybrid cars produce more emissions
during manufacture.
19
Under the present Energy Conservation Law a systemalready exists for encouraging manufacturers to design
more efficient products. Under this system, known as the
top runner standards, the government sets standards ofenergy efficiency for certain products that consume large
amounts of energy, basing them on the highest level of
efficiency then available on the market, and requires
manufacturers and importers to meet those standards by aspecific target year. While this arrangement shows somepromise, it has its drawbacks. Its regulatory nature makes
it inflexible. It fails to provide adequate incentives to develop products that surpass those currently designated thebest in their class (manufacturers could end up putting
their own head in the noose, for the more outstanding the
products they develop, the harder they will be to match). It
is difficult to incorporate the highest standards current at
any particular point in time. And the system fails to adopt
an LCA-based approach. A scheme for granting LCA
emission permits is superior in that it would offer greater
flexibility and provide companies with rewards commensurate with their efforts.

Development Bank of Japan Research Report/ No. 42

27

voluntary action plans and as such would bereasonably easy for companies to adapt to.
The most effective way to cut emissions
will be to furnish incentives to those who are in
the best position to manage emissions over thecourse of the product lifecycle. In this particularinstance that means the companies that
manufacture and sell hybrid cars. But each caseneeds to be considered on its own merits.
Unreasonably extending product liability toareas that manufacturers have no ability to

28

Development Bank of Japan Research Report/ No. 42

control, it should be remembered, could cause
corporate activity to stagnate and result in otherproblems as well. The decision whether or not
to buy and drive a hybrid car depends to a large
extent on the consumer, who thus bears a
considerable responsibility. It is to be hopedthat consumers too can somehow be
incorporated into the LCA emission permits
system in such a way as to enhance theirawareness of their own responsibilities.

V The Domestic Corporate Climate
1. Energy Use in Different Industries and theRisks of a Carbon Tax
In this chapter we further analyze thecharacteristics of the innovative measures tocombat global warming being implemented
today based on the motives identified in
Chapter IV and the structural model presented
there. First we examine data for different
industries.
Fig. 5-1 shows the percentage of fuel andraw material costs that energy accounts for ineach industry. In major manufacturingindustries this percentage dropped sharply overthe course of the 1980s, then leveled out during
the 1990s. On those grounds it is sometimes
argued that Japanese companies exhausted all
the possibilities for conserving energy during
the 1980s. This graph gives the percentage ofenergy costs in ceramics and other majorindustries, but it omits aluminum smelting,which one would assume has the highest
percentage of all, since the number of firms

concerned has become so small. Ceramics has
the highest percentage, followed by iron andsteel, pulp and paper, and chemicals. Inenergy-intensive industries like these energy
costs account for a considerable proportion of
total manufacturing costs; hence energy
conservation programs and other measures tofight global warming assume considerable
significance. Conversely, in the manufacturingsector as a whole energy costs make up noteven 4% of the total, and slight fluctuations
either way may not exert that great an impact.
But they will have an extremely serious effecton energy-intensive industries and the areas
where their plants are located.
The risks associated with policies tocombat global warming are affected by thepercentage energy costs of the industry inquestion, the quantity of energy it consumes,
and the carbon content of that energy.
Fig. 5-2 shows the proportion of final
energy consumption within the manufacturingsector accounted for by different industries.
Until the 1980s iron and steel was the biggest
energy consumer, but it was overtaken by

％
35

30

25

Ceramics
Iron and steel
Pulp and paper
Chemicals
Manufacturing sector overall

20

15

10

5

0
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98(year)

Figure 5-1. Energy Costs As a Percentage of Fuel and Raw Material Costs
Notes: 1. Fuel and raw material costs equal the sum of the cost of raw materials, fuel, and electricity.
2. Energy costs equal the sum of the cost of fuel and electricity.
Source:Compiled by DBJ by working out the three-period backward moving average for data from the Ministry of
Economy, Trade and Industry, Census of Manufactures as processed by the Energy Conservation Center ofJapan.

Development Bank of Japan Research Report/ No. 42

29

8000

In 1015 J

7000
6000
5000
4000
3000
2000
1000
0
1973

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

2000

Fiscal year

Pulp and paper

Chemicals

Ceramic, stone and clay products

Iron and steel

Non-ferrous metals

Metallic machinery

Other

Manufacturing sector (total)

Figure 5-2. Breakdown of Final Energy Consumption within the Manufacturing Sector
Compiled by DBJ from Agency for Natural Resources and Energy, General Energy Data.

Source:carbon-emissions tax be imposed or similar
policies implemented to combat global
warming (Fig. 5-4). In the case of ceramic,stone and clay products, coal has come toaccount for a dramatically higher percentage
since the oil shock, so the risks associated witha carbon tax are high (Fig. 5-5). Pulp and paper
has not increased use of coal that much anddepends to a large extent on electric power andnew energy sources; it therefore faces arelatively low risk from a carbon tax (Fig. 5-6).
Metallic machinery and non-ferrous metals bothchemicals in the 1990s. Chemicals and iron andsteel are followed by ceramic, stone and clay
products, pulp and paper, metallic machinery,and non-ferrous metals.
Figs. 5-3 through 5-8 give breakdown ofenergy consumption within each industry. As
would be expected, in the chemical industry
petroleum products account for a highpercentage of the total (Fig. 5-3). In the ironand steel industry coke and coal account for the
overwhelming percentage; hence the risks it
faces would be considerable should a100%

Electric power (total)
New energy sources80%

Geothermal heat
Nuclear power
Hydro power

60%

City gas
Liquefied natural gas (LNG)

40%

Petroleum products (total)
Crude oil
Coke etc.

20%

Coal
Total

0%
1973

76

79

82

85

88

91

94

97

2000

Fiscal year

Figure 5-3. Breakdown of Energy Consumption: Chemicals
Source:30

As in Fig. 5-2.

Development Bank of Japan Research Report/ No. 42

100%Electric power (total)
New energy sources80%

Geothermal heat
Nuclear power
Hydro power

60%

City gas
Liquefied natural gas (LNG)
40%

Petroleum products (total)
Crude oil
Coke etc.

20%

Coal
Total

0%
1973

76

79

82

85

88

91

94

97
2000
Fiscal year

Figure 5-4. Breakdown of Energy Consumption: Iron and SteelSource:As in Fig. 5-2.

rely to a considerable degree on electric power,
and they could be seriously affected depending
on how policies to combat global warming treat
electric power. If the electric power industry is
obliged to make serious cuts and passes on thecosts in utility bills, then these two industries
will end up bearing a heavy economic burden(Figs. 5-7 and 5-8). Thus for industries like ironand steel that have high percentage energy costs

and use forms of energy with high carbon
content, the latent risks of being located inJapan could become very real as thegovernment strengthens policies to fight global
warming.

100%

Electric power (total)
New energy sources80%

Geothermal heat
Nuclear power
Hydro power

60%

City gas
Liquefied natural gas (LNG)
40%

Petroleum products (total)
Crude oil
Coke etc.

20%

Coal
Total
0%
1973

76

79

82

85

88

91

94

97

2000

Fiscal year

Figure 5-5. Breakdown of Energy Consumption: Ceramic, Stone and Clay Products
Source:As in Fig. 5-2.

Development Bank of Japan Research Report/ No. 42

31

100%

Electric power (total)
New energy sources80%

Geothermal heat
Nuclear power
Hydro power

60%

City gas
Liquefied natural gas (LNG)

40%

Petroleum products (total)
Crude oil

20%

Coke etc.
Coal0%1973 75

77

79

81

83

85

87

89

91

93

95

97

Total

99

Fiscal year

Figure 5-6. Breakdown of Energy Consumption: Pulp and Paper
Source:As in Fig. 5-2.

100%

Electric power (total)90%

New energy sources80%

Geothermal heat70%

Nuclear power

60%

Hydro power
City gas

50%

Liquefied natural gas (LNG)

40%

Petroleum products (total)

30%

Crude oil

20%

Coke etc.

10%

Coal
Total

0%
1973

76

79

82

85

88

91

94

97

2000

Fiscal year

Figure 5-7. Breakdown of Energy Consumption: Metallic Machinery
Source:As in Fig. 5-2.

100%

Electric power (total)90%

New energy sources80%

Geothermal heat70%

Nuclear power

60%

Hydro power
City gas

50%

Liquefied natural gas (LNG)

40%

Petroleum products (total)

30%

Crude oil

20%

Coke etc.

10%

Coal
Total

0%
1973

76

79

82

85

88

91

94

97

2000

Fiscal year

Figure 5-8. Breakdown of Energy Consumption: Non-ferrous Metals
Source:32

As in Fig. 5-2.

Development Bank of Japan Research Report/ No. 42

Table 5-1 gives estimates of how muchmajor industries would pay should a carbon tax
be introduced. It assumes a tax of ¥3000 per tonof carbon (¥818 per ton of CO2), which is said
to be fairly low and is actually underconsideration, and shows the cost to eachindustry assuming the same volume ofemissions as in FY 2001. If the tax cannot bepassed on in the price of goods and services, theelectric power industry will pay the heaviest
price, followed by iron and steel, chemicals, oil
refining, pulp and paper, and cement. In orderto gauge roughly how heavy the tax would be,
we have also worked out what percentage it
represents of the average ordinary profits
registered over the past three years by listedcompanies in each industry. Since these figures
are for listed companies only, they do notaccurately represent profits for each industry as
a whole; nonetheless, it is fair to say that ironand steel, cement, rolled aluminum, dyeing andfinishing, and the hotel industry could face afairly heavy burden. Oil refining, electric power,
and pulp and paper will not get off lightly either.
On the other hand metallic machinery,automobile
parts,
supermarkets
andconvenience stores, construction and housing,and automobiles will not have to fork out thatmuch compared to their level of ordinary profits.
Thus the risks associated with policies to fightglobal warming (i.e., a carbon tax) varytremendously from industry to industry.

Table 5-1. Estimated Burden of a Carbon Tax to Major Industries(in billions of yen)

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Electric power
Iron and steel
Chemicals (excluding pharmaceuticals)
Oil refining
Pulp and paper
CementElectrical machinery
Automobile parts
Supermarkets / convenience stores
HotelsConstruction and housing
Automobiles
Non-ferrous metals
MiningDyeing and finishing
Rolled aluminum
Department stores
NTT Group
RubberPharmaceuticals

Estimated burden ofcarbon tax: aOrdinary profits: b

a / b (%)

255.3
145.7
68.0
35.8
24.0
19.5
14.3
8.5
7.8
7.2
6.3
4.8
4.1
4.1
2.3
2.2
2.0
1.9
1.8
1.8

1,038.1
132.3
857.6
101.7
108.1
18.2
923.2
335.2
459.0
13.8
747.1
967.1
61.4
60.8
3.2
2.7
54.3
756.4
163.1
970.6

24.6%
110.2%
7.9%
35.2%
22.2%
106.7%
1.6%
2.5%
1.7%
52.1%
0.8%
0.5%
6.7%
6.8%
70.8%
82.6%
3.7%
0.3%
1.1%
0.2%

Notes: 1. Estimated burden of a carbon tax has been calculated by DBJ assuming a tax of ¥3000 per ton of carbon (¥818
per ton of CO2), which is said to be fairly low comparing to estimated marginal abatement cost. The calculations
are based on figures for each industry’s CO2 emissions during FY 2001 as contained in a document of January 31,
2003 prepared by the Joint Follow-up Subcommittee on the Keidanren Voluntary Action Plan on theEnvironment the Industrial Structure Council and the Advisory Committee for Natural Resources and Energy,
Ministry of Economy, Trade and Industry. For those industries whose intra-industry emissions coverage rate of
the Voluntary Action Plan is clear from this document, overall FY 2001 emissions have been worked out basedon that rate.
2. Figures for ordinary profits give the average for the past three years. They are taken from Development Bank ofJapan (ed.), Handbook of Industrial Financial Data. Note that these figures are for listed companies only; they
may be lower than profits for each industry as a whole.
3. The figure for estimated cost of a carbon tax to the electric power industry assumes that that industry is taxed forall emissions produced during power generation. The figures for other industries assume that each is taxed
proportionate to the emissions from the electricity it buys. These emissions are thus factored in twice.

Development Bank of Japan Research Report/ No. 42

33

2. Level of Investment by Different Industries in Combating Global Warming
The ease with which a particular firm can
implement measures to fight global warming isdetermined to some extent by its level ofinvestment in the necessary facilities and thestate of its R&D programs.
Table 5-2 shows level of investment bymajor industries in combating global warming
as a percentage of their total investment. Since
there is no clear definition of what exactly
constitutes investment in combating global
warming, here we examine the percentages of
total capital investment over the past three years
channeled into three areas: environmental
conservation, energy conservation and newenergy sources, and streamlining andlabor-saving.
Investment in environmental conservation
constitutes around 3% of total investment anddoes not differ that greatly between the
manufacturing and non-manufacturing sectors.
Iron and steel displays the highest level ofinvestment in this area, followed by pulp andpaper, oil refining, chemicals, electric power,
ceramic, stone and clay products, electricalmachinery, and automobiles.
Investment in energy conservation andnew energy sources stands at only half the levelof that in environmental conservation. In the
non-manufacturing sector heat supply stands
out for its high percentage of investment in thisarea, but overall the non-manufacturing sector
shows
virtuallynodifference
frommanufacturing. In addition to heat supply, ironand steel, gas, pulp and paper, and oil refining
also direct a high proportion of investment toenergy conservation and new energy sources.
Investmentinstreamlining
andlabor-saving, which merge seamlessly into thekind of measures to combat global warming by
eliminating wasteful energy usage often seen
today, stands at over double the percentage ofthat in environmental conservation. The level ofinvestment differs greatly between the
manufacturing and non-manufacturing sectors,
with the former registering a far higher
percentage. The figure for iron and steel is
especially high, followed by pulp and paper.
Ceramic, stone and clay products, electricalmachinery, automobiles, and oil refining also
show percentages in the double digits.
Overall, iron and steel records a highTable 5-2. Level of Investment by Major Industries in Combating Global Warming as a Percentage
of Total Capital Investment

In percent

Environmental
conservation

All industries
ManufacturingNon-manufacturing
Iron and steel
Pulp and paper
Oil refining
ChemicalsElectric power
Ceramic, stone and clay productsElectrical machinery
Automobiles
Electronic equipment
Gas
Wholesale/retailServices
Heat supply

3.1
3.1
3.0
6.8
5.8
5.6
5.1
4.1
2.7
2.5
2.2
0.8
0.2
0.1
0.0
-

Note:
Source:34

Energyconservationand new energy
sources
All industries
ManufacturingNon-manufacturing
Heat supply
Iron and steel
Gas
Pulp and paper
Oil refining
Electric power
Chemicals
Ceramic, stone and clay productsElectrical machinery
Automobiles
Electronic equipment
Wholesale/retailServices

1.6
1.5
1.6
15.6
8.7
6.4
4.5
2.8
1.5
1.0
1.0
0.5
0.5
0.4
0.0
0.0

Streamlining
andlabor-saving
All industries
ManufacturingNon-manufacturing
Iron and steel
Pulp and paper
Ceramic, stone and clay productsElectrical machinery
Automobiles
Oil refining
ChemicalsElectronic equipment
Wholesale/retailServices
Electric power
Gas
Heat supply

7.9
13.4
2.1
28.5
22.0
18.2
16.3
13.2
11.6
8.6
7.6
5.6
3.9
1.7
0.9
0.0

Percentages give the average for the three fiscal years 2000-2002.
Compiled by DBJ from Ministry of Economy, Trade and Industry, Capital Investment Survey (June 2002).

Development Bank of Japan Research Report/ No. 42

Table 5-3. Corporate Research Spending on the Environmental and Energy Fields in Major Industries
Environmental field
All industries(billionsof yen)ShareEnergy field(billionsof yen)

Share

350.7

100.0% All industries

343.5

100.0%

323.7

92.3%

Manufacturing

254.6

74.1%

Transport equipment
Machinery industry

191.4
37.3

54.6%
10.6%

Transport equipment
Transport, communications and public utilities

135.3
65.8

39.4%
19.2%

Electrical machinery

Manufacturing

27.5

7.8%

Electrical machinery

59.3

17.3%

Chemicals

27.0

7.7%

Petroleum and coal products

15.2

4.4%

Construction

12.2

3.5%

Non-ferrous metals

13.3

3.9%

9.2

2.6%

Machinery industry

11.7

3.4%

8.9

2.5%

Chemicals

8.1

2.4%

Precision machinery

6.1

1.7%

Mining

7.6

2.2%

Ceramics

Construction

Iron and steel
Transport, communications and public utilities

4.7

1.3%

5.0

1.4%

Publishing and printing

4.2

1.2%

Precision machinery

3.2

0.9%

Petroleum and coal products

3.7

1.1%

Ceramics

3.1

0.9%

3.3

0.9%

Iron and steel

2.8

0.8%

Mining3.0

0.9%

Plastics

1.7

0.5%

Foods

2.7

0.8%

Specialized services

0.7

0.2%

Software and information processing

1.9

0.5%

Wholesale

0.6

0.2%

Plastics

Note:
Source:Academic research institutes have been excluded.
Compiled by DBJ from Ministry of Public Management, Home Affairs, Posts and Telecommunications, Scientific Technology Research Survey, 2002.

percentage in all three fields, followed by pulp
and paper, oil refining, chemicals, and ceramic,stone and clay products. Electric power,
electrical machinery, and automobiles also
display fairly high percentages.
Measures to combat global warming today
constitute an aspect of corporate capital
investment that can no longer be ignored, as
demonstrated by a survey of attitudes to capital
investment conducted by DBJ in conjunction
with its August 2002 survey of capital
investment trends among major corporations
throughout Japan. In this survey, to which
1,971 companies responded, 21.8% ofcompanies cited “action on the environment” asan area of investment which, for strategic orother reasons, they placed in a separate
category and gave priority, even though suchinvestment can not surpass usual hurdle rate on
return. Of those companies, 17.5% stated thatthey gave greater priority to measures tocombat global warming than to other forms ofinvestment on the environment, while 65.3%
said that they assigned them the same level ofimportance. Although 17.2% said that they
regarded such measures as less important thanother forms of investment on the environment,
the fact remains that the great majority ofcompanies consider combating global warmingat least as important as other forms ofinvestment on the environment.
Table 5-3 shows the percentage ofcompany research funds spent on theenvironmental and energy fields.
As a general rule, companies with larger
R&D budgets find it easier to develop andadopt new technologies; they should also
therefore be in a better position to take steps tocombat global warming, though Environmental
R&D is only a paltry 3% of the total R&D
spending. Of all the different industries,
transport equipment invests far and away thelargest amount in the environmental field. It isfollowed by machinery industry, electricmachinery, and chemicals. Transport equipment
also accounts for the biggest share ofinvestment in the energy sector, followed bytransport, communications and public utilities
and, in third place, electrical machinery.
The above discussion is based on R&D
spending for FY 2001. It should be kept in
mind, however, that there is a time lag between

Development Bank of Japan Research Report/ No. 42

35when a company invests in R&D and when it
harvests the rewards, and in some cases
companies may be in a position to takemeasures to combat global warming thanks tothe cumulative results of research over anumber of years, even though they have notinvested that much money during the particular
year in question.
3. Progress of Different Industries in Meeting ISO 14001
ISO 14001 certification is one indicator of how
solid an internal management structure a
company has to deal with environmental issues.
Some firms have testified that obtaining ISO
14001 certification has raised employee
awareness of environmental issues and made iteasier to take action to fight global warming.
Table 5-4 gives number of certifications
for ISO 14001 as of the end of December 2002.
Out of a total of 10,952 certifications, theelectrical machinery industry accounts for thelargest number with 13.9%. Next come services,chemicals, construction (general contractors),
metal products manufacturing, transport
equipment, general equipment, waste treatment,
and local governments.
Since it can be assumed that industries
with more establishments are going to obtain
more certifications, we have gauged different
industries’ progress in meeting ISO 14001

based on the relative ratios of the ISO
certification ratios and the number of
establishment ratios by industry. As Table 5-5
shows, the industries that have made thegreatest progress are, in order, non-ferrous
metals mining, metals mining, chemicals, gas,petroleum products, electrical machinery, andelectric power. The least progress has been
made in forestry, food services, construction(special trade contractors), real estate, medicine,merchandise retailing, insurance, inns and otheraccommodations, schools and education,
merchandise wholesaling, services, and national
public service. Certifications have been on theincrease of late in the non-manufacturing sector,
including services, but the number ofcertifications as a percentage of the total
number of establishments within each industry
remains low.

Box 2. What Is ISO 14001?

ISO 14001 was developed by the International Organization for Standardization (ISO) to serve
as a model Environmental Management System (EMS) for corporations to adopt. EMS is avoluntary tool that enables companies to enhance their awareness of environmental issues as they
relate to business and adopt ecologically sound management practices that reduce impacts on theenvironment.
First top management formulates an environmental policy, which prescribes both a code ofpractice and a set of targets for the EMS. This is disclosed to the rest of the organization and the
public at large. On that basis the organization assesses the impact of its various operations on theenvironment and identifies those impacts that are particularly serious, decides to what extent and inwhat way to mitigate those impacts, assigns responsibilities and sets a definite schedule, thendevelops a mechanism for managing, auditing, evaluating, and rectifying environmental
performance. An outside audit is conducted on a regular basis to ensure that the system ismaintained in working order.

36

Development Bank of Japan Research Report/ No. 42

Table 5-4. Number of ISO 14001 Certifications as of the End of December 2002
Number ofcertifications as ofend of Dec. 2002

Share: aNumber ofestablishments

Share: b

All industries

10,952100.0%

6,350,101

100.0%

Electrical machinery

1,519

13.9%

42,164

0.7%

13.2%

Services

1,004

9.2%

1,038,354

16.4%

-7.2%

Chemicals

850

7.8%

9,101

0.1%

7.6%

Construction (general contractors)

809

7.4%

247,780

3.9%

3.5%

Metal products manufacturing

669

6.1%

81,5481.3%

4.8%

Transport equipment

650

5.9%

25,756

0.4%

5.5%

General equipment

576

5.3%

73,782

1.2%

4.1%

Waste treatment

484

4.4%

17,5190.3%

4.1%

Local governments

416

3.8%

38,718

0.6%

3.2%

Plastic products

352

3.2%

28,1200.4%

2.8%

Merchandise retailing

327

3.0%

1,403,482

22.1%-19.1%

Merchandise wholesaling

311

2.8%

403,802

6.4%

-3.5%

Precision machinery

255

2.3%

11,7940.2%

2.1%

Food products manufacturing

240

2.2%

57,557

0.9%

1.3%

Pulp and paper

237

2.2%

15,2720.2%

1.9%

Ceramic, stone and clay products

212

1.9%

28,1520.4%

1.5%

Other manufacturing industries

211

1.9%

36,757

0.6%

1.3%

Publishing and printing

194

1.8%

57,3830.9%

0.9%

Transport

189

1.7%

136,719

2.2%

-0.4%

Construction (installation of fixtures)

179

1.6%

143,345

2.3%

-0.6%

Beverages etc.

168

1.5%

9,064

0.1%

1.4%

Textiles

126

1.2%

86,690

1.4%

-0.2%

Rubber products

123

1.1%

7,798

0.1%

1.0%

Non-ferrous metals

119

1.1%

5,830

0.1%

1.0%

Iron and steel

92

0.8%

7,662

0.1%

0.7%

Electric power

70

0.6%

2,008

0.0%

0.6%

Communications

60

0.5%

15,4000.2%

0.3%

Petroleum products

57

0.5%

1,379

0.0%

0.5%

Furniture and fixtures manufacturing

57

0.5%

33,350

0.5%

0.0%

Gas

52

0.5%

775

0.0%

0.5%

Industrya–bSources: 1. The number of ISO 14001 certifications is as tallied by the Japanese Standards Association (Environmental
Management Standards Council Administration Center).
2. The number of establishments is taken from Ministry of Public Management, Home Affairs, Posts andTelecommunications, Establishment and Enterprise Census 2001.
3. Compiled by DBJ.

Development Bank of Japan Research Report/ No. 42

37

Table 5-5. Progress in Meeting ISO 14001
Top 20 sectors

Progress:
a/b

Rank

Bottom 20 sectors

Progress:
a/b

Rank

Non-ferrous metals mining
Metals mining
Chemicals
Gas
Petroleum productsElectrical machinery
Electric power
Waste treatment
Transport equipment
Precision machinery
Non-ferrous metals
Beverages etc.
Rubber products
Pulp and paper
Plastic products
Iron and steel
Local governments
Metal products manufacturing
General equipment
Ceramic, stone and clay products

927.7
245.3
54.2
38.9
24.0
20.9
20.2
16.0
14.6
12.5
11.8
10.7
9.1
9.0
7.3
7.0
6.2
4.8
4.5
4.4

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Forestry
Food services
Construction (special trade contractors)
Real estate
Medicine
Merchandise retailing
Insurance
Inns and other accommodations
Schools and education
Merchandise wholesaling
Services
National public service
Agriculture
Construction (installation of fixtures)Transport
TextilesTimber and wood products manufacturing
Furniture and fixtures manufacturing
Banking and trust
Construction (general contractors)

0.0
0.0
0.0
0.1
0.1
0.1
0.1
0.2
0.3
0.4
0.6
0.6
0.7
0.7
0.8
0.8
0.9
1.0
1.1
1.9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Notes:

Sources:38

Each industry’s progress in meeting ISO 14001 has been gauged by determining the share of ISO 14001 certifications it has obtained as a percentage of the total number of such certifications, then dividing that figure by its
percentage share of all establishments.
The simple percentage share that a particular industry has of total ISO certifications does not provide an accurate
picture of how much progress it has made in meeting ISO 14001, since industries with more establishments aregoing to have more certifications.
If an industry’s percentage share of both ISO 14001 certifications and number of establishments is identical, thenit will have a score of 1. If its share of certifications is greater, then it will have a score of more than 1. A higherscore indicates a greater commitment to meeting ISO 14001.
It should be noted however that these numbers give no more than a very rough idea, because in some cases several hundred different establishments may together receive a blanket certification, while in other cases a single
establishment may be granted its own certification; yet both count as a single certification. Strict comparisons are
therefore not possible.
As in Table 5-4. Compiled by DBJ.

Development Bank of Japan Research Report/ No. 42

VI Characteristics of Measures to
Combat Global Warming As
Exemplified by Innovative
Programs in the Field20
1. Survey of Winning Entries to the
Nationwide Contest for Outstanding
Energy-saving Programs
Chapter V examined the domestic businessclimate in which corporations operate today. It
analyzed what kinds of companies are taking
innovative measures to combat global warming
amidst that business climate and what thecharacteristics of those measures are.
Here we examine the details of 239
programs that between FY 1997-2001 wonvarious awards at the Nationwide Contest for
Outstanding Energy-saving Programs run by
the Energy Conservation Center of Japan,
including the Minister of Economy, Trade andIndustry Prize, the Director General of the
Agency for Natural Resources and Energy(ANRE) Prize, the Director General of theRegional Bureau of Economy, Trade andIndustry Prize, and the Chairman of the Energy
Conservation Center of Japan Prize. These
programs exemplify how companies haveovercome a host of obstacles to implement
innovative measures to combat global warming.
As described in Box 3, the Nationwide Contest
for Outstanding Energy-saving Programs is aprestigious contest that has been held for over aquarter of a century now. It is designed toencourage the adoption of outstanding energy
practices, and descriptions of winning programs
are posted on the Internet.
Conserving energy is the cornerstone of
the fight against global warming, and programs
that have won awards in the contest may fairly
be considered to exemplify innovative
approaches to combating global warming. Afterall, they have been recognized by a panel ofexperts as being outstanding on several fronts:
20

In analyzing the Nationwide Contest for Outstanding
Energy-saving Programs for the purposes of this chapter, I
received a great deal of help from many individuals with
the Energy Conservation Center of Japan. I would like totake this opportunity to thank them.

they conserve energy, are economical, areinnovative or original, can be adopted bycompanies in the same and other industries, andare ecologically sound.
As can be seen from Table 6-1, the contest
receives roughly 150 entries annually, of whicharound 30% win awards, though the exact
numbers vary from year to year. Before
submitting entries some companies hold apre-screening in house to select programs likely
to win. Therefore the outstanding programs
analyzed here are taken from a far larger
statistical population than the total of 821
contest entries; that population may beconjectured to number in the thousands at thevery least.
The winning entries are examples ofinnovative programs that have successfully
overcome a host of obstacles. It should be noted
however that they do not encompass the fullrange of action that companies are taking toconserve energy, since all these programs havebeen submitted to the contest for the express
purpose of achieving public recognition, andthe submitting firms do not care if a certain
amount of technical information about themleaks out.
Box 3. The Nationwide Contest for Outstanding Energy-saving Programs

The Nationwide Contest for Outstanding Energy-saving Programs waslaunched in 1975 by the precursor of theEnergy Conservation Center of Japan as away to encourage the manufacturing industry
and all sectors of the economy to takeconcrete steps to save energy, which it doesby enhancing awareness of energy issues andpromoting advances in energy-saving
technology. It provides an opportunity forbusinesses throughout Japan to sharetechniques and insights for conserving
energy.
Entries are judged on a comprehensive
basis by a panel of experts for the degree towhich they conserve energy, are economical,
are innovative or original, can be adopted bycompanies in the same and other industries,
and are ecologically sound.

Development Bank of Japan Research Report/ No. 42

39

Table 6-1. Number of Winning and Other Entries to the Contest
for Outstanding Energy-saving Programs(number of entries)
Type of entry

FY1997Share

FY1998

Share

Winning entries

47

36%

56

37%

42

24%

48

26%

Other

84

64%

96

63%

131

76%

137

74%

Total entries

131

100%

152

100%

173

100%

185

100%

180

Note:

Source:FY1999Total FY 1997-2001
Ordinary steel
Four-wheel vehicles
Electronic equipment
Petroleum
Components and chassis
Electronic components etc.
9 big power utilities
Electrical equipment
Other electric power
Industrial machinery
Metal products
Organic chemicals
Commercial office equipment
Smelting of non-ferrous metals
Brewing and distilling
Other ceramic, stone and clay products
Other iron and steel
Pulp and paper
Real estate
Construction
Rolling of non-ferrous metals
Communications
Other textiles
RetailGlass
Gas
Synthetic fiber

Share

FY2001

Share

Total

Share

46

26%

239

29%

134

74%

582

71%

100%

821

100%

Table 6-3. Classification of Winning Entries
by Broader Sector

Winning
entries
39
35
29
27
21
18
14
11
5
5
5
4
3
2
2
2
2
2
1
1
1
1
1
1
1
1
1

As in Table 6-1.

Table 6-2 shows winning entries classified
by industry. The industries that won the mostawards were, in order, ordinary steel, four-wheel
vehicles, electronic equipment, petroleum,40

FY2000Of those companies that submit entries, 1-2% are awarded the Minister of Economy, Trade and Industry Prize,
3% the Director General of the Agency for Natural Resources and Energy Prize, 10% the Director General of
the Regional Bureau of Economy, Trade and Industry Prize, and 12% the Chairman of the Energy Conservation Center of Japan Prize. For FY 1997 and 1998 recipients of the Incentive Prize and Excellent Program
Prize are also counted as winning entries.
Compiled by DBJ from data on winning programs available on the Energy Conservation Center of Japan’s
home page.

Table 6-2. Winning Entries Classified
by Industry

Source:ShareDevelopment Bank of Japan Research Report/ No. 42

Total FY 1997-2001
Electrical machineryTransport equipment
Iron and steel
Petroleum
Electric power
Other
General equipment
Metal products
Chemistry
Non-ferrous metals
Pulp and paper
Foodstuffs
Gas
Communications
Source:Winning entries
58
56
41
27
19
8
8
5
4
3
2
2
1
1

As in Table 6-1.

components and chassis, electronic components
etc., the nine big power utilities, and electricalequipment. Industries like real estate andcommunications received but a handful ofprizes. Perhaps a certain degree of lopsidedness
in which industries win prizes is inevitablegiven the fact that the contest is run by the
Energy Conservation Center, which comesunder the aegis of the Ministry of Economy,
Trade and Industry.
Table 6-3 reclassifies winning companies
into broader sectors for ease of comparison with
Chapter V. The top-placing sectors areelectrical machinery, transport equipment, ironand steel, petroleum, and electric power. Other
sectors have received relatively few awards.

Table 6-4. Number of Prizes for Outstanding Energy-saving Programs Won by Different Industries,
FY 1997-2001
FY 1997

PrizesFY 1998

PrizesFY 1999

Prizes

FY 2000

Prizes

FY 2001

Prizes

Four-wheel vehicles

8

Ordinary steel

9Ordinary steel

8

Four-wheel vehicles

8

Four-wheel vehicles

7

Petroleum8

Four-wheel vehicles

8

Electronic equipment

7

Electronic equipment

8

Electronic equipment

6

Ordinary steel

8

9 big power utilities

5

Petroleum

6

Ordinary steel

8

Ordinary steel

6

9 big power utilities

6

Petroleum5

Four-wheel vehicles

4

Electronic
components etc.

6Components andchassis6

Electronic equipment

3

Electronic equipment

5

Electrical equipment

4

Petroleum

3

Petroleum

5

Components andchassis3

Electronic
components etc.

5Components andchassis4

Components andchassis3

Electronic
components etc.

4Electronic
components etc.

2Components andchassis5

9 big power utilities

3

Brewing anddistilling

2

Electrical equipment

3

Other iron and steel

1

Other electric power

2

Gas

1

Industrial machinery

2

Pulp and paper22

Other iron and steel

1

Other electric power

1

Metal products

2

Other electric power

1

Commercial officeequipment

Other ceramic, stone
and clay products

1

Industrial machinery2

Industrial machinery

1

Electrical equipment

2

Other electric power

1

2

Commercial officeequipment

1

Metal products

1

Synthetic fiber

1

1

Real estate

1

Metal products

1

1

Rolling of
non-ferrous metals

1

Construction

1

Retail

1

Metal products
Organic chemicals

Source:1Electrical equipment

1

Organic chemicals

2

Communications

Glass

1

Electronic
components etc.

Other textiles

1

Smelting of
non-ferrous metals

1

Other ceramic, stone
and clay products

1

Organic chemicals

1Rolling of
non-ferrous metals

1

As in Table 6-1.

Table 6-4 gives ranking of industries by
number of prizes won for each of the past five
years. Certain industries have been constantwinners. Ordinary steel places consistently inthe top three, four-wheel vehicles in the top
four. Also noteworthy is how electronicequipment has maintained second place forthree years in a row starting in FY 1999.
Table 6-5 provides details about thecompanies that have been the biggest winners
within these top-placing industries. A
description follows of the characteristics of
those industries that have garnered the mostprizes.
In the field of ordinary steel, Nippon SteelCorporation has won overwhelmingly thelargest share of prizes. Many of the measures inthis field have come from the bottom up, having
been devised by workers on the production line.
Also, almost half the winning programs have
involved developing new technologies, and new
facilities have been installed for many of them.
In the field of four-wheel vehicles, theToyota Motor Group has been similarly
predominant. Again, a bottom-up approach iscommon, with most programs involving
making the best use of existing facilities rather
than harnessing new technology. Energy-saving
efforts in this area typically involve minimizing
wasteful energy usage by rationalizing demand.
As for components and chassis, the Aisin
Seiki and Denso Groups — both affiliated with
Toyota — have dominated. There has been
more of a tendency to develop newtechnologies than has been the case in theautomobile sector, and energy conservation
efforts have focused on rationalizing demand.
The Matsushita Electric Industrial Grouphas dominated in the field of electronicequipment and also won quite a few prizes in
the field of electronic components etc. In bothindustries programs that make effective use ofexisting facilities have been common, while
efforts to develop new technologies have beenrare.

Development Bank of Japan Research Report/ No. 42

41

Table 6-5. Notable Winning Entries in the Nationwide Contest for Outstanding Energy-saving Programs
Industry

NipponSteel
Corporation
Ordinarysteel

NKK Corp.

Four-wheel
vehiclesToyota
Motor
Group

Mazda
Aisin Seiki
Components Groupand chassis
Denso
Group
Electronicequipment

Electronic
components
etc.

Matsushita
Electric
Industrial
Group

Matsushita
Electric
Industrial
Group
NEC Group

Electricalequipment

Toshiba

Idemitsu
Kosan
PetroleumCosmo Oil
ShikokuElectric
9 big power Powerutilities
TohokuElectric
Power

Source:42

Prizes, FY
1997-2001

Firm orgroup

Examples of winning programs

Making effective use of discarded carbon and iron by developing and implementing
technology for recycling surplus dust from steel production as raw material for blast
Total 16 prizes
furnaces.
incl. 1 Minister’s
Improvements involving the use of diagnostic technology on obsolescent heating
Prize and 3
equipment.
Director General of
Development and installation of a small ignition furnace at a sintering plant that supplies
the ANRE Prizes
sintered ore to blast furnaces.
Reducing energy use by upgrading compressed air nozzles and installing valves.
Minimizing energy use during the iron- and steel-making process by developing andimplementing technology for measuring the temperature of molten metal in the taphole ofblast furnaces.
Total 6 prizes incl.
3 Minister’s Prizes Developing a heat storage burner for use as a thermal rolling continuous heating furnace
or steel plate batch heating furnace.
Highly efficient recovery of waste heat by using a heat storage burner as a heater forelectrical furnace ladles.
Conserving energy in conjunction with ISO 14001 by upgrading measuring equipment
and improving production equipment operation, plus pooling information on individual
Total 19 prizes
operations on a cross-departmental basis; using outside air in cold climates and setting air
incl. 2 Minister’s
conditioning to lower temperatures etc.
Prizes and 1
Director General of Conserving energy through automatic control of boiler operation and better maintenancepractices.
the ANRE Prize
Reducing the number of melting furnaces in operation by establishing technologies foradjusting content, e.g., techniques for melting additives.
Making more efficient use of the approx. 250 air blowers in the Engine/Mission
Total 5 prizes incl. Manufacturing Department by, e.g., reducing the number of objects to be blown and
1 Minister’s Prize altering nozzles to move, as well as through adjustments to the blow points.
A comprehensive review, with the goal of saving energy and resources, of design andTotal 8 prizes incl. production procedures in connection with the development and manufacture of a new
1 Minister’s Prize automatic transmission for small cars. This achieved a 30% cut in electrical power
consumption.
Total 8 prizes incl. Automated start-up and shutdown of equipment, controlled operation of cleaner air
1 Minister’s Prize blowers, regular inspection and repair of air leakages.
Achieving fresh energy savings on the production floor — where previous such efforts
had hit a ceiling — by establishing and systematically implementing diagnostic energy
Total 20 prizes
conservation technologies that utilize specially developed measuring equipment.
incl. 2 Director
General of theMonitoring of real-time energy consumption by production line and facility.
ANRE Prizes
Introduction of heat-storage combustion equipment with waste heat recovery equipment
to treat exhaust gas from solvents.
Upgrade of obsolescent air compressors and air conditioning equipment toTotal 9 prizes incl. high-performance models; upgrade of transformer equipment to an energy-saving design;
2 Director General better management of length of time that equipment is in operation; etc.
of the ANRE
A program implemented with participation of all staff in conjunction with ISO 14001,
Prizesinvolving improvements in the control of water supply and drainage and hot water pumps
in clean rooms, the use of air from outside during winter, and reductions in energy losses.
Total 4 prizes incl. Boosting efficiency of turbo freezers by setting cooling tower fans to a lower
1 Director General temperature; reducing freezer load by using outside air to chill cooling water duringof the ANRE Prize winter and transitional seasons; etc.
Series of measures in connection with ISO 14001 certification involving cutting peak
Total 3 prizes incl. power consumption in conjunction with the adoption of cogeneration technology, making
1 Minister’s Prize effective use of waste heat generated during chilling of freezer refrigerant, andestablishing an energy-saving pattern of freezer operation.
An energy-saving program involving restructuring the overall design of hydrogengenerators by having operators of the equipment participate in the design process andTotal 14 prizes
relaxing constraints.
incl. 3 Director
A systematic energy conservation program involving all staff that achieved rapid results
General of theby quantifying hidden losses on site in the form of a utility loss map.
ANRE Prizes
Compiling a troubleshooting manual and using it to systematically identify problems andset priorities.
Total 7 prizes incl. Energy-saving measures implemented by several subcommittees charged with the task of
1 Director General promoting energy conservation at all the company’s refineries; reducing amount of steamof the ANRE Prize used by improving operation of reformer unit benzene splitters.
Total 2 prizes incl. Reducing the amount of sludge left over when drainage from desulfurizing equipment is
1 Director General treated using drainage treatment equipment by recovering it for reuse in the desulfurizingof the ANRE Prize equipment, thereby cutting power consumption.
Total 2 prizes incl. Reducing heat loss during plant startup by lowering the deaerator heating temperature at
1 Director General startup times and improving clean-up procedures for plant startup after a weekendof the ANRE Prize stoppage.

As in Table 6-1.

Development Bank of Japan Research Report/ No. 42

Idemitsu Kosan has been similarly
dominant in the petroleum field. Many of its
programs too have come from the bottom up
and entailed making effective use of existing
facilities. It has consistently overwhelmed thecompetition, with its Chiba refinery winning
prizes 17 years in a row. Energy conservation
endeavors are deeply permeated through its
operations.
Thus just a handful of players — Nippon
Steel, the Toyota Motor Group, the Matsushita
Electric Industrial Group, Idemitsu Kosan— have snatched up the lion’s share of prizes.
Awards have not been distributed evenly
among the companies in each industry; rather, a
few firms have dominated. This suggests that,of the various motives identified in Table 4-1,
particular company circumstances exert
considerable influence.
Box 4 describes the case of Aeon Co., Ltd.,
one of the few companies in the nonmanufacturing sector to have received an award
for its energy-saving efforts. Aeon started out
its campaign, which it launched on a top-down

Box 4. How Aeon Co., Ltd. Won the Minister of Economy, Trade and Industry Prize for FY 2001
by Developing an ESCO System for Comprehensive Conserving Energy

This initiative, which Aeon implemented in coordination with the revised Energy Conservation
Law and ISO 14001, pursued cost-effectiveness across the board using several approaches. Chiefamong them were improving operation of food refrigeration equipment and air conditioning
equipment in stores and restoring them to top working condition by keeping them clean. Steps werealso taken to save energy in management of energy demand and operation of lighting equipment.
These measures were implemented in 200 of Aeon’s approximately 400 stores over a seven-year
period starting in FY 1995. The goal was to save ¥900 million annually.
The campaign, which was launched on a top-down basis, started out by assessing energy
consumption in each of the company’s stores and determining such details as its total floor area andhours of operation. A chain of command was established for executing the necessary steps, anddivision of duties was clearly defined. A manual was compiled that included details onenergy-saving designs and implementation procedures; this enabled information on energy
conservation techniques to be shared throughout the company.
By analyzing current operating conditions, Aeon determined that it needed to take thefollowing steps: (1) Establish an overall energy conservation strategy for each store as whole, witheach store installing its own semi-made-to-order energy-saving equipment. (2) Manage energy use
based not just on costs but amount consumed as well, with company headquarters keeping track ofdata on all stores on a centralized basis. (3) Carefully select manufacturers whose equipment can bedepended on to save energy. (4) Monitor energy-saving equipment once installed for how effective
a job it does. (5) Optimize operation of that equipment and maintain it properly.
Specific measures include: cutting peak energy consumption by assigning priority levels todifferent operations and rotating energy cut during peak times; inverter control of large motors;
automatic control of gas pressure in refrigerated showcases in accordance with the temperatureinside the case; and restoring the outside units of air conditioning systems to top working order bykeeping them clean. According to available figures Aeon has invested ¥15-44 million per store andthereby achieved an average of around 8% in energy reductions in 60 major stores. Fifteen stores
achieved reductions of less than 5%, 18 of at least 5% but below 10%, 22 of at least 10% but below
15%, and five of 15% or thereabouts. Five stores recovered their investment in less than 1.5 years,
12 in 1.5-2.0 years, 10 in 2.0-2.5 years, 22 in 2.5-3.0 years, and 11 in 3.0-3.5 years; thus the cost of
the measures has in almost all cases been recovered in one to three years. As this case goes to show,by keeping proper track of data and working together efficiently as a single coordinated team, acompany can achieve impressive results at little cost.
Source:Compiled by DBJ from data released by the Energy Conservation Center of Japan.

Development Bank of Japan Research Report/ No. 42

43

Table 6-6. Number of Designated Type 1 Energy Management Factories under the Energy
Conservation Law, by Industry (As of the End of March 1999)
Industry
Number of Type 1
factories
As percentage of all
establishments

Sources:

Electrical Transport Ceramic,
Pulp,
equipment equipment stone and Iron and paper andChemicals
and
and
clay
steel
paper
devices
devices
products
products

Nonferrous
metalsElectric
power Textiles
supply

Other

Total
number ofType 1
factories

588

490

310

305

263

204

200

188

180

176

734

3638

6.5%

1.2%

1.2%

1.1%

3.4%

1.3%

0.3%

3.2%

9.0%

0.2%

0.2%

0.6%

Compiled by DBJ from data in Energy Conservation Center of Japan, Analysis of State of Energy Consumption,
FY 1994-98, and Ministry of Public Management, Home Affairs, Posts and Telecommunications, Establishment
and Enterprise Census, FY 2001.

basis, by determining the amount of energy thecompany was using overall. This should prove
an instructive example to industries that lag
behind in this area, for it demonstrates theimportance of first determining how many
emissions your firm is producing. At a cost of¥15-44 million per store, Aeon has achieved anaverage of around 8% in energy reductions in
60 major stores by better controlling operationof energy-related equipment and cutting peakenergy consumption. That investment has been
recovered in one to three years — which goesto show that there are still some surprisingly
cheap, economical ways to save energy left.
Table 6-6 gives the number of factories ineach industry that have been designated Type 1energy management factories under the Energy
Conservation Law,21 along with the percentagethat figure represents of the total number of
establishments within the industry in question.
This is in order to test the hypothesis thatindustries with more Type 1 factories should
win more prizes. The industries with the mostType 1 factories are, in order, chemicals,
electrical equipment and devices, transport
equipment and devices, ceramic, stone and clay
products, iron and steel, and pulp and paper.
This ranking clearly differs from that ofindustry performance in the contest forenergy-saving programs. Were the hypothesis
correct, we would expect chemicals andceramic, stone and clay products to have
21

Designated Type 1 energy management factory under
the Energy Conservation Law: a factory in the manufacturing, mining, electrical power supply, gas supply, or heat
supply industry with electricity consumption of 12 million
kWh or fuel (heat) consumption of 3000 kl.
44

Foodstuffs

Development Bank of Japan Research Report/ No. 42

attained a few more prizes than they actually
have. Conversely, petroleum and iron and steel
have displayed greater zeal than other industries
in proportion to the number of Type 1 factories
they have and their total number of
establishments.
2. Characteristics of Winning Energy
Conservation Programs
Table 6-7 provides a somewhat more detailed
overview of the characteristics of winningenergy conservation programs. It classifies 239
programs that have won citations over the past
five years based on information available on the
Energy Conservation Center’s home page.
(a) Targeted operation
First there is the question of what aspect ofoperations energy-saving programs target. The
great majority of winning program over theperiod 1997-2001 — 83% to be exact— targeted the production line, but in recent
years there has been an increase in programs
targeting other areas. It makes sense that somany programs target the production line since
designated factories under the Energy
Conservation Law are frequent participants inthe contest. Nonetheless, a growing number ofprograms these days, even those implemented
in factories, target areas other than production
such as air conditioning systems, perhaps
because new ways to conserve energy on the
production line are becoming increasingly hard
to find.

Table 6-7. Characteristics of Innovative Energy Conservation Measures As Exemplified
by Winning Entries in the Contest for Outstanding Energy-saving Programs
FY 199747

FY 1998
56

FY 199942

FY 2000
48

FY 2001
46

Total
239

(a) Targeted operations
Production line
Other

91%
9%

88%
13%

80%
20%

76%
24%

77%
23%

83%
17%

(b) Energy saving approach adopted
Rationalizing energy demand
Boosting equipment efficiency
Recovery of waste heat etc.

37%
39%
23%

44%
25%
31%

69%
19%
12%

71%
19%
10%

57%
33%
11%

55%
27%
18%

(c) Did the program start out by reassessing energy consumption?
Yes
17%
No
83%

21%
79%

5%
95%

4%
96%

59%
41%

21%
79%

(d) Facilities used
Made effective use of existing facilities
Involved installing new facilities

65%
35%

83%
17%

92%
8%

62%
38%

76%
24%

(e) Did the company overhaul its internal mechanism for managing energy costs?
Yes
53%
20%
2%
No
47%
80%
98%

2%
98%

24%
76%

21%
79%

(f) Did the program involve developing and implementing new technology?
Yes
13%
13%
No
87%
88%

40%
60%

17%
83%

33%
67%

22%
78%

(g) Top-down or bottom-up?
Top-down
Bottom-up

0%
100%

5%
95%

2%
98%

11%
89%

3%
97%

14%
86%

7%
93%

15%
85%

37%
63%

18%
82%

Winning entries

82%
18%

0%
100%

(h) Was the program implemented on a cross-departmental basis?
Yes
17%
No
83%

Notes: 1. When a winning entry consists of more than one type of measures, the main measures in question are used as
the basis for classification.
2. Percentages do not necessarily add up to 100 due to rounding of fractions.
Source:As in Table 6-1.

(b) Approach adopted
In Table 6-7 approaches to conserving energy
are classified into three general categories —rationalizing demand, boosting equipment
efficiency, and recovery of waste heat etc. —and each program is sorted according to which
category it best falls into. By this classification
the majority of programs involved rationalizing
demand. Boosting equipment efficiency came a
distant second, accounting for barely half that
number. Here too, then, rationalizing demand,
which can be accomplished at minimal cost,
predominated as opposed to boosting

equipment efficiency, which often entails
capital investment.
(c) Did the program start out by reassessing
energy consumption?
As the case of Aeon demonstrates, assessing
your energy consumption is the first step in
implementing an energy-saving strategy. We
therefore examined whether the typical winning
program started out by determining level ofenergy consumption. However, many of thewinners were designated Type 1 factories under
the Energy Conservation Law or had ISO
Development Bank of Japan Research Report/ No. 42

45

factories do not have adequate equipment to
conduct proper monitoring. The problem could
be even more serious in non-Type 1 factories,
and improvements are very much in need.
Japan, it is argued, has already done just about
everything it can to cut back on energy use, but
this is one area where potential gains are still to
be made.

14001 certification, and they did not need totake this initial step because they already had anidea of how much energy they were using. Evenso, in FY 2001 the number of programs that did
involve this initial step crossed the 50% mark.
Determining level of energy consumption is the
key to rationalizing demand, and even if a firm
has a rough notion of its energy use based on
existing mechanisms, it may be able to identify
new potential cuts by conducting an in-depth
reassessment of its exact energy use patterns.
Further, as Figs. 6-1 and 6-2 show, evendesignated Type 1 factories have room for
improvement in their energy management
practices, since their monitoring procedures
may leave much to be desired. Some 40% of
designated Type 1 factories have only aminimal grasp of their energy consumption,
have numerous gaps in their information, or
exercise management over only an extremely
narrow range. Plus over 20% of Type 1(d) Facilities used
In Table 6-7 (d) programs are classified into
two categories depending on whether they
made effective use of existing facilities or
involved installing new facilities. The majorityof programs made effective use of existing
facilities, with not that many programs
involving installation of new facilities. Thissuggests that even companies with a strong
commitment to conserving energy still have acertain amount of room for taking low-costmeasures of this type. However, in FY 2001 theNumerous gaps

Comprehensive

41%

16%

17%

19%

Broad graspof information

Minimal graspof information

7%

Grasp of information
extremely limited

Figure 6-1. Scope of Management of Facilities and Operations
Source:Ministry of Economy, Trade and Industry, Analysis of State of Energy Consumption, FY 1994-98.

State of equipment
excellent
Recording procedures
excellentState of equipment
excellent
Recording procedures
average55%

State of equipment
below average
Recording procedures
below average

24%

State of equipment
excellent
Recording procedures
below average

15%

46

As in Fig. 6-1.

Development Bank of Japan Research Report/ No. 42

Other

State of equipment
average
Recording procedures
below average

Figure 6-2. Monitoring and Recording Practices
Source:4%State of equipment
poor
Recording
procedures poornumber of programs involving installation of
new facilities showed a definite increase, which
could mean that there is not that much scopeleft for making use of existing facilities. Still,making effective use of existing facilities
remains an option for medium- and small-sized
firms as well as big corporations that havestrayed behind in the fight against global
warming and do not have an adequate
infrastructure to support implementation of thenecessary measures. Steps will be needed todisseminate such expertise and technology tomake best use of existing facilities.
(e) Did the company overhaul its internalmechanism for managing energy costs?
When implementing energy-saving measures, it
is better if authority for managing energy use
lies in the same hands as exercise authority overthe production operations that consume energy.
Sure enough, a fair number of the winning
programs involved overhauling the internal
company mechanism for managing energy costs.
There were cases, for example, of a centralized
form of management being replaced by asystem in which the production group assumed
control of energy costs.
(f) Did the program involve developing andimplementing new technology?
Not that many of the winning energy-saving
programs
involved
developing
andimplementing new technology. That may be
because this contest fails to attract many
programs that entail high development costs,
since companies end up having to make public
much of the technology and know-how that lie
behind winning programs, even though nomonetary awards or other forms ofcompensation are offered. For example, thechemicals industry garners few prizes, yet achemical plant is literally bristling with patents;
perhaps the industry is by its very nature
unsuited to competing in this type of prize
competition for public recognition. Entering thecontest requires unveiling data on amount ofenergy used and temperature and pressurelevels in order to demonstrate how a particularmeasure has helped conserve energy. For achemicals firm, disclosing that kind of

information could put corporate secrets about,say, its production system at risk.
(g) Top-down or bottom-up?
More of the winning energy conservation
programs started from the bottom up — at
employee initiative — than from the top down
— at the bidding of management. This probably
reflects the fact that, at companies that are
frequent prize winners, taking measures toconserve energy is already considered an
integral part of the work force’s functions under
the Energy Conservation Law or ISO 14001.
(h) Was the program implemented on a crossdepartmental basis?
An increasing number of energy-saving
programs are implemented on a crossdepartmental basis, i.e., they are not selfcontained within a single department.
Implementing
measuresonacrossdepartmental basis offers greater freedom andincreases potential energy savings as compared
to programs carried out independently within
individual departments. There are cases, forinstance, of companies cutting overall energy
consumption by giving equipment operators asay in the design of their equipment.
The non-manufacturing sector, which lags
behind in its energy-saving efforts, claimed few
prizes, making generalizations difficult. But
almost all the few prize-winning programs were
implemented from the top down and started out
with a reassessment of how much & in what
way the company was using energy. Thissuggests that, if more companies are to join thefight against global warming, it is importantthat they first put in place the necessary internal
emission management structure on a top-downbasis.

3. Features Common to Innovative Programsin the Field
Here we bring together the different strands of
our analysis so far by identifying what features
these innovative programs have in common.
The vertical axis of Table 6-8 lists degreeof achievements in innovative measures tocombat global warming, the direct incentives
Development Bank of Japan Research Report/ No. 42

47

Table 6-8. Features Common to Innovative Programs to Combat Global Warming

Innovative
programs

ElectricalmachineryTransport
equipment

Iron andsteel

Petroleumproducts

Electric
power

Chemicals

Ceramic,
stone andclay
products

◎

◎

◎

◎

◎

△

△

Energy-saving
advantages

△

△

◎

◎

◎

◎

◎

Risks of a carbon tax

△

△

◎

◎

◎

○

◎

ISO 14001

◎
◎
○

◎
◎
○

○
△
◎

◎
△
○

◎
○
○

◎
○
○

○
△
○

Outstanding
energy-saving programs

Direct incentives

Internal structure

R&D
Capital investment

Notes:
Source:◎ = High ○ = Moderate △ = Low
Compiled by DBJ.

that we have been able to identify in our
analysis, and internal structure, while thehorizontal axis names major industrial sectors.
Each point of intersection is marked with asymbol (◎, ○, or △) depending on the extent
to which the item on the left applies.
Here we use the number of entries thatwon prizes at the contest for outstanding
energy-saving programs to gauge the degree ofachievements to which a particular industry istaking innovative measures in the field.
However, as already noted, chemicals andceramic, stone and clay products have garnered
fewer prizes than expected.
Under (observable) direct incentives,
ceramics, iron and steel, and chemicals have all
been given a ◎, since as we saw in Fig. 5-1
energy costs comprise a high percentage of
their fuel and raw material costs.
Under risks of a carbon tax, electricalmachinery and transport equipment have bothbeen assigned a △ based on Table 5-1 andFigs. 5-2 though 5-8.
As this analysis indicates, electricalmachinery and transport equipment have
implemented a large number of innovative
programs even though their direct incentives
are not that great. Conversely, chemicals andceramic, stone and clay products have attained
few prizes despite having plenty of direct
incentives. As already argued, it may be thatthese industries are by their nature unsuited to48

Development Bank of Japan Research Report/ No. 42

competing in this type of contest. That direct
incentives do indeed play a role is suggested bysuch industries as iron and steel, petroleum
products, and electric power. However, given
the current uncertain policy climate, thoseincentives do not have as much urgency as theymight.
Next we compare internal management
structure as illustrated by level of ISO 14001
certification, capital investment in measuresagainst global warming, and research anddevelopment (R&D) spending in theenvironmental and energy fields.
Most of the industries reviewed here wererelatively enthusiastic about obtaining ISO
14001 certification, with little difference among
them. After all, many of the companies
concerned are already tightly managed under
the Energy Conservation Law and have in placea fairly rigorous internal management structure.
But the chemicals industry, despite its
enthusiasm, won few prizes.
The majority of winners were presumably
designated Type 1 factories under the Energy
Conservation Law, which are expected tomaintain a fairly solid management structure:they must have on staff qualified energy
management experts who have passed anational exam, they must compile and fileregular reports and future plans, and they are
subject to on-site inspections by regional
bureaus of economy, trade and industry. ISO

14001 does not require firms to keep energy
management experts on staff, but it still
demands that they monitor ecological impacts
fairly closely and maintain an ongoing programof measures.
There was not that great a discrepancy inlevels of capital investment, perhaps because
few programs to combat global warming
entailed installing new facilities. Nonetheless,iron and steel registered a high level ofinvestment in global warming measures,reflecting the fact that many of its initiatives
involved adopting new technology.
On the other hand iron and steel, alongwith petroleum products, did not spend thatmuch on R&D, in sharp contrast to transport
equipment and electrical machinery. This is notquite what one might have expected: iron andsteel invested little in R&D yet brought in many
new technologies, while transport equipment
and electrical machinery spent plenty on R&D
yet adopted relatively few new technologies.
Several factors may be at work here: there isquite a time lag before R&D yields concrete
results, plus by its very nature the Nationwide
Contest for Outstanding Energy-saving
Programs attracts few large-scale initiatives thatentail extensive R&D spending. In the electricalmachinery and transport equipment industries
R&D does appear to have exerted a positiveeffect on certain fronts.
The above analysis suggests that, while aninternal management structure is a necessary
condition for implementing measures to combat
global warming, it is on its own not enough.
Thus it is hard to say there exist simple
correlations between direct incentives andinternal management structure on the one hand,and innovative measures to combat global
warming on the other.
The particular circumstances in which afirm stands, which may be obscure to theoutside observer, also appear to exercise aconsiderable influence, as suggested by the waythat a relatively small number of companies
have dominated the contest. Even if incentives
are weak, companies can still make progress in
implementing measures against global warming
as long as they have in place an internalmechanism for managing their energy

consumption — what might be described ascorporate infrastructure for the fight against
global warming — and the conditions are rightfor bottom-up action, with management having
committed itself to a policy of taking thenecessary steps.
4. Fostering Further Innovative Measures to
Combat Global Warming
In this chapter we have analyzed innovative
measures to combat global warming as
exemplified by winning entries in the Nationwide Contest for Outstanding Energy-saving
Programs. It should be remembered howeverthat there are cases of innovative programs notfeatured in this contest.
Fig. 6-3 provides an overview oftechnologies and know-how that could be of
considerable value to society as a whole eventhough they do not appear in the contest foroutstanding energy-saving programs.
This contest provides no monetarycompensation. The most that it offers is the
public recognition that comes from winning theprestigious Minister of Economy, Trade andIndustry Prize. Yet entering the contest entails a
considerable amount of effort and requires
firms to share valuable technology andknow-how in the public arena, where it will beaccessible to rivals. Therefore companies may
choose to unveil only certain elements of theiroverall energy-saving strategy, keeping underwraps those that they judge will not yieldenough benefits to justify the cost of entering
them in the contest. Of the programs notfeatured in the contest, those that would standlittle chance of winning anything anyway
because they do not save that much energy (α2in Fig. 6-3) require no further comment. The
problem lies with Category α1: outstanding
technology and know-how that are of
considerable value to society, which however ifentered in the contest would cause the firm thatdeveloped them to lose more than it would gain.
These days companies in industries wherecompetition is severe tend to be wary about
disclosing too much information, since rival
firms not just in Japan but in the rest of Asia as
well are eager to get their hands on lucrative

Development Bank of Japan Research Report/ No. 42

49

Assumption: Currently the contest offers nomonetary compensation. Winning companies
gain a reasonable degree of publicrecognition but run the risk of having rivals
use the information they have disclosed toimitate their programs.

α1

Programs notentered in contestα
Sum total of all energy
conservation programs

Cost ofentering
exceeds returns
from winning

Have benefits but abother to enter due todifficulty ofStand little chance explaining, lack oftime, etc.
of winning

α2
Programs
entered incontestβ

Benefits
considerable, and thecompany fears
imitation by rivals
Easy to imitate

Involve technology andknow-how about which＝ the company is not too
reluctant to disclose acertain amount of
information at no cost

Have alreadypaid back forthemselves andleave little scopefor expansion
Difficult toimitateNot protectedby intellectual
property rights

Conceivable policies
in response Would be of

benefit to society
as a whole ifcompanies
Have not yet
shared suchpaid back forOffer reasonable technology andthemselves
know-how, but
rewards
rights are notadequately
Cut
protected, nor istransaction there sufficientcosts
iProtect
or buyup

Generally speaking, these different
categories of technology and know-how
Status can be ranked according to their value toquosociety as follows:

α1

＞ β

＞ α2

Figure 6-3. Position of the Entries to the Contest for Outstanding Energy-saving Programsin the Overall Context of Energy Conservation in Japan
Source:Compiled by DBJ.

technology and know-how. Category α1 may
also include programs that are not protected byintellectual property rights or have not yet paidback for themselves. Category β — programs
entered in the contest — may consist of either
fairly old programs that have already paid backfor themselves or programs that othercompanies will find hard to imitate. Thus, as
shown in the lower right-hand corner of Fig.
6-3, these different categories of technology
and know-how can be ranked according to theirvalue to society in the order α1 > β > α2.
Raising the overall level of energy conservationin Japan will require promoting widespread
adoption of the most valuable forms oftechnology and know-how — those that fall
into Category α1. To that end proper protectionneeds to be afforded to intellectual property

50

Development Bank of Japan Research Report/ No. 42

rights under the patent system. But that is notall. Other policies also come to mind. A publicagency could buy up outstanding technology
and know-how at a fair price, then make itavailable to other Japanese firms at low cost;
appropriate pecuniary incentives could beoffered (in return for which companies would
have to disclose enough information on therelevant technology or know-how to enable it to
be transferred); and the business costs involvedin entering the contest or releasing andtransferring technology could be reduced or
government subsidies provided to help defray
them. Some of these policies may be difficult toimplement, but the fact remains that a dose of
ingenuity could accomplish a great deal inpromoting the widespread adoption ofoutstanding know-how and technologies.

Conclusions
Based on the above analysis, we offer thefollowing
three
recommendationsforencouraging companies to adopt measuresagainst global warming along the lines of themodel outlined in Fig. 4-1:
(1) Enhance incentives.
Current efforts to fight global warming are
confined to major corporations in certain
industries.
Encouraging
thecorporate
community as a whole to join the fight will
require providing stronger incentives to a broad
range of players by sending as clear a signal as
possible about medium- to long-term policies
while taking into consideration the current
constraints of the Kyoto Protocol.22
Meanwhile, in order to facilitate
development and dissemination of moreadvanced technology and know-how than isavailable today, institutional arrangements suchas providing various protection for intellectual
property rights and monetary prizes should bemade to enable companies to recoverdevelopment costs. That will, it is hoped, leadto a proliferation of outstanding technologies
and know-how that can be shared by society as
a whole. Developing and disseminating
advanced technology and know-how is
indispensable to promoting action by Japanese
corporations to combat global warming over the
medium to long term. That will require not justremoving barriers in so far as possible but also
providing positive incentives.
(2) Furtherance of corporate internal GHG
management structure.
Even if incentives are weak, companies can still22

For example, when offering incentives to a particularindustry, every effort should be made to minimize negative impacts such as carbon leakage, taking into consideration the state of international competition in each productcategory and the degree of industry’s energy efficiency
comparing to international standards. For instance, in industries where international competition is intense andefficiency is high, incentives could be provided that yield
economic advantages, while in industries where international competition is virtually nonexistent and efficiency islow, incentives could be provided that impose an economic cost.

make progress in implementing measuresagainst global warming as long as they have inplace an internal mechanism for managing
their energy consumption — what might bedescribed as corporate infrastructure for thefight against global warming. The conditions
also need to be right for bottom-up action, withthe company having committed itself to apolicy of taking measures against global
warming. Companies in the non-manufacturingsector in particular, which currently is doing
little on this front and still has plenty of leeway
to make reductions, should be encouraged toadopt the necessary internal management
structure. Since smaller firms are likely to findthe cost of developing and maintaining such astructure a strain, one sensible option might beto establish a mechanism that would give large
numbers of firms access to energy management
experts at low cost.
(3) Fair evaluation from outside.
One of the reasons that companies are reluctant
to commit themselves to measures against
global warming is that they are not always
given due credit for long-term measures to help
prevent global warming and for emission cutsas determined by product lifecycle assessments(LCAs). Companies need to be fairly evaluated,
and that will require adjusting evaluation
benchmarks and granting LCA emission
permits. It will be necessary to create amechanism that ensures companies that take thelead in implementing pioneering measures do
not lose out for their pains. But that is not all. A
system should be developed on a worldwide
basis whereby effective medium- to long-term
measures to combat global warming areproperly rewarded.
As shown in Fig. 4-1, all three ideas areinterrelated and should preferably be pursued
simultaneously. By installing the internal
infrastructure needed to combat global warming
and developing and disseminating outstanding
technology and know-how, companies can takethe first step to decouple global warming
mitigation and economic activities. Let us hopethat progress will be steady.

Development Bank of Japan Research Report/ No. 42

51

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Development Bank of Japan Research Report/ No. 42

53

List of Back Numbers (Including JDB Research Report)
No. 42 Promoting Corporate Measures to Combat Global Warming: An Analysis of Innovative Activities in the Field (this issue)
No. 41 Prospects and Challenges for End-of-Life Vehicle Recycling, May 2003
No. 40 Survey on Planned Capital Spending for Fiscal Years 2002 and 2003 (Conducted in February2003), May 2003
No. 39 China’s Economic Development and the Role of Foreign-Funded Enterprises, May 2003
No. 38 Decline in Productivity in Japan and Disparities Between Firms in the 1990s: An Empirical Approach Based on Data Envelopment Analysis, March 2003
No. 37 Trends in Socially Responsible Investment: Corporate Social Responsibility in a New Phase,
March 2003
No. 36 Recent Trends in the Japanese Economy: A Medium-term Scenario for the Sustainability of theJapanese Economy, February 2003
No. 35 Concerns for the Future and Generational Consumption Behavior, February 2003
No. 34 Prospects and Challenges Surrounding Japan’s Electrical Equipment Industry: General Electrical
Equipment Manufacturers’ Restructuring of Operations and Future Prospects, November 2002
No. 33 Survey on Planned Capital Spending for Fiscal Years 2001, 2002 and 2003, November 2002
No. 32 Behavior Trends of Japanese Banks toward the Corporate Sector and Their Impact on the Economy, October 2002
No. 31 Microstructure of Investment and Employment Dynamics: Stylized Facts of Factor Adjustment
Based on Listed Company Data, October 2002
No. 30 Recent Trends in the Japanese Economy: Globalization and the Japanese Economy, August 2002
No. 29 Corporate Financing Trends in Recent Years: Fund Shortages and Repayment Burden, August
2002
No. 28 Urban Renewal and Resource Recycling: For the Creation of a Resource Recycling Society, July
2002
No. 27 Labor’s Share and the Adjustment of Wages and Employment, June 2002
No. 26 Survey on Planned Capital Spending for Fiscal Years 2001 and 2002, May 2002
No. 25 Environmental Information Policy and Utilization of Information Technology: Toward a Shift inEnvironmental Policy Paradigm, March 2002
No. 24 The Changing Structure of Trade in Japan and Its Impact: With the Focus on Trade in Information Technology (IT) Goods, March 2002
No. 23 Microstructure of Persistent ROA Decline in the Japanese Corporate Sector: Inter-company
Disparties and Investment Strategies, March 2002
No. 22 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation and Prospects
of Evolution, February 2002
No. 21 Survey on Planned Capital Spending for Fiscal Years 2000, 2001 and 2002, December 2001
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era, October 2001
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards
Utilisation of Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001

No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the
Expansion of the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001
No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior, March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its
Background, March 2001
No. 12 Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes
since the 1980s, based on Micro-level Panel Data, March 2001
No. 11 Survey on Planned Capital Spending for Fiscal Years 1999, 2000 and 2001, October 2000
No. 10 Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on Enterprise Data, September 2000
No. 9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September
2000

No. 8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries, June 2000

No. 7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, June 2000

No. 6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology andMarket for Underground Remediation, May 2000

No. 5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No. 4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No. 3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations,the Debt Burden and Other Structural Factors, January 2000

No. 2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No. 1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other
Asian Countries, November 1999

JDB Research Report
No. 96 Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August 1999
No. 95 Efforts to Protect the Natural Environment in the United States and Germany: Environmental
Mitigation and Biotope Conservation, July 1999
No. 94 Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999
No. 93 Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO
sector through comparison with Germany, June 1999
No. 92 The Impact of Demographic Changes on Consumption and Savings, March 1999
No. 91 Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March
1999
No. 90 Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999
No. 89 Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between Japan and the U.S., December 1998
No. 88 Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998

No. 87 Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998
No. 86 Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998
No. 85 Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998
No. 84 R&D Stock and Trade Structure in Japan, August 1998
No. 83 Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998
No. 82 The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public
Acceptance is Essential, May 1998
No. 81 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997
and 1998 Conducted in August 1997, March 1998
No. 80 Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998
No. 79 Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January
1998
No. 78 Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series andEnvironmental Cost, January 1998
No. 77 Current Conditions and Issues of Computerization in the Health Care Industry: For the Construction of a Health Care Information Network, January 1998
No. 76 Household Consumption and Saving in Japan, December 1997
No. 75 The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to
Support Diverse Consumer Choices, November 1997
No. 74 Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on International Trade, October 1997
No. 73 The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on
the Effects on Productivity and Employment, October 1997
No. 72 An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997
No. 71 Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of
Economic Recovery, August 1997
No. 70 Corporate Fundraising: An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and1997 Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and1997 Conducted in August 1996, August 1997
No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm
Data from Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March
1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997
No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulationof the Electric Power Industry in Japan and Implication of Experiences in the United States,
December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key,
October 1996

No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of
the Current Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the
United States and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY1995, June 1996
No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and1996 Conducted in February 1996, May 1996
No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995
and 1996 Conducted in August 1995, October 1995
No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October
1995
No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October
1995
No. 50 An Economic Approach to International Competitiveness, October 1995
No. 49 Selected Summaries of Research Reports Published in FY1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part 2,
July 1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995
No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and1995 Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March
1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private
Level, May 1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994
and 1995 Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994
No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and1994 Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration,
December 1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993
No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993
and 1994 Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992

No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and1993 Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992
and 1993 Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992
No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and1992 Conducted in February 1992, April 1992
No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s,
February 1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991
and 1992 Conducted in August 1991, September 1991
No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and1991 Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991
No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990
and 1991 Conducted in August 1990, September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment
and Technology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and1990 Conducted in February 1990, March 1990
No. 18 Petrochemicals In Japan, The US, and Korea an Assessment of Economic Efficiency, February
1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989
and 1990 Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly Industrializing Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years
1988 and 1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988
and 1989 Conducted in August 1988, September 1988
No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and
ASEAN Countries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8

The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987