technology research expenditure declined in comparison to the previous year, reflecting an economic crisis, and research costs for environmental fields also declined (Figure 4-1-9). This is because the research expenditure of private businesses, which presents approximately 70% of the total for science and technology research expenditure, showed a significant drop of 12.1% compared to the previous year. However, even though the research expenditure in the environmental fields declined, the rate of decline was relatively smaller in comparison to the reduction rate of the entire science and technology research expenditure. This indicates that research in the environmental field is regarded as more important than the other areas.

In addition, looking at the environmental conservation expenditures, which are government expenditure related to conservation of the Earth's environment, prevention of pollution, and protection and maintenance of the natural environment, it can be seen that in recent years the budget amount of the general measures supportive of specific measures which include the budget of comprehensive promotion of R&D is increasing. In FY 2011, total amount of the fundamental measures in environmental conservation expenditures was approximately 99.7 billion yen, which makes up approximately 8.25% of the total environmental conservation expenditure (Figure 4-1-10). The budget amount of the fundamental measures has a tendency to increase since 2008, and the amount in FY 2011 has increased by approximately 18% from the previous fiscal year.

The environmental research and development supported by the science and technology budget have yielded a number of successful results. For example, the Ministry of the Environment has been promoting the research and development on high-capacity laminated lithium ion batteries. At the end of 2010, electric vehicles equipped with high-capacity laminated lithium ion batteries were launched to the market, which was an example of the outcomes of governmental environmental R&D leading to commercialization in the private sector (Figure 4-1-11). In addition, these batteries can be used in various storage batteries and power systems beyond their original applications in electric vehicles such as HEVs and plug-in HEVs. It is expected that application of this battery technology will help further significant reduction of carbon dioxide emissions. Specifically, the technology can be applied to industrial electric equipment, and in addition, the batteries can be operated together with the distributed power system to enhance the $ CO_{2} $ reduction. The technology also has potential to be applied in machinery such as forklifts and construction machines.

Thus government invest-

ment in research and de-

velopment for science and

technology has brought

about significant results

that contribute to creating

a society that does not

rely on non-renewable

resources.

Source: Automotive Energy Supply Corporation

## (2) New Roles of Environmental Finance

In order to solve environmental problems, it is necessary to change all of the mechanisms in a society to sustainable ones. Since all economic activities use money as a medium, in order to change society's mechanisms we should also need to change the flow of money. This would be the responsibility of the financial sector to the society. In a report released in June 2010, the Expert Committee on Environment and Finance of the Central Environment Council defined the term environmental finance as a "mechanism that changes the actions of corporations and individual actors to take environment into consideration via financial markets that offer appropriate incentives to induce eco-actions." The Council further specified the following two roles that are expected of the financial sector: (a) to supply generous funds baked by more than JPY 1,400 trillion yen of Japan's individual households financial assets towards commercial activities and environmental businesses that contribute to environmental conservation, and (b) to assess and support commercial activities of companies that work towards environmental protection. The report also made new proposals to promote socially responsible investment (SRI) efforts through pension funds and corporate environmental information disclosure.

As an example, the eco-lease project, a measure to reduce the initial investment burden of residences and small- and mid-size businesses for purchasing low-carbon equipments, will be implemented beginning in FY 2011 (refer to Section 3-2 (1) F).

Environmental finance is operated through various instruments such as investment, loans, and insurance. In the field of indirect finance, which has much weight in Japan, financial institutions such as banks are making a variety of efforts in the environmental fields (Table 4-1-1). One such effort is the financing employing environmental ratings that the Development Bank of Japan provides following the guidelines of Ministry of the Environment (Figure 4-1-12). Even though corporate efforts for environmental conservation are considered socially desirable, the level of effort tends to remain low since they do not directly improve corporate earnings in many cases. Environmentally rated financing, on the other

Table 4-1-1 Environment-related Projects of Depository Financial Institutions

Deposits	Eco-deposits	"Donation-type"
"Higher deposit interest rate type"
Finance	Personal loans	Financing for purchases of eco-cars, eco-residences, eco-reforms, etc.
Corporate finance	Financing for environment-related facilities
Financing for environmentally considerate companies (rated financing, etc.)
Project finance	Financing for environmental businesses (renewable energies, etc.)
Restrictions on project financing based on Equator Principles, etc.
Others	Business-matching	Individual handling, exhibit format, etc.

Source: Created by the Ministry of the Environment based on the Report "The New Role of Finance for a Low-Carbon Society," by the Expert Committee on Environment and Finance, General Policy Committee, Central Environment Council, the Ministry of the Environment