Silviase/jgov_v1.4_full_ann huggingface dataset:
Figure 2-1-3 Trends in Global Environmental Business Market

Note: Environmental businesses are classified into 14 segments in accordance with the U.S. Standard Industrial Classifications (SIC). Source: Compiled by the Ministry of the Environment from the material published by the Environmental Business International

Figure 2-1-4 Share of Renewables in the Primary Energy Supply (2005)

Source: Compiled by the Ministry of the Environment from the data of IEA, Energy Balances of OECD Countries 2007, and Energy Balances of Non OECD Countries 2007

water, and ocean resources.

The volume of electricity generated using renewable energy increased in recent years. According to the IEA statistical data, use of wind power increased 24.8% and use of solar power increased 7.6% from 1990 to 2005. Although an across-the-board international comparison is difficult due to differences in the topography and natural environment of countries and the statistical methods they employ, the share of renewable energy in the primary energy supply of various countries in the 2005 IEA statistical data (Figure 2-1-4) shows a high percentage of hydraulic power use in Northern Europe and a high percentage of solar power and wind power use in Denmark, Germany, and Spain.

In solar power generation, Germany surpassed Japan as the No. 1 country in the world both in the cumulative installed photovoltaic (PV) capacity (Figure 2-1-5) and in the yearly installed PV capacity (Figure 2-1-6) in 2006 alone. The cumulative growth in installed PV capacity shows that in 2006, compared to the previous year, Japan had a decrease of 1% while Spain, Mexico, Italy, and the United States increased significantly by 198%, 106%, 84%, and 41% respectively, illustrating the accelerated use of PV power generation (Figure 2-1-5). In the production of PV cells, Japan has been the world's No. 1 producer since 1999. However, production in Japan in 2006 increased by only 11% compared to the previous year, whereas Europe had a substantial increase of 44% (in Germany 99%) and the United States 31%. Production of PV cells also increased drastically in China (203%), Taiwan (108%), and other Asian countries (Figure 2-1-7).

In terms of wind power generation, Germany was No. 1, Spain No. 2, and Japan No. 13 in the cumulative installed capacity as of 2006 (Figure 2-1-8).

Each country has set installation targets and has stepped up policies to promote the development, introduction, and
Figure 2-1-5 Changes in Cumulative Installed Photovoltaic Capacity and Annual Growth Rate of Installed Photovoltaic Capacity (2006/2005)

Changes in Cumulative Installed Photovoltaic Capacity

Annual Growth Rate of Installed Photovoltaic Capacity (2006/2005)

Source: Compiled by the Ministry of the Environment from the data of IEA, TRENDS IN PHOTOVOLTAIC APPLICATIONS Survey report of selected IEA countries between 1992 and 2006 (2007)

Figure 2-1-6 Yearly Installed Photovoltaic Capacity

Source: Compiled by the Ministry of the Environment from the data of IEA, TRENDS IN PHOTOVOLTAIC APPLICATIONS Survey report of selected IEA countries between 1992 and 2006 (2007)

Planta Solar de Salamanca, a large scale PV power generation facilities in Salamanca, Spain (facility area: approximately 360,000m²)

(Photo: courtesy of KYOCERA Corporation)

use of renewable energy.

In the EU, the Directive on Electricity Production from Renewable Energy Sources (2001) set a target of using renewable energy to generate 21% of the electricity supply by 2010. Furthermore, the European Commission recommended in January 2008 to increase the percentage of renewable energy in energy consumption from 8.5% in 2005 to 20% by 2020, drawing immense interest to its future policy moves. The use of renewable energy is making inroads with mechanisms that place an obligation to introduce renewable energy. Germany, Spain, and Denmark adopted a feed-in tariff system that mandates utility companies to purchase electricity generated from renewable energy at a fixed price. The United Kingdom and Sweden adopted a Renewable Portfolio Standard (RPS) that places an obligation on electricity supply companies to produce a specified fraction or amount of their electricity from renewable energy sources.
Figure 2-1-7 Changes in and Annual Growth Rate of Photovoltaic Cell Production Capacity

Source: Compiled by the Ministry of the Environment from the data of IEA, TRENDS IN PHOTOVOLTAIC APPLICATIONS Survey report of selected IEA countries between 1992 and 2006 (2007)

Figure 2-1-8 Installed Wind Power Capacity Worldwide (2006)

In the Kyoto Protocol Target Achievement Plan revised in March 2008, Japan set a target of increasing the use of new energy from 11.6 million kl (crude oil equivalent) (29.55 million tons of carbon dioxide equivalent) in FY 2005 to 15.6~19.1 million kl (38.0~47.3 million tons of carbon dioxide equivalent) in FY 2010. Besides providing assistance at various stages of the research and development, validation, and introduction of new energy, Japan also adopted measures to diffuse new energy. For example, utility companies are required to use a certain percentage of new energy in their electricity sales under the Law on Special Measures Regarding the Utilization of New Energy by Electricity Provider (Renewable Portfolio Standard Law, or RPS Law).

The World Energy Outlook 2007 issued by IEA predicts that the percentage of renewable energy in the world’s electricity generation in 2030 will rise from 3,320 TWh (1 TWh = 1 billion kWh) in 2005 to 7,315 TWh in 2030, an increase of 2.2 times. The world has an increasingly greater expectation of renewable energy. Renewable energy sources will be adopted in various corners of the world at an increasingly faster pace in the future.

## B Expansion of the Renewable Energy Market

Thanks to policies taken by the countries to support renewable energy and the increasing economic viability of renewable energy against the backdrop of rising oil prices, the world’s renewable energy market has seen rapid growth in recent years. Various renewable energy-related businesses, from production to distribution and services, have sprung up.

According to “Global Trends in Sustainable Energy Investment 2007” issued by the United Nations Environment Programme (UNEP), investment in sustainable energy worldwide has become 71 billion dollars in 2006, an increase of 43% from the previous year (Figure 2-1-9). By region, most of the investment is in the developed countries but the amount of investment in the developing countries is also rising, from 15% in 2004 to 21% in 2006 (China accounts for 9% of the investment amount). By type, most of the investment is in wind power (38%), followed by biofuel (26%), and solar energy (16%) (Figure 2-1-9). IEA predicts that 40% of the investment in electricity will be for renewable energy in the next 25 years.
Figure 2-1-9 Changes in Global Investment in Renewable Energy by Type and Percentage of Global Investment by Technology

Note: Grossed-up values based on disclosed deals. The figures represent new investment only, and do not include PE buy-outs, acquisitions of renewable energy projects, nor investor exits made through Public Market/OTC offerings.

Source: SEFI, New Energy Finance (2007)

## 2 Construction of a System Using Economic Instruments and Its Progress

In order to achieve multiple policy objectives, including environmental protection and economic development, and to facilitate our transition to a low carbon society at the same time, we must reduce GHG emissions effectively and efficiently, using a policy mix that integrates and utilizes the characteristics of all measures, including voluntary, regulatory, economic, and informational approaches.

Of these approaches, the economic approach is premised on a market mechanism. It appeals to various actors with economic rationale to limit emissions, by providing them with economic incentives that use taxes and subsidies as instruments. The approach is believed to be effective also as an economic assistance measure for mitigating global warming. In implementation, it is important to apply the concept of policy mix to optimize the effect, minimize the burden on people, and control the administrative and financial costs. Financial assistance shall be administered with consideration to the costs and effects and the efficient utilization of budgets. This approach of utilizing the market mechanism is said to be one of the effective means to ensure the sustainability of socio-economic activities. In recent years, taxation and emission trading systems (to be explained later) have been adopted or reviewed by many countries in the world.

Japan and OECD countries all have environmental taxes. OECD defines “environmental taxes” as mandatory taxes levied by the government on environment-related items (including energy items such as gasoline, transportation items such as automobiles, waste, etc.) and paid unilaterally by taxpayers, no matter what the name, purpose, and usage of the taxes are, or whether the taxes are levied as an economic means for reducing GHG emissions. Environmental taxes in Japan are levied as gasoline excise, light oil delivery tax, automobile weight tax, and so on. According to OECD statistical data, in OECD countries the ratios of environmental tax to total tax revenue amounts in 2004 average 5.8% (6.4% in Japan) and revenues from environmental taxes account for 1.8% of the GDP (1.7% in Japan) (Figure 2-1-10).

As the impacts of global warming are felt worldwide, Japan has introduced taxes as measures to mitigate global warming, including taxes to promote biofuels, tax incentives for upgrading the energy efficiency of existing homes, preferential taxation to eco-friendly vehicles, exceptional treatment for fuel-economy cars in automobile acquisition tax, and a taxation system to encourage investment for reforming the energy supply-demand structure. The Kyoto Protocol Target Achievement Plan,
Figure 2-1-10 Revenues from Environmentally Related Taxes in Per Cent of GDP (1995, 2000, 2005)

Note: For France and Iceland, 2004 figures are used for 2005. For Korea, 2003 figures are used for 2005. The averages are calculated only across the countries for which 2005 numbers are available.

Source: OECD/EEA Database on Instruments Used in Environmental Policy

revised in March 2008, pointed out that environmental tax is an issue for which comprehensive studies must be seriously advanced. Since environmental tax would impose a burden on a wide range of citizens, efforts must be made to obtain the understanding and cooperation of citizens, companies, and other entities, taking into account the specific role of the tax in the context of overall climate change policies and measures, its effects, its impact on national economy and the international competitiveness of industry, as well as the current state of climate change policies and measures in foreign countries, etc..

In Europe, some taxes are levied on gasoline, coal, natural gas, and other fuels for purposes such as to limit carbon dioxide emissions that accompany consumption. For example, Finland introduced a carbon tax in 1990. It was the first country in the world to levy a tax according to the carbon content. Other Scandinavian countries (Sweden, Norway, and Denmark) have also adopted carbon tax by 1992. Germany reformed its environmental tax system in 1999. Besides raising the tax rate for mineral oils such as gasoline, it also introduced a new electricity tax. Since then, the mineral oil tax has been raised in phases as a measure to mitigate global warming. It was reorganized as energy tax in 2006 and coal was newly added as a tax item. Between 1993 and 1999, in 2003, and since 2006, the United Kingdom has raised the hydrocarbon oil tax rates levied on gasoline and other products in phases as a measure to tackle global warming. In 2001, it introduced a climate change tax to include coal for industrial use and other products as tax items. Currently, other countries and regions are in the process of adopting or reviewing the adoption of such taxes to curb the emissions of carbon dioxide and so on.

## 3 Development of the Emissions Trading Market

Similar to the environmental tax, emission trading is a price mechanism that enables the economic society as a whole to reduce GHG emissions with minimal cost. After the Kyoto Protocol entered into force in 2005, the Kyoto credit trading is gaining momentum and an emissions trading scheme, the EU Emissions Trading Scheme (EU-ETS), was launched in the EU. The international emissions trading market has grown substantially in recent years. According to a World Bank report, the emissions trading volume was about 3 billion tons (carbon dioxide equivalent) in 2007 and the trading value was 64 billion dollars, twice that of 2006 (Table 2-1-1). A new value,
Table 2-1-1 Carbon Market at a Glance, Volumes & Values

2005	2006	2007
Volume (MtCO2e)	Value (MUS$)	Volume (MtCO2e)	Value (MUS$)	Volume (MtCO2e)	Value (MUS$)
Allowances
EU ETS	321	7,908	1,104	24,436	2,061	50,097
New South Wales	6	59	20	225	25	224
Chicago Climate Exchange	1	3	10	38	23	72
UK ETS	0	1	na	na
Sub total	328	7,971	1,134	24,699	2,109	50,394
Project-based transactions
Primary CDM	341	2,417	537	5,804	551	7,426
Secondary CDM	10	221	25	445	240	5,451
JI	11	68	16	141	41	499
Other compliance & voluntary transactions	20	187	33	146	42	265
Sub total	382	2,893	611	6,536	874	13,641
Total	710	10,864	1,745	31,235	2,983	64,035

Source: The World Bank, State and Trends of the Carbon Market (2007, 2008)

Figure 2-1-11 Trends of Resource Productivity

which is the amount of $ CO_{2} $ reduction with a price tag, and a market for trading this value, are now taking shape worldwide.

## (1) Current Emissions Trading Markets

The current emissions trading markets include the credit trading market based on the Kyoto Protocol’s Kyoto Mechanism, the EU-ETS market, and markets based on various emissions trading systems that exist in different countries and regions.

## A Emissions Trading Market under the Kyoto Mechanism

The Kyoto Mechanism is a market mechanism for achieving reduction commitments made by the developed countries that have ratified the Kyoto Protocol. It consists of three approaches: Clean Development Mechanism

Figure 2-1-12 Primary CDM & JI Buyers (as shares of volumes purchased, vintages up to 2012)

Source: The World Bank, State and Trends of the Carbon Market (2008)

(CDM), Joint Implementation (JI), and international emissions trading (Figure 2-1-11).

The amount/credits that can be acquired/transferred under the Kyoto Mechanism are assigned amount units (AAUs) that were allocated initially to the Parties of the Kyoto Protocol, emission reduction units (ERUs) issued by JI, certified emission reductions (CERs) issued by CDM, and removal units (RMUs) gained through domestic carbon sink activities.

Currently, CER trading is the most active in the Kyoto Mechanism trading market, accounting for about 90% of all trading. The CDM market has two categories of trading: trading of primary CERs from emission reduction operations and trading of secondary CERs through resale or brokerage of primary CERs.

Japan and Europe purchase the majority of CERs
(Figure 2-1-12). The sellers include China, which accounts for 73% of the trading volume (2007), followed by India (6%), with Asia representing about 80% of the market (Figure 2-1-13). Among the registered CDM projects, biomass, hydraulic power, wind power and other renewable energy projects are on the rise (Figure 2-1-14).

## B EU-ETS Market

For the EU, the GHG emission reduction target under the Kyoto Protocol is an 8% reduction from the 1990 level (some countries use 1995 as the base year for HFC, PFC, and SF $ _{6} $ ). This target is to be achieved jointly by the 15 original EU Member States. EU-ETS is a multilateral emissions trading system for the entire EU region. It was introduced in January 2005 as a means for the EU to achieve the Kyoto Protocol target. Phase I (2005-2007) has ended and Phase II (2008-2012) has just begun (Table 2-1-2).

Phase I targeted energy-intensive installations such as power plants, oil refineries, iron mills, cement factories, and large-scale boilers (approximately 11,500 installations, accounting for 49% of carbon dioxide emissions in

Figure 2-1-13 Location of CDM Projects

Note: CDM here is the primary CDM.

Source: The World Bank, State and Trends of the Carbon Market (2008)

Figure 2-1-14 Number of Registered CDM Projects by Type

Note: CDM projects counted here are those registered by April 2, 2008 at the CDM Executive Board of the United Nations Framework Convention on Climate Change (UNFCCC).

Source: Compiled by the Ministry of the Environment from the data of The Institute for Global Environmental Strategies (IGES), CDM Project Database

Table 2-1-2 Overview of the EU Emissions Trading Scheme (EU-ETS)

Phase I (2005-2007)	Phase II (2008-2012)
Targeted facilities	Facilities with emissions above certain levels in the industries of energy, iron and steel, cement, glasses, ceramics, and paper and pulp	Countries can expand the scope of facilities targeted
Targeted gases	CO2	Countries can expand the scope of greenhouse gases targeted
Trading methods	Cap and trade scheme
Upper limit on auctioning	5%	10%
Emissions allocated to countries	Less than 2005 level: 4 countries More than 2005 level: 23 countries (+8.3% in total compared with 2005)	Less than 2005 level: 16 countries More than 2005 level: 11 countries (-5.7% in total compared with 2005)
Non-compliance penalty	€40/t-CO2	€100/t-CO2
Linkage with Kyoto Mechanism	Linking to CER started in 2005	Linking to ERU to start in 2008
CDM/JI utilization	No limit (none accomplished)	Upper limit such as the maximum utilization of 20%

Source: Ministry of the Environment
Figure 2-1-15 Changes in the Balance of Publicly-Offered SRI Investment Trust and the Number of Funds

Source: NPO Social Investment Forum Japan, Japan SRI Annual Report (2007)

Environmental Theme Fund, which invests in companies with superior environmental technology, has rapidly gained popularity due to higher awareness of global warming issues. Such funds financially support environmental technology and are expected to grow in the future.

The financial assets of individuals in Japan were approximately 1,500 trillion yen (FY 2006). Rather than making investment decisions solely based on financial returns, Japanese investors have begun to be more interested in finding out where and in what their money is being invested. More environmentally conscious financial products that can meet the heightened awareness of the Japanese people are expected to be developed.

## (3) Linkage to Diversified Financial Instruments

Environmentally conscious investing and financing can be found not only in SRI but also in venture businesses and real estate development. For example, according to the United States Cleantech Venture Network, the number of investment cases in venture businesses of clean technology to reduce environmental impacts has doubled from 1999 to 2006 in the United States. It has grown into the No. 3 area in overall venture investment, following software and biotechnology.

Besides financial institutions such as banks, voluntary partnerships formed pursuant to the Civil Code can also collect funds from citizens and invest in or finance NPOs or community businesses engaging in environmental activities. Such community funds are attracting attention in recent years.

In the United States, under the Community Reinvestment Act (CRA), private financial institutions are required to make funds available to local communities. The Community Development Financial Institution (CDFI) also provides non-profit financing to local communities.

In Japan, small non-profit banks (the so-called NPO banks) have been established to provide funds to NPOs, citizen groups, and individuals engaging in activities for the local community, welfare, and protection of the environment. Social project funds that gather small investment from citizens to finance specific social projects have also been established in recent years. Such community funds are expected to provide a new flow of capital for community development, including environmental protection, in the future.

Wind turbines constructed by a Citizen’s Fund (Left: “Kazami” in Asahi City, Chiba Prefecture; right: “Tenpumaru” in Katagami City, Akita Prefecture) (Photo: courtesy of Natural Energy Citizen’s Fund Corp.)
## 2 Changes in Residential Energy Consumption

Next, let us look at the changes in residential energy consumption. The residential energy consumption in Japan increased substantially from 17,619 KTOE (kilotonne of oil equivalent) in 1970 to 38,123 KTOE in 1990, and to 54,743 KTOE in 2005. The 2005 energy consumption was 3.1 times that of 1970 and 1.4 times that of 1990. Using 1990 as the base year (1.00), Figure 2-2-3 shows the changes in residential energy consumption and changes in related indexes. The figure shows that the 2005 residential energy consumption in Japan has increased 44% from the base year; its percentage increase is especially high, compared to the other three countries (28% increase in the United States, 16% increase in the United Kingdom, and 0.7% increase in Germany). The final energy consumption of Japan has been on the rise consistently. The rate of increase in residential energy consumption has, however, surpassed the rate of increase in final energy consumption (in 2005, 15% increase from the base year) since 1982. In tandem with growth in GDP, household consumption expenditure has also increased. However, the rate of increase in residential energy consumption in Japan has also surpassed the rates of increase in such economic indexes. The population in Japan has started to drop beginning in 2005 but the number of households continues to rise. The year 2005 had a 21% increase, which was greater than the increases in the other three countries (17% increase in the United States, 14% increase in the United Kingdom, and 12% increase in Germany).

These data show that residential energy consumption in Japan has increased drastically due to (1) increase in per-household energy demand (increase in per-household energy intensity) for convenience and amenity as well as (2) increase in the number of households. The number of

Figure 2-2-3 Changes in Residential Energy Consumption and Related Indicators in Selected Countries

Note 1: Data on Population and household consumption expenditure are taken from The World Bank, World Development Indicator 2007.

2: The numbers of households are taken from population census data of each country. As for Japan, the numbers of households for 1970 and every 5 years after that are taken from population census, and those for other years are estimated by the Ministry of the Environment.

3: GDP and household final consumption expenditure are in real price (US$, 2000).

Source: Compiled by the Ministry of the Environment from the data of IEA, Energy Balances of OECD Countries 2007; The World Bank, World Development Indicator 2007; and others.