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Keidanren Voluntary Action Plan Evaluation Report

Fiscal 2002

(Tentative Translation)

Evaluation Committee for the Voluntary Action Plan on the Environment

March 26, 2003

1. Introduction

(1) The Keidanren Voluntary Action Plan on the Environment

The Keidanren Voluntary Action Plan on the Environment was formulated by Keidanren, as Nippon Keidanren was then known, ahead of the adoption of the Kyoto Protocol in July of 1997. It adopted as a unified goal for measures against global warming#1, the "reduction of CO2 emissions from participating industries in the industrial and energy-converting sectors in fiscal 2010 to below the levels of fiscal 1990."

Voluntary agreements and action plans are attracting worldwide attention for their new roles as part of environmental policy, and have been incorporated as key components of policy to combat global warming in Germany, the Netherlands and other countries. In recent years, these measures have spread to comprise international agreements involving Japan and South Korea, as can be observed in the case of measures to reduce automobile emissions of CO2 in the European Union. Reflecting this situation, a detailed analysis was made of voluntary agreements as a policy measure in the IPCC's#2 Third Assessment Report published in 2001. In this report, Nippon Keidanren's Voluntary Action Plan on the Environment is described as being the same in nature as other voluntary agreements due to its role as part of the Japanese Government's Basic Principles for the Promotion of Measures Dealing with Global Warming (hereafter referred to as the "Basic Principles") and the yearly review of the plan by the Government's Industrial Structure Council (IPCC WGIII Third Assessment Report, Chapter VI, pp.417-418).

During this time, the number of industries participating in the Fifth Follow-up to the Keidanren Voluntary Action Plan on the Environment increased to 34 (in the industrial and energy-converting sectors), and these industries achieved a reduction in CO2 emissions in fiscal 2001 of 3.2% compared with fiscal 1990.

(2) Establishment of the Evaluation Committee

Reflecting the widespread regard in which these efforts by industry are held, the Basic Principles revised in March of 2002 stated that "voluntary action plans...form the core of these basic principles, the aim of which is to harmonize environmental and economic needs," and it was decided that voluntary measures undertaken by industry should be respected during the first step (fiscal 2002-2004). As an additional measure, however, the Basic Principles identified the "further improvement of the transparency and credibility of voluntary action plans."

It was in response to this that Nippon Keidanren established the Evaluation Committee for the Voluntary Action Plan on the Environment in July of 2002. The Committee is requested by Nippon Keidanren to confirm from an independent perspective that the follow-up surveys of the Keidanren Voluntary Action Plan on the Environment are performed properly, to assess their transparency and credibility, and to identify areas for improvement to increase their transparency and credibility.

(3) Scope and method of evaluation

The objectives and activities of the Committee are defined as below by the Committee's statutes:

Article 2. The objectives of the Committee are as follows:
  1. To confirm that follow-up surveys to the Keidanren Voluntary Action Plan on the Environment (Measures Against Global Warming) are performed properly and to evaluate their transparency and credibility from an independent standpoint
  2. To identify areas for improvement regarding follow-up surveys of the Keidanren Voluntary Action Plan on the Environment (Measures Against Global Warming) to contribute to further improving transparency and credibility
Article 3. The Committee shall engage in the following activities in order to achieve the objectives stipulated in Article 2:
  1. Evaluation of the collection and aggregation of data by industries participating in follow-up surveys and the propriety of performance of each stage of the process of reporting to the Nippon Keidanren Secretariat ("the Secretariat")
  2. Evaluation of whether reported data has been correctly aggregated by the Secretariat
  3. Provision of recommendations concerning points that should be improved to increase transparency and credibility of the follow-up system as a whole
  4. Other activities required in order to achieve the objectives stipulated in Article 2

Fiscal 2002 being the first year in which evaluation was performed, the focus was on evaluating the follow-up process. An evaluation was therefore made of the data collected and aggregated by each industry and whether there existed any problems in relation to the method of aggregating data used by the Nippon Keidanren Secretariat. Due to the need in the medium term to evaluate the suitability of the setting of targets in each industry and the relationship between each industry's targets and overall targets, and also to develop means of evaluating the environmental effects and efficiency of the Keidanren Voluntary Action Plan on the Environment, these issues will be made the subject by the Committee from the next fiscal year.

In conducting its evaluation, the Committee was first given an explanation by the Nippon Keidanren Secretariat concerning the overall aggregation of totals, and inspected the data submitted to the Secretariat by each industry. It then selected six industries#3 regarded as typical, and conducted interviews with persons in authority.

In the following sections, we describe the Committee's overall evaluation of follow-up based on its findings, and then proceed to identify areas for improvement in the short term (i.e., steps to be implemented from the sixth follow-up survey in fiscal 2003) and in the medium term in order to improve the transparency and credibility of the Keidanren Voluntary Action Plan on the Environment.

2. Overall evaluation of follow-up

Each industry participating in the follow-up survey collects detailed data on actual emissions using, for example, standard formats that are distributed to affiliated enterprises and sites. These data provide the basic information for publications such as reports compiled under the Law Concerning the Rational Use of Energy (also known as the "Energy Conservation Law").
To aggregate these data on actual emissions, the Nippon Keidanren Secretariat adopted for the fifth and subsequent follow-up surveys an electronic format that incorporates the formulae for calculating emissions used by the IPCC.#5 This format was distributed in advance by the Secretariat to participating organizations by industry. Most industries availed of this format which enables the aggregation of data by the Nippon Keidanren Secretariat to be performed automatically.

Regarding the six industrial sectors with which interviews were conducted, particular attention was paid to the following:

1) Coverage rate and aggregation method
Three industries survey all the enterprises in their sector. One industry surveys approximately 90% and another approximately 80% of enterprises in terms of energy use. Four of the industries calculate their industry totals by aggregating individual data, of which one determines data on non-members of the industry association using government statistics. One industry uses mostly government statistics, with data on members being aggregated as backup. As the coverage rate of one industry was a low 30%, output was multiplied by the CO2 emission intensity of the industry as a whole rather than by aggregation.

2) Scope of follow-up
The potential for overlap with other industries was noted in two industries. In industries where use is made mainly of government statistics, there was not found to be any overlap with other industries. In the case of one industry, there were reported instances where a few enterprises did not submit data. In addition, overlap with emissions in the transport sector was noted in one industry. Regarding such overlap, insufficient adjustment has not been made up to the present.

3) Purchased power CO2 emission coefficient
The coefficient for the power generation end is used in three industries, the coefficient for the demand end in one industry, and the coefficient fixed in fiscal 1990 in one industry. The CO2 emission coefficient for purchased power is not used in the remaining industry due to a differing method of calculation. In order to ensure consistency, however, information regarding all industries was recalculated using the generation end coefficients when the Nippon Keidanren Secretariat aggregated emissions to calculate the total.

4) Criteria for setting of targets
The following were the criteria for setting targets in each industry: a) further reduction from future intensity targets based on industry supply plans; b) further reduction from aggregated energy use targets of participating enterprises; c) weighted average of energy intensity targets of participating enterprises; d) calculation of median of forecast potential reductions by member enterprises; e) calculation premised on changes in output, emission intensity, and electricity consumption rate; and f) aggregation of reductions arising from individual measures.

5) Explanation of reasons for changes in emissions
Although each industry gave reasons for increases in emissions (e.g., implementation of environmental measures and recycling, increase in the added value of products, increase in use of coal as fuel) and decreases in emissions (e.g., reduction in volume of production, energy conservation efforts in the industry), explanations were in general not sufficient. There are also some industries in which product turnover is particularly fierce, making it difficult to analyze the reasons for changes in emissions.

Our overall assessment is that participating industries are doing their best in the context of their particular circumstances, and that the aggregation methods used by the Nippon Keidanren Secretariat are appropriate. At the same time, there were also found to exist several areas where improvement is required. In the light of this overall assessment, therefore, we examine in detail below some of the short- and medium-term issues identified.

3. Short-term issues

(1) Adjustment of scope of follow-up

The scope (boundaries) of business that is the subject of follow-up was found to vary between industries. For example, the boundary was limited to core business in some industries, while in others business that would normally be considered as belonging to a different industry was included if it occurred within the same plant. In such cases, there arises the potential for the inclusion of emissions generated from one industry to another and the possibility of the same data been counted twice. Adjustment is conventionally made between the electric power industry and the iron and steel industry for power transactions arising in relation to independently generated electricity, and similar adjustments should be made for relations between other industries.

Adjustments between sectors also need to be made. Under the system of classification used for government statistics, emissions arising from energy use by offices, for example, should be included under the residential and commercial sector even though the enterprises concerned belong to the industrial and energy-converting industries; while emissions arising from the transportation of materials should be included in the transport sector. At the time of follow-up, however, such emissions are in some cases added to the emissions of the industrial and energy-converting sectors. In order to ensure consistency with government data, emissions that do not meet inclusion criteria should be separated and extracted.

Regarding the scope of the enterprises covered by follow-up, definite rules need to be established. Enterprises that are not members of an industry association should not be included as they are not, strictly speaking, "voluntary" participants in the Keidanren Voluntary Action Plan on the Environment. Participating companies in follow-up surveys should be limited to enterprises that can submit data continuously, and the aggregated totals used as the industry data. Although it is permissible for some correction to be made using sources such as government statistics, estimation by means such as expansion estimation of the emissions of enterprises that cannot be ascertained is contrary to the "voluntary" nature of the action plan and reduces its credibility.

(2) Premises of fiscal 2005/2010 forecasts

CO2 emissions are forecast (projected) to be 1.8% higher in fiscal 2005 than in fiscal 1990 if measures are implemented in accordance with voluntary action plans, while CO2 emissions are forecast to be 8.4% higher in fiscal 2010 if measures are not implemented in accordance with voluntary action plans from the year of the follow-up survey (i.e., the "business as usual" (BAU) scenario). As the future values (volumes) of production upon which these forecast are premised are not clearly specified, it is impossible to verify their validity. This also creates obstacles to verifying the suitability of targets and the potential for their attainment. This can be a reason why the attainment of the overall targets of the Keidanren Voluntary Action Plan on the Environment is uncertain, potentially reducing the credibility of the plan itself. To avoid this, forecasts should be premised on standard economic indices, and these should be published.

Furthermore, in order to increase the plan's credibility, the forecast value (volume) of production should on each occasion be revised using actual past data during the period from the year of formulation of the plan to the target year.

(3) Clarification of reasons for use of emission or intensity targets

At present, each industry is free to choose which targets it uses from among four types of indicators: total CO2 emissions, CO2 emission intensity, energy use and energy intensity. As it is impossible for the outsider to tell why the indicators used differ from industry to industry, this tends to render the situation unnecessarily opaque. A further problem is that the overall targets for the industrial and energy-converting sectors are not equal to the combined total of the targets for individual industries.

Emission intensity is an indicator of efficiency, and is useful for comparing the efforts of industries to curb CO2 emissions. It does not, however, provide a reliable indicator of the overall reduction in emissions in an industry. There also exist anomalies, such as in the case of the electrical and electronics industry, which establishes targets in terms of intensity per value of production,#6 where sudden falls in prices due to factors such as international competition and deflation can have an effect on the figures. While gross emission targets, on the other hand, indicate more clearly the relationship with the national emission targets set out in the Kyoto Protocol, there exist situations where targets cannot always be attained despite considerable effort due to economic conditions, and conversely where targets can be achieved with hardly any effort at all.

While the question of how targets should be set in the light of these points is really a medium-term issue, each industry should in the short term clearly state at the very least its reasons for adopting either gross targets or intensity targets.

(4) Explanation of reasons for changes in emissions

The industry-specific follow-up reports should explain, if only qualitatively, the reasons for any changes in emissions, rather than simply stating that CO2 emissions in a given industry rose or fell. Changes in emissions can occur due to a variety of causes, such as changes in the volume of production, transfer of operations overseas, changes in capacity utilization rates, product changes, and changes in industrial structure.

How recent issues in the electric power industry impact CO2 emissions in the future is a particularly major subject of public interest, and a full account of the effects is therefore required. In other industries, there has been observed an increase in the emissions intensity in the soft drinks industry due to an increase in demand for green tea (which requires considerable heat treatment), as well as an increase in emissions due to production of PET bottles to meet surging demand for PET-bottled drinks. In the electrical and electronics industry, meanwhile, there is a growing movement of operations offshore, especially in the assembly sector. This is leading to a perceived proportional increase in Japan of semiconductor device production in what is known as the process industry, in which energy consumption is high.

Changes in emissions should be explained in detail, and as much quantitative data as possible should be published regarding these background circumstances so as to facilitate understanding and improve the credibility of the Keidanren Voluntary Action Plan on the Environment.

4. Medium-term issues

(1) Factor analysis of changes in emissions

The aspect of the Keidanren Voluntary Action Plan on the Environment attracting the most interest is whether appropriate targets are being set and whether they are attainable through voluntary action plans. There are concerns about the attainability of targets in industries in which current emissions substantially exceed target levels. Conversely, the possibility of amending targeted cuts upwards where actual emissions already meet target levels is a question that needs to be examined. If industries in such cases revise their targets or if they do not need or are unable to do so, the reasons should be made explicit.

A more detailed quantitative analysis should, in any case, be made of industry as a whole and of individual industries regarding the reasons for increases and decreases, the impact of such factors on future emissions, and the implications for target attainment and the suitability of targets as a result.

(2) Evaluation from the perspective of lifecycle assessment

There are cases where action contributing to reductions in CO2 emissions arising from the use of products leads to increases in CO2 emissions from plants in the industry concerned. For example, the fuel efficiency of automobiles is improving so rapidly that "top runner" standards will be achieved ahead of schedule. This is due in part, however, to the reduction in the weight of car bodies resulting from the use of thinner steel sheet, and while this contributes to a reduction in emissions in the transport sector, it also leads to an increase in steel rolling processes, causing emissions in the iron and steel industry to increase. Similarly, while emissions in the residential sector will fall as LCD televisions and plasma displays grow in popularity, this will also lead to an increase in emissions in the electrical and electronics industry that makes them. To give a further example, in the construction industry only emissions at the stage of construction of buildings are aggregated for follow-up surveys, though in reality the majority of CO2 emissions arise from the use of buildings. It is thus unreasonable to evaluate emissions by the construction industry only on the basis of CO2 emissions at the construction stage.

Evaluating contributions to the reduction of emissions over the entire product lifecycle rather than simply at the point of production is therefore important to fairly evaluating the efforts of individual industries and encouraging further action. In addition to the evaluation of actual data limited to conventional sectors of industry, therefore, means of quantitatively evaluating actual reductions making use of a wider scope need to be developed in the medium term.

(3) Development of methods of evaluation/databases and evaluation by specialist agencies

Both (1) and (2) ideally require the development of new methods of evaluation. Doing so, however, requires a high level of specialist expertise. It also requires the development of databases necessary for evaluation, and improvements in transparency. One future option is to delegate to specialist outside research organizations the development of methods of evaluation and databases, and the performance of evaluation itself. This is an issue that the Committee will continue to examine in the next fiscal year.

5. Conclusions

The Evaluation Committee will continue to conduct evaluations of the Voluntary Action Plan on the Environment. Regarding in particular the next fiscal year, the Committee proposes the consideration of conducting overseas field investigations so as to add an internationally comparative perspective to analyses. We look forward to each industry demonstrating the merits of the voluntary approach to the utmost, actively tackling the above issues, and working to improve the credibility and transparency of the Keidanren Voluntary Action Plan on the Environment.

Regarding the areas identified as short-term issues, the Committee hopes participating industries will consider the need to improve the points identified and to address these matters by the time of the sixth follow-up survey in fiscal 2003 (where it exists).

Regarding the medium-term issues raised, we should like to see participating industries immediately begin investigations with a view to the development of standard methods of evaluation and analysis in around three years in readiness for the second step of the Basic Principles (from fiscal 2005).

Last of all, in order to improve transparency and credibility, it is necessary to obtain the understanding of as many people as possible regarding the efforts of each industry described in the outline of the results of the follow-up and the industry-specific reports. The entries and presentation of data should also be improved taking into account the perspectives of third parties. For the sixth follow-up survey, tables at minimum should be appended allowing comparisons at a glance of the outlines of measures being taken in each industry.

#1 Measures are also taken against waste emissions.
#2 The Intergovernmental Panel on Climate Change (IPCC) is an intergovernmental organization whose purpose is to pool and evaluate the latest scientific, technological, and socioeconomic knowledge of the risks of global warming, and to provide advice to governments.
#3 Interviews were conducted with a total of six industries. These were the electric power, iron and steel, and chemical industries (typical heavy emitters); the paper industry (data regarding which are obtained using government statistics); and the electrical/ electronics and construction industries, these being industries with large numbers of members.
#5 The method of calculating actual emissions of CO2 by country used by the IPCC is to determine heat values by first multiplying energy use by fuel type by the average heat value. These are multiplied by the CO2 emission coefficient to calculate CO2 emissions by fuel type. These are then added together to give total emissions. Values suitably reflecting the actual situations in individual countries may be employed for average heat values and CO2 emission coefficients.
#6 In the case of industries such as the electrical and electronics industry that produce a wide variety of products, it is difficult to calculate the intensity per unit output due to variation in the weights and shapes of products. These industries therefore have to measure the emission or energy intensity in terms of value of production.

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