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Proposal for a Post-2012 International Framework

The Japanese Business Community's Positions on the COP 14 Agenda

(Tentative translation)

Nippon Keidanren
November 18, 2008

I. Introduction

If we are to solve the problem of climate change, all of humankind must adopt workable and effective measures over the long term. For this reason Nippon Keidanren (Japan Business Federation) has for some time stressed the need to build a fair and effective post-2012 international framework in which all the major countries will participate. In the current global economic climate, it is important above all that we build an international framework that can address climate change in such a way that environmental protection is compatible with economic growth. In Japan, industry has already achieved the world's highest levels of energy efficiency by adopting the Voluntary Action Plans on the Environment and by continuing to pursue technological development and other efforts to save energy. We intend to sustain such efforts into the future and to put our experience to work to help build a post-2012 international framework and create a low-carbon society.

Negotiations for a post-2012 regime are moving ahead on the basis of the Bali Action Plan adopted last December (2007) at COP 13 (thirteenth session of the Conference of the Parties to the United Nations Framework Convention on Climate Change), with a view to reaching an agreement at COP 15 at the end of 2009. The agenda for COP 14 in December this year includes an interim review of the negotiations to date, in view of the outcomes of the G8 Hokkaido Toyako Summit held last July and the Major Economies Meeting on Energy Security and Climate Change (MEM) held around the same time.

In the following, we outline the business community's positions on the major issues pertaining to a post-2012 international framework, including the items currently under negotiation (long-term vision, mitigation [action to stem climate change], technology, funding, and adaptation to the impact of climate change).

II. Essential Elements of a Post-2012 International Framework

The Japanese business community believes that the following elements are essential for a fair and effective post-2012 international framework in which environmental preservation is compatible with economic growth and all major countries participate.

The first is the participation of all major emitters, including the United States, China, and India. Without the participation of the major emitters, an international framework will not be effective in stemming climate change, and its fairness will be compromised as well.

The second is the establishment of equitable medium-term targets. Unless fair medium-term targets can be set, we will not be able to expect the participation of all major emitters, and the framework will be ineffective. From this standpoint, a sectoral approach to target setting and a reconsideration of the base year are both important components.

The third element is an emphasis on technology (development of innovative technology and dissemination of existing technologies). Achieving such goals as halving greenhouse gas (GHG) emissions by 2050 will not be possible using the basic technologies currently available; innovative, breakthrough technologies will be essential to achieving dramatic reductions in GHG emissions. Until such innovative technologies are developed, moreover, it is vital to reduce or limit GHG emissions by disseminating existing technologies as widely as possible. For this reason the post-2012 international framework should include measures to directly accelerate the development of innovative technologies and to promote the diffusion of existing technologies.

We call on the government of Japan and the governments of other countries to base their negotiations on the current realities, with due consideration for the foregoing points in particular.

III. Position on Specific Items

1. Shared vision

Because prevention of climate change is a challenge that will require cooperation on a global scale over a period of decades, it is essential that the post-2012 international framework include a vision that the entire world can share over the long term. At the Hokkaido Toyako Summit, the G8 leaders agreed to call on all parties to the United Nations Framework Convention on Climate Change to adopt as their long-term vision a 50 percent or greater reduction in global emissions by 2050. The leaders participating in the MEM also agreed on the importance of a long-term shared vision. Progress on negotiations for the adoption of a shared vision should be made at COP 14.

2. Mitigation

(1) Countries and regions with medium-term targets

To ensure that our emissions reduction efforts are workable and effective, it is important that as many countries and regions as possible pursue the most effective emissions-reduction strategies for their own circumstances.

For this reason, in addition to the current Kyoto Protocol Annex I Parties, all OECD member states and all states and regions deemed comparable to OECD member states in terms of their share of global emissions, per capita GDP, etc., should likewise have such total emissions targets. It is important that Japan join these countries in embracing such a target to contribute to the prevention of climate change.

Even among countries and regions that do not have total emissions targets, the emerging economies that have experienced dramatic economic growth in recent years also have a major responsibility in terms of fighting climate change, inasmuch as their emissions are expected to rise sharply in the years ahead.

An option that should be considered for these emerging countries, in consideration of the rapid-growth phase of economic development at which they find themselves, is the establishment of targets pertaining to the ratio of GHG emissions or energy consumption to GDP, that is, intensity targets.

In addition, in terms of mitigation actions, it may be possible for countries to commit to policy measures suggested by a sectoral approach.

(2) Setting medium-term targets and ensuring diverse policy approaches tailored to national conditions

To secure the long-term emissions-reduction efforts of as many countries as possible, it is important that the establishment of medium-term targets be carried out with fairness and objectivity, and also that each country can recognize clearly the specific emission-reduction or other mitigation measures it has to take, as well as a timetable for achieving those targets.

A rational approach, consistent with the principle of subsidiarity, must be taken by each country in setting its own target. Reduction potential should be calculated sector by sector, without resorting to "flexibility measures," in accordance with internationally agreed-upon criteria, using objective data for each manufacturing process or product, including energy efficiency benchmarks and performance benchmarks as well as the state of sector technologies and the outlook for their dissemination.

For example, reduction potential for each sector could be calculated in a following manner;

  1. Industries: (Energy consumption intensity per unit) × (number of units manufactured)
  2. Business / commercial: (Energy consumption intensity per unit of office space) × (office floor area)
  3. Household appliances: (Energy consumption intensity per unit) × (number of units)
  4. Transportation / automotive: (CO2 emission intensity per vehicle) × (number of vehicles on the road) × (distance traveled)

The reduction potential for each sector would then be aggregated to yield a national total emissions target.

The methods used to achieve these post-2012 medium-term targets should be the most useful and cost-effective methods for each country. It is thus important to ensure a diversity of policy approaches in keeping with the circumstances of each country.

(3) Position on the base year

We believe that each of the abovementioned targets, including total emissions targets for industrial countries, etc., and intensity targets for emerging economies, should be framed as an actual figure for targeted emissions volume, energy efficiency, etc., as derived from a bottom-up sectoral approach, not as a rate of reduction or improvement relative to a base year. However, as part of an effort to verify fairness and objectivity from various angles, the medium-term targets should be negotiated on the basis of the rate of reduction or improvement compared with multiple base years, including the latest year for which data is available.

Under the Kyoto Protocol, countries made international commitments to reduce emissions by a certain percentage from a specific base year, 1990. However, since there are discrepancies between countries in respect to changes in energy supply conditions, social conditions, previous reduction efforts, and so forth, international commitments in the form of reduction percentage from a specific base year should not be made from the view point of equity.

(4) Land use, land-use change, and forestry

With regard to mitigation, it stands to reason that emphasis should be not only on carbon emission but also on carbon absorption. Deliberations should proceed on the premise that land use, land-use change, and forestry will be used to achieve medium-term targets in a manner that maintains continuity and consistency with the rules of the Kyoto Protocol.

3. Technology

(1) Developing innovative technologies

Since innovative technologies is essential if we are to solve the problem of climate change without sacrificing economic growth, it is necessary that global resources be channeled into the development of such technologies. In May this year the Japanese government's Council for Science and Technology Policy adopted a Low Carbon Technology Plan that includes a roadmap for the development of 36 environmental and energy technologies. With this plan as a starting point, industrial countries and any willing developing countries should work to promote development of innovative technologies by sharing technological roadmaps, strengthening partnerships, and increasing investment in research and development.

(2) Technical assistance

To stem climate change, it is also important that we disseminate and make maximum use of existing technologies, and to this end industrial countries must actively provide technical assistance to developing countries. Because such technical assistance leads to improved energy efficiency in developing countries, it will also help encourage participation by developing countries in a post-2012 international framework.

  1. [1] Business-based technology transfer
    There are a wide range of methods for transferring technology to developing countries, including export of products, local manufacture of products through direct investment, and licensing of intellectual property rights, and a great deal of technology transfer is already taking place via these routes. It is important to encourage and remove impediments to such business-based technology transfer to ensure that technology transfer continues over the long term.

  2. [2] Removal of barriers to technology transfer and use of public funds
    According to the IPCC's special report, Methodological and Technological Issues in Technology Transfer (October 2000), the factors that currently impede the smooth transfer of environmentally sound technologies include the following:

    It is necessary first of all to remove such barriers. Where necessary, support through public funding should be considered to facilitate the removal of impediments to technology transfer.
    It has been suggested that compulsory licensing or purchase of intellectual property rights should be considered as a way to promote technology transfer. However, such measures have a high potential for causing major damage by undermining incentives for the development of innovative technologies, which are most needed to address climate change over the long term. We can best tap the research and development potential of the private sector in a market environment in which intellectual property rights are protected and those who invest in R&D can expect an adequate return on their investment. Nor are such compulsory measures truly effective in promoting technology transfer. In order for technologies for preventing climate change to be used in practice, people need to have know-how to manage the technologies, as well as the intellectual property rights of the technologies. Even if a host country acquires the intellectual property rights through compulsory licensing or purchasing, it has little hope of putting the technology to good use unless it has the know-how to use it effectively thereafter. Another problem is that, because any given technology is an aggregate of intellectual property rights and various types of know-how for which there is no standard market price, it becomes difficult to define what is to be compulsorily licensed or purchased and what value should be assigned. For this reason we are opposed to compulsory licensing or purchase of intellectual property rights.

  3. [3] Sectoral approach to technical assistance
    It can sometimes be effective to approach technical assistance to developing countries to prevent climate change as a cooperative effort between the private sector, which possesses the technology, and the public sector, which can support the private sector's efforts. In this connection the Asia-Pacific Partnership on Clean Development and Climate (APP) has been successful as a framework in which the public and private sectors of industrial and developing countries participate in practical activities to promote technical assistance, including the dissemination of best practices. In the post-2012 international framework, it is important to utilize the experience of public-private cooperation in the APP. Based on the views of private experts of each sector, we must share information on best practices and the diffusion of technology, carry out analyses on the potential for emissions reduction resulting from the adoption of technologies or practices and improvements in their application, and study assistance measures using all this information. In addition, it is important that there be due recognition of the private sector's role in international technical assistance, including personnel contributions.

4. Financial Mechanisms

(1) Improving public financial mechanisms

Mitigating climate change and adapting to its negative impact requires mechanisms for providing public funds to aid developing countries. Such mechanisms already exist in the form of various funds, such as that established under the UN Framework Convention on Climate Change. The first step is to work to ensure that these are managed appropriately. Should it become necessary to respond to further demand for funding, each country's current level of effort should be evaluated objectively and fairly using a variety of criteria, including contributions to such multilateral frameworks as the World Bank, ODA outlays, and technical assistance.

(2) Sectoral crediting mechanism

One proposal for supporting developing countries in their efforts to prevent climate change involves the concept of a sectoral crediting mechanism?that is, for example, a system whereby targets for energy efficiency are set for given industrial sectors in developing countries and anything achieved in excess of the target can be sold as credits. However, this idea raises the following problems:

  1. [1] In developing countries, there is at present insufficient data of a quality to serve as a basis for credit certification, making the establishment of appropriate targets difficult.

  2. [2] A lenient target could result in the over-issue of credits. If this occurred, not only could the emissions reduction effect anticipated in the developing countries be in question but the price of emissions credits would fall, permitting other countries to purchase them cheaply to fulfill their own reduction commitments and thus hinder global emissions reduction.

  3. [3] If it became possible to sell credits without any effort toward emissions reduction, the effect would be similar to subsidization, creating potential conflicts with the World Trade Organization Agreement on Subsidies and Countervailing Measures, which prohibits export subsidies and provides for subjecting subsidies that have an adverse impact on the interests of other countries to measures that offset that impact.

Going forward, it will be necessary to carefully deliberate the pros and cons of any such mechanism after fleshing out the concept, on the following premises:

  1. [1] There is a way to monitor the situation, obtain reports on the volume of emissions reductions, and verify compliance on the basis of actual measurements.

  2. [2] A mechanism can be established that prevents unrestricted generation of credits and contributes to real emissions reduction.

  3. [3] To provide an incentive for businesses to participate in projects to reduce GHG emissions, credits are adequately offered to businesses involved in such projects.

  4. [4] Because the most cost-effective technologies for reducing GHG emissions vary by country and region, all technologies shall be treated equitably.

  5. [5] The mechanism should be designed so as not to distort competition in each sector.

  6. [6] The mechanism is compatible with the existing Clean Development Mechanism (CDM).

5. Adaptation

A funding mechanism should be established to strengthen adaptation measures in countries that are particularly vulnerable to the adverse impact of climate change. Fundamentally, funding for adaptation should be provided by the public sector, since it is deemed to be often difficult for the private sector to provide such funds for reason of economic viability. With regard to developing countries' adaptation to climate change, the private sector can contribute by providing technology (both software and hardware) for the prior assessment, management, and abatement of risks associated with climate change.

IV. Other Key Points

1. Liberalizing trade in environmentally sound goods and services

Negotiations are currently under way in the WTO to eliminate or reduce tariff and non-tariff barriers to trade in environmentally sound goods and services. It is to be hoped that these negotiations can be accelerated, as encouraging worldwide use of the best energy-efficient products and renewable-energy products by removing barriers to their trade is an effective way to help address climate change. The G8 Hokkaido Toyako Summit Leaders Declaration stated, similarly, that "efforts in the WTO negotiations to eliminate tariffs and non-tariff barriers to environmental goods and services should be enhanced with a view to disseminating clean technology and skills." A prompt response is clearly necessary given that climate change is an urgent issue facing humankind. In the course of WTO negotiations, a number of countries, including Japan, have submitted proposals for trade in goods and services, an area where tariff and non-tariff barriers should be eliminated. From the standpoint of stemming climate change, it is vital that we eliminate tariff and non-tariff barriers to as many environmental goods and services as possible, including energy-efficient appliances and hybrid vehicles.

2. Japan's medium-term targets

Japan's post-2012 medium-term targets are to be set some time next year, and a Mid-term Target Committee was recently set up under the prime minister's Council on the Global Warming Issue to deliberate the question. If an overly ambitious target is set without adequate consideration of the specific measures needed to achieve it and the costs involved, the heavy burden it places on the nation will come back to haunt us. It is essential that objective data be used to arrive at a target that is fair in comparison with those of other countries and feasible in every respect, including the concrete mitigation measures involved and their costs. We strongly urge the Mid-term Target Committee to conduct realistic and responsible deliberations, fully disclosing all information pertaining to the public burden.

V. Conclusion

For years, Nippon Keidanren has been working proactively to address climate change by helping boost Japanese industry's energy efficiency to the world's highest levels through tireless technological development and investment in energy-saving practices, and by adopting Keidanren Voluntary Action Plan on the Environment in 1997, in advance of the adoption of the Kyoto Protocol. Nippon Keidanren is committed to continuing the fight against climate change not only during the Kyoto Protocol commitment period but in the post-2012 era as well. Nippon Keidanren will continue working to tackle climate change through all avenues, not only by reducing emissions from our own businesses' manufacturing and other processes but also by offering high-quality energy-efficient products, providing technical assistance to developing countries, and developing innovative technologies. At the same time we will continue making a vigorous case for appropriate government policies that will lead to substantial reductions in Japan's greenhouse gas emissions, including respect for voluntary action plans as a tool for reducing industrial emissions, active use of nuclear energy, and the institution of daylight savings time, etc.

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