[ Nippon Keidanren ] [ Policy ]

Achieving Growth through Green Innovation

— Proposals for Japan's New Growth Strategy and Other Initiatives
in the Environmental Sector —

March 16, 2010

Nippon Keidanren

Achieving Growth through Green Innovation (Outline) <PDF>
— Proposals for Japan's New Growth Strategy and Other Initiatives in the Environmental Sector —

Responding to climate change and overcoming environmental and resource restrictions are inescapable issues in achieving sustainable development for the global economy.

Utilising its world-leading environmental and energy technologies, Japan must contribute to create low-environmental-impact societies both domestically and internationally, by means including lower CO2 emissions, recycling, and coexistence with nature. At the same time, it is hoped that stronger environmental initiatives will generate new demand, leading to economic growth and employment opportunities in Japan.

On 30 December 2009, the Japanese cabinet decided and issued a New Growth Strategy (Basic Policies), and one of the six strategies set out in this document is to become an environment and energy power through "green innovation." On 17 December 2009, Prime Minister Yukio Hatoyama also announced the "Hatoyama Initiative" setting out fundamental policies for Japan's support for developing countries.

In order to work towards the realisation of the government's New Growth Strategy and other initiatives, we have formulated the following proposals for encouraging green innovation in Japan, based on research including responses to corporate questionnaires.

1. Fundamental Perspectives on Promoting the New Growth Strategy in the Environmental Sector

In the environmental field, the New Growth Strategy should aim to achieve a balance between environmental and economic needs by overcoming domestic and international resource and environmental restrictions, making Japanese industry more internationally competitive, and creating employment.

Technology is the key to achieving this aim. For the short-to-medium term of the coming decade to 2020, we need to continue focusing on existing "best available technologies" (BAT) and maximising the spread of best available products and services. At the same time, we need to look ahead to 2050 and focus on the development and widespread introduction of innovative technologies over the longer term. From this standpoint, the government must make efforts to create demand in the environmental and energy sectors -- for example by encouraging the use of energy-saving products -- while also implementing measures to boost the vitality of enterprises developing and popularising new technologies.

In doing this, the government should comprehensively and carefully consider the pros and cons of introducing measures such as environmental taxes and domestic emission trading schemes, since these entail serious issues including carbon leakage and negative impact on international competitiveness and employment.

In aiming to reduce environmental burden throughout society on a global scale, the government should not consider partial optimisation within sectors such as industry, commerce and households, or transport, but establish and implement comprehensive policies from a life-cycle perspective that includes the usage phase of products and services.

Being short of natural resources, Japan must also remember the importance of securing stable energy and resource supplies. We strongly recommend effective use of resources based on the creation of a recycling-oriented society and the introduction of energy policies that balance security, environmental conservation, and economic needs.

2. Policies Promoting Widespread Use of BAT

(1) Spurring Initial Demand

The biggest immediate issue is maximising the spread of existing BAT as products and facilities are replaced, and the private and public sectors need to cooperate in addressing this. However, since low-environmental-impact products and services are relatively expensive, demand stimulus measures such as short-term, targeted tax breaks or subsidies and "eco-point" schemes are required, especially for nascent markets.

With a view to achieving the world's most rapid spread of BAT, specific examples of such measures include: (a) tax breaks and subsidies for purchase or lease of eco-cars; (b) subsidies (including eco-points) for purchase or lease of high-efficiency home appliances, solar power generation systems, water heaters, etc.; (c) tax breaks and subsidies for new construction of energy-saving dwellings or renovation to make dwellings more energy efficient; (d) investigation of expanding the housing eco-points system launched in March 2010; and (e) incentives aimed at promoting the widespread use of building and home energy management systems (BEMS and HEMS).

Expansion of green purchasing by national and local governments is another effective measure. As an immediate step, the government should as a rule require central ministries and agencies and local authorities to extend purchasing of environmentally friendly products to 100 percent of the goods and services targeted by the Act on Promotion of Procurement of Eco-Friendly Goods and Services by the State and Other Entities (Green Purchasing Act). It should also publicise the effects of purchasing and using environmentally friendly products and encourage their widespread use.

As part of the Basic Policy for the Promotion of Procurement of Eco-Friendly Goods and Services, the government should also require purchasers to give priority to environmentally friendly products needing stimulus of initial demand.

Needless to say, such initiatives must give full consideration to issues including stable energy supply and additional burden on the public.

(2) Enhanced Environmental Education

In making the shift to lifestyles with lower environmental impact, it is important for national and local governments to thoroughly educate consumers about environmental issues and encourage them to be more proactive in purchasing low-environmental-impact products and services.

At the same time, educating consumers to carefully separate different categories of household waste will create an environment where resource recycling costs can be reduced and kitchen waste can be used for biomass energy generation.

As well as further enhancing environmental education as part of both compulsory schooling and community education programmes, national and local governments need to operate a plan-do-check-act cycle for educational efforts.

At present there is a lack of reliable emissions intensity data for life cycle assessment (LCA) that shows the environmental impact of products and services, including environmental impact during the usage phase. To provide consumers with the information they need to make informed choices about products and services, the government should first put in place systems for providing LCA emissions intensity data in Japan. Such data would also be helpful for developing measures to resolve life-cycle-focused environmental issues throughout society on a global scale.

(3) Promoting Regulatory Reform and Implementing Environmental Model Projects

In addition to stimulus measures of the demand side in the environmental sector, stronger supply-side measures including regulatory reform are also essential.

For example, low-environmental-impact urban development is a key issue in creating low-carbon, recycling-oriented societies, yet such development is hindered by City Planning Act regulations governing floor area ratios and other requirements and by a complex and divergent web of regulations spread across several government agencies.

Against this backdrop, in addition to utilising mechanisms such as the special zone system and undertaking bold deregulation, the government should examine the feasibility of model projects that package various schemes including subsidies, tax breaks, financial support measures, private finance initiatives (PFI), and public-private partnerships (PPP). Specific examples could include model projects for low-carbon, recycling-oriented communities, eco compact cities, a Japanese-version smart grid, infrastructure for fuel cell vehicle hydrogen supply, and infrastructure for electric vehicles.

In implementing such model projects, to comprehensively coordinate urban administration it is desirable to harness private sector expertise at every step from planning to operation and management. Building up private sector know-how through success in such domestic initiatives would enable Japan to offer integrated urban planning systems to overseas markets, thus contributing to reduce environmental burden on a global scale.

Government procedures in the waste recycling field also need to be simplified and expedited. Such steps could include expanding the coverage of the special provision for regional approval under the Waste Management and Public Cleansing Act, allowing companies to recover end-of-life personal computers and other telecommunications devices manufactured by other firms, and easing waste import procedures with a view to promoting resource recycling across the Asian region.

(4) International Contribution and Efforts to Develop Overseas Markets

The following initiatives will be crucial to developing overseas markets -- especially in the fast-growing Asian region -- so we can use Japan's advanced environmental and energy technologies to simultaneously achieve economic growth and make an international contribution.

(a) Liberalisation of trade in environmental goods and services

As part of the Doha Round of World Trade Organization (WTO) negotiations, Japan is currently proposing liberalisation of trade in 53 low-environmental-impact goods and services across 10 fields, including electric vehicles and light-emitting diode (LED) lighting. We hope further efforts will be made to achieve this goal as quickly as possible.

(b) Investigation of new incentives for overseas greenhouse gas (GHG) reductions

Targets listed in the basic policies set out by the New Growth Strategy include: "Reduce worldwide greenhouse gas emissions by at least 1.3 billion tons of CO2 equivalent using Japanese private-sector technology."

Various problems have been noted with the existing clean development mechanism (CDM) system. In order to encourage overseas adoption of Japan's clean technologies, products, and infrastructure, we should explore the creation of new, independent schemes to supplement the CDM system. Such schemes would recognise overseas GHG reductions made using Japanese technology as a contribution by Japan. Specifically, they could take the form of bilateral agreements and other arrangements to: quantify cuts achieved by GHG reduction projects meeting certain requirements or the export of energy-saving devices and facilities; and create mechanisms for counting these reductions as a contribution by Japanese companies. Consideration should be given to conducting feasibility studies for GHG reduction projects as part of official development assistance (ODA) efforts and providing yen loans for project planning and implementation.

(c) Strategic public-private collaboration
  1.  (i) To promote the widespread use of Japan's advanced technology, it is important for the public and private sectors to clearly define their respective roles and closely collaborate in strategic use of mechanisms such as economic partnership agreements (EPA), free trade agreements (FTA), ODA, and other official flows (OOF). Specifically, this will require coordinated packaging of elements including yen loans, grant aid, investment and loans by the Japan International Cooperation Agency (JICA), overseas investment loans by the Japan Bank for International Cooperation (JBIC), and trade insurance by the Nippon Export and Investment Insurance (NEXI).

    Much of Japan's ODA is based on requests from recipient countries, but in the environmental sector it is vital that we actively engage in bilateral policy dialogue concerning ODA, especially with other Asian nations, and work together to build a vision for creating low-carbon, recycling-oriented societies in partner countries and devising solutions to the problems they face. We hope that experience accumulated by industries including steel, power generation, and cement through the Asia-Pacific Partnership on Clean Development and Climate (APP) will play a useful role in such support. In accordance with local circumstances, we should also consider flexibly packaging multiple projects in fields such as water, energy, agriculture, and waste and recycling.

    Wherever possible, yen loans should be offered under the Special Terms for Economic Partnership (STEP) programme. Amid growing competition to clinch projects, it will be vital for the government to greatly expand its fast-track grant aid structures for a limited period to enable flexible responses, and to increase the upper limit for per-project grants to several billions of yen. The government also needs to reopen overseas investment and loans through JICA that could support the private investment portion of PPP projects employing a vertical separation model. We also hope that JBIC could be used as a low-public-cost means of advancing projects at the local level overseas. For example, systems need to be built enabling flexible use of JBIC investment and loan funding in circumstances where private-sector financial institutions cannot meet financing needs on their own.

    Developing countries do not always require BAT. However, once equipment and facilities inferior to BAT are installed, they continue to emit higher levels of CO2 until they are replaced. The government should explore schemes enabling a public institution to lend an amount approximately equal to the gap between the price of conventional equipment and BAT in cases where, for example, the latest high-efficiency energy facilities such as ultra-supercritical pressure coal-fired power plants are installed overseas. The difference would then be paid back through fuel cost savings and CO2 credits.

    For developing countries lacking infrastructure and related facilities, the government and the private sector can effectively collaborate to support efforts such as low-environmental-impact urban development, fostering of ancillary industries, and human resource development (including study and training in Japan). Japanese knowledge and experience in fields such as energy conservation, stable energy supply, waste disposal and recycling, and pollution prevention can also be used to support legal system establishment and business planning related to environmental and energy measures in developing countries.

    It is important to bear in mind that steady accumulation of results in areas such as clean coal and other low-carbon technologies, diversified use of coal and biomass, new construction and expansion of high-safety nuclear power plants at a consistent pace and maximisation of their capacity utilisation, and operation of the nuclear fuel cycle will give Japan major strengths not only for domestic reduction of environmental impact, but also for overseas development.

  2. (ii) The private sector is also actively engaged in business matching and related schemes through initiatives such as the Japan Business Alliance for Smart Energy Worldwide, and anticipates government support in areas including overseas exhibitions and communication with foreign government officials. Businesses especially hope that the government will further reinforce support functions operated by Japanese embassies and other diplomatic missions and the Japan External Trade Organization (JETRO) to gather and disseminate information on local conditions in overseas markets.

  3. (iii) As part of these efforts, we hope that the prime minister and other top-level government representatives will exercise political leadership in giving full backing to private business, including making high-level sales pitches for Japanese technology.

  4. (iv) Desirable fields for initiatives such as those outlined above include coal-fired power technology, nuclear power technology, and water business.

(d) Proper protection of intellectual property rights

Appropriate protection of intellectual property rights is essential to worry-free export of Japan's advanced environmental and energy products, services, and technologies. To this end, in multilateral and bilateral forums the government should require suitable safeguards for intellectual property rights from both legislative and enforcement perspectives. In the course of climate change negotiations, emerging and developing countries have claimed that developed countries should be forced to licence or sell intellectual property rights, but these claims should not be acceded to since they would hinder technology development and set back efforts to combat global warming.

3. Strategic Initiatives to Encourage Green Innovation

A medium- to long-term perspective is essential to achieving innovation. Based on national-level discussion, the government first needs to draw up a medium- to long-range vision and roadmap for the low-carbon, recycling-oriented society Japan wishes to achieve, which should be shared by industry, academia, and the government.

It is important for each of these three parties to play appropriate roles and collaborate in facilitating the process of creating the seeds of innovation (technology seeds), nurturing them, and bringing them to fruition through commercialisation.

(1) Creating the Seeds of Innovation

We hope that universities and public research facilities will play a major role in germinating innovation at the research stage.

At a time when other major nations are augmenting their science and technology budgets, the proportion of government spending in Japan's overall R&D investment compares unfavourably, and we need to secure a stable commitment to spending of around 1 percent of GDP.

Industry, academia, and the government also need to discuss issues to be overcome in achieving Japan's vision for a low-carbon, recycling-oriented society and the R&D portfolio required to resolve these issues. Once these have been identified, public funds need to be invested in a focused and strategic manner. As part of the process of linking basic research to commercialisation, it is particularly important to support R&D in getting through the "valley of death" that exists between these two steps.

To advance such research efforts, we need to build structures for attracting outstanding foreign researchers to Japanese research facilities, for example by easing residency requirements and providing comfortable living environments. It will also be vital to engage in international joint research projects in fundamental fields.

(2) Fostering Innovation

Strengthening links between industry, academia, and government will be crucial to policy for fostering innovation. Learning from models such as the EU's European Technology Platforms, we need to build forums (green technology platforms) where these three parties can develop common strategies for basic research, technologies, international standardisation, and other elements required to create low-carbon societies, and to share issues arising in the course of R&D. As well as encouraging the formation of such platforms, the government should offer funding and other policy-level support to the joint industry-academia-government research projects they generate.

At the same time, in order to promote research with a view to commercialisation by private enterprise, the government needs to introduce permanent and extensive tax breaks for R&D and support high-risk research.

(3) Introducing and Commercialising Innovation

  1. (a) To accelerate the introduction and commercialisation of innovative technologies, the government or related bodies should take the lead in running national projects and model trials. Showcasing the technologies that result from such efforts to overseas audiences will spur international efforts to reduce environmental burden.

  2. (b) At the same time, corporate investment needs to be supported through measures including enhancement of existing tax incentives for investment in reform of energy demand-supply structure (energy reform tax incentives), establishment of tax breaks for IT investment focused on "green IT" (energy-saving IT devices and environmental IT solutions), and expansion of special cases under the Act on Special Measures for Industrial Revitalization (Industrial Revitalization Act). As a further financial support measure, the bill to encourage investment in low-carbon technologies currently before the Diet should be passed as quickly as possible. To encourage innovation in technologies for utilising CO2, the government should explore mechanisms for counting volumes of CO2 used as raw material for other processes as part of CO2 reductions.

  3. (c) Strategic promotion of international standardisation will be vital to enhancing and effectively expanding the predominance of our products and services in international markets. In particular, the government should identify fields where joint industry-academia-government efforts need to focus on standardisation, train experts in the field of environmental and energy standardisation, build stronger links with other Asian countries including joint R&D projects and trials using ODA where appropriate, and support the private sector's international standardisation activities.

    Potential areas for standardisation efforts include a Japanese-version smart grid, assessment tools for environmental performance of buildings (Japan's Comprehensive Assessment System for Built Environment Efficiency: CASBEE), methods for measuring energy savings, energy management systems, and methods for quantifying the environmental contribution of low-carbon products.

  4. (d) Securing resources is an important factor in manufacturing low-environmental-impact products. For example, rare metals are essential to the manufacture of items such as next-generation vehicle motors, but obtaining rights to rare metals is a lengthy, expensive, and risky process. Therefore Japan should make strategic use of ODA funds and organisations including JBIC and the Japan Oil, Gas and Metals National Corporation (JOGMEC) to secure diverse sources of such resources. Since China restricts export volumes and imposes export duties via its export licence (EL) system, Japan needs to request revision of this system. We hope that such efforts will be teamed with government support for private sector R&D into recycling and substitution of rare metals.

4. Conclusion

Nippon Keidanren's Commitment to a Low Carbon Society published in December 2009 stated the Japanese business community's aim of harnessing its technological prowess and assuming an instrumental role in the drive to halve global GHG emissions by the year 2050. We hope that organically interlinking this plan with the government's New Growth Strategy will enable Japan to lead the world in green innovation.

However, the findings of the government task force published in November 2009 make it clear that taking the wrong direction for global warming countermeasures will have serious impacts on the economy and employment. After rigorously identifying and publicising the effects of such countermeasures on Japan's economy and employment, we need to conduct a national debate on their international fairness, their feasibility, and the appropriateness of the burden they will place on the public. Policies cannot be pursued effectively without public understanding and agreement.

Moreover, we have strong hopes that Japan will make every diplomatic effort to ensure that the global warming countermeasures we take are based on two prerequisites: the construction of a fair and effective post-Kyoto international framework; and agreement to ambitious targets involving participation by all major countries.

We have prepared the attached outline of key technologies for achieving green innovation primarily based on the results of a survey of major corporations. We hope that this will provide a useful reference point for more in-depth discussion by industry, academia, and government so that we can improve it, develop a shared vision, and invest resources in a focused manner.

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