Financing toward Low Carbon Investment~ Challenge of Transportation Sector ~

The Ministerial Conference on Global Environment and Energy in Transport (MEET)Follow-Up Meeting 17･18 June 2009, Hakodate-city, Hokkaido, Japan

Takashi HongoSpecial Advisor and Head of

Environment Finance Engineering DepartmentJapan Bank for International Cooperation

Public FI

Private FI

Investors

Public Institution

Government

MDBs Multilateral Finance

ECA Finance

Public Finance

Grant

ODA Loan

FDI( Direct Investment)

Private Finance

Share Holder

Ownership

Insurance/Guarantee Co-finance

Source of FinancingP

rivat

eM

ultil

ater

alB

ilate

ral

0

20,000

40,000

60,000

80,000

100,000

120,000

MDBs ODA Bilateral Private FDI CarbonFinance

USD million

Source: OECD(2006, net flow), World Bank(2007, contract amount)

Carbon Finance is 8% equivalent of FDICarbon Finance is

8% equivalent of FDI

Financial Flow to Developing countries

Multilateral

Bilateral Private

Environment Guideline・Pollution Control・Natural Environment・Social Environment

Equity Finance・Project・Fund( e.g.. PE Fund)

Lending ・Government・Corporate・Local Bank・Structured Finance

Modality of Finance of JBIC 1

Carbon Finance(Additional cash flow)

Government Policy

JBIC ProjectGovernment

Owner

FI

Investors

Contractor Operator

Project

Project

Project

JBIC

JBIC

JBIC

Government

Owner

Client/Citizens

Government Lending

Structured Finance

Local Bank Lending

Corporate Lending

Policy Talks

Repayment

Lending

Regulation / Support

Service

Investment

Modality of Finance of JBIC 2

On lending

Loan

Balance Sheet

Efficiency of Private sector

Structure/Procedure

Due Diligence Cost

Funding Cost

Public Project PFI

Off BalanceOn Balance

High

Low(/High) High(/Low)

low

Simple Complex/Long

Low

High

Advantages and Disadvantages ofStructured Finance/PFI

“LIFE” (Leading Investment to Future Environment) Initiative by JBIC

●The LIFE will …・support both public and private sectors,・co-operate with Multilateral Development Banks (MDBs) and mobilize private finances.

●The JBIC’s financial support under the Initiative will be around 5 Billion USD for the next 2 years.

4 Main targeted sectors of the Initiative are ...・Clean Power Generation (Solar, Geothermal, Wind Power, Clean Coal Power Plant, etc)・Energy Efficiency Improvement (Upgrading of Existing Transmissions and Distributions,

Modernization and Heat Recovery of Steel Furnaces and Cement Kilns, ESCO (Energy Service Company), etc.)

・Water (Water Purification and Supply, Sewage System, Wastewater Treatment, Desalination and Water Processing, etc)

・Urban Transportation (Modal Shift in Densely Populated Areas, etc)

Co-operation(Co-finance, Information Sharing, etc)

Loans /

Loans, etc

Catalytic Role

Loans, etc

MDBs（ADB, World Bank Group, etc）Private Financial

Institutions

J B I C

Equity Investment

Voluntary Energy Efficiency Targetand

Environment Finance

~ JBIC’s Proposal ~

1st stepMethodology for measurement of energy efficiency(CO2 emission per production/Efficiency indicator)

2nd stepSpecification of technology for transfer globally(Bilateral / Multilateral technology cooperation)

3rd stepVoluntary Target or Voluntary Standard by private initiative

(Global De Fact Standard)

Voluntary Standard by Private Initiative

Measurement methodology by IISINext ; Date gathering BAT list by APPSteel

Cement

Appliance

Automobile EU, USA and Japanese standardNext ; local to global

Measurement methodology On going by IEA and others

Measurement methodology by WBCSDNext ; Data gathering

EU, USA andJapanese standardNext ; local to global

De Fact Standard(Hybrid / Diesel)

De Fact Standard (Heat recovery unit)

<Measurement> <Technology specification> <Target/Standard>

Ship Building

Energy Efficiency Design Index(Japanese proposal)

Progress of Voluntary Standard Setting

Design Index

Environment Finance Initiative( Message)

Criteria for prioritized projects( Soft Commitment)

Guiding Principle for financing

Voluntary Standard Setting Initiative

( On-going )

Specification of BATTransfer of BAT

Voluntary Target

Voluntary Standard

Endorse

BAT List

Finance

Finance / No Finance

Guidance

Industry & Technology Track Finance Track

Financing to Low Carbon projectsreduce long term risk

Voluntary Standard and Environment Finance

Company

Japanese Company

Private Financial Institutions

MDBs

LIFE ( March 2009 )(Leading Investment to Future Environment)5 billion USD for 2 years.Target Sectors : Clean Power generation, Energy

Efficiency, Water and Transport( Steel : CDQ, Heat Recovery, Regenbarner, etc.)

JBIC

Clim

ate Security / E

nergy Security

Environmental Finance

Private Financial Institutions

Financial Institutions(Developing Countries)

MDBs

ECAs

JBIC

Catalytic Role

Co-operation

Loans / Equity Investment

For Scaling upStep1 Measurement methodologyStep2 Specification of BATStep3 Voluntary EE standard

Low Carbon Investment

Scaling up financing for Low Carbon Investment

EconomicCrisis

ClimateChange

Conclusions

Short-term challenge Medium and long-term challenge

Public- Private- Financial sector Partnership ( PPFP)New Market Mechanism for Climate Change with financing

Public Sector(Improvement of investment climate)

Private Sector(Driving force)

Financial Sector (Push last one mile)