Keidanren Voluntary Action Plan Evaluation Report
Fiscal 2003

Contents

Evaluation Committee for the Voluntary Action Plan on the Environment
Members

1. Introduction

In March 2003, the Evaluation Committee reported on its evaluation of data gathering and aggregation by industries as an evaluation of the follow-up process for fiscal 2002, and also on its evaluation of the data gathering and aggregation methods used by the Nippon Keidanren Secretariat. In addition, the Committee categorized issues for further examination into short-term issues to be tackled in the fiscal 2003 follow-up and issues that should desirably be examined in the medium-term, and produced findings identifying areas for improvement.

On the basis of this report, all four of the short-term issues identified and one ^#1 of the three medium-term issues identified were taken up as items to be surveyed for the fiscal 2003 follow-up, with the participating industries making reports to the secretariat on the progress that has been made regarding the improvements. At the same time, to make comparisons with examples of voluntary action in other countries, in September 2003 the Evaluation Committee conducted surveys of Germany, the Netherlands and the United Kingdom, countries where voluntary approaches by industry have played significant roles. In addition to gathering data, people involved in the situation in these countries were interviewed. In the evaluation of the fiscal 2003 follow-up survey, based on the evaluation of action taken regarding the short-term and medium-term findings, and on the findings of the surveys conducted overseas, the Committee identified areas where additional action can be taken to further improve the transparency and credibility of the Voluntary Action Plan on the Environment.

In conducting evaluation, in addition to scrutinizing the data submitted to the Secretariat by the industries, direct explanations were taken into sought by interviewing the representatives of five industries (the electric power industry, the iron & steel industry, chemical, cement, and electrical and electronics industries) ^#2.

2. Action taken on fiscal 2002 findings on areas for improvement

(1) Action taken on short-term issues

1) Scope adjustments

Scope adjustment first took account of adjustment to the boundaries between industries, with the sort of adjustment already applied for the electric power industry in some industries ^#3 being also accepted for adjustment at other main points where doubling-up occurs ^#4. Some industries do not have any significant doubling-up with other industries, but from the perspective of raising creditability, it would be desirable to confirm the presence or absence of scope adjustments for all industries by the next follow-up survey, and report on what is found.

The scope of companies covered by the follow-up surveys was defined more tightly, making the surveys more precise by taking steps such as eliminating companies that are not members of an industry association, eliminating companies that cannot provide data on a continuing basis, and cutting out estimates of emissions based on industry-wide growth estimates, etc. The data provided has consequently been corrected, a process which for some industry bodies includes a review of how the figures are collated. This gains a positive evaluation from the viewpoint of enhancing credibility. However, there are still industries utilizing growth estimates, and industries where boundaries are unclear, so additional effort is required to further improve transparency.

2) Consistency in premises of forecasts

In the fiscal 2002 follow-up evaluation report, it was proposed that the economic indices used for fiscal 2010 BAU ^#5 forecasts be made consistent. Despite this proposal, nearly all industries are still using forecasts made on the basis of their own premises. It is disappointing to see that so many industries were unable to accept standard indices. Reasons for being unable to accept the standard indices include industries preferring to continue using the indices they have always used in demand forecasts, industries where each individual company makes its own medium- and long-term plans, which prevents the use of standard indices, and it was also pointed out that when a plan is in motion, reviewing the premises that form the basis of that plan makes it difficult to make retrospective adjustments to data, and makes it difficult to ensure consistency between industry targets and forecasts.

Despite these circumstances, because the analysis and evaluation of industrial sector global warming measures is expected to become more stringent with the second step revision of the Japanese Government's Basic Principles for the Promotion of Measures Dealing with Global Warming, and in order that the Voluntary Action Plan remains credible and continues to be viewed as an effective approach for the promotion of global warming countermeasures, it is essential that basically the whole industry utilizes uniform indices. At the very least, starting with the next follow-up survey, from the perspectives of credibility and of verifying the appropriateness of each industry's forecasts it will be necessary to publish the forecasts of production value and production volume that are the basis for the fiscal 2010 emissions forecasts. If there are problems with changing the indices currently adopted by the industry, there should at least be explanations concerning the current indices and the reasons they were selected, together with explanations concerning their relationship with and consistency with standard indices at the macro level and with targets at the micro level.

From the perspective of improving credibility of the Plan, the forecasts should be regularly reviewed in future to take into account new actual data.

3) Clarification of reasons for use of targets selected

The Voluntary Action Plan sets out an industry-wide objective for manufacturing and energy-converting sectors to bring total CO₂ emissions in 2010 down to their fiscal 1990 levels. However, individual industries freely select the most appropriate of four different indices for their industry--total CO₂ emissions, CO₂ emissions intensity, energy consumption, and energy consumption intensity--and it is difficult for outsiders to see the reasons why particular indices were adopted. Intensity targets and total emissions targets each have both advantages and disadvantages, so in the medium-term, it is desirable that targets are set by Nippon Keidanren.

In the current year follow-up survey, virtually all industries gave some sort of reason for selecting the indices they are currently using. In the next follow-up survey, there should as far as possible be comparisons with other indices, and also more detailed explanations of the reason for the selection, particularly for industries that did not provide explanations in the current survey.
In the medium term, development of methods for evaluating the appropriateness of industry-specific targets, as described below, and scrutiny by specialist agencies etc. are both considered to be necessary, so the current report should be regarded as the first step on the path to improvements.

In this regard, there should be clear explanations of why particular figures were computed as targets. That would enable results to be proper judged to determine whether hitting a target (or not hitting a target) represents a sufficient level of activity. By clarifying the basis for calculation, it becomes possible to make a quantitative evaluation of the effect a change in the underlying premises has on the achievement of a target (or failure to achieve a target). In Europe, specialist agencies scrutinize the targets set by each industry, and review the results of evaluations from an objective perspective. The flexible approach that is taken is a useful reference point for Japan.

4) Explanation of reasons for changes in emissions

Emissions can change due to the effects of many different conceivable factors, and virtually all the industries were able to give some sort of explanation or factor analysis when asked to explain the reasons for a rise or fall in emissions. This ability gains a positive evaluation.

Detailed explanations of the reasons for changes are indispensable for enhancing the credibility of the Voluntary Action Plan, fostering a deeper general understanding of the environment surrounding each individual industry, and the action taken in that environment.

(2) Action taken on medium-term issues

Evaluation from the perspective of lifecycle assessment

To fairly evaluate the efforts of each industry and to encourage further effort, it is considered to be important to evaluate the contribution to emissions cuts over the whole of a product's lifecycle. From this perspective, last year's report found that as far as possible there should be quantitative evaluation for the whole of a product's lifecycle in addition to the reporting of emission cuts in individual industrial sectors.
This year's survey took the first step to achieving that goal, with slightly under half the industries making some form of statement regarding likely effectiveness from a lifecycle viewpoint. However, these statements take the form of examples and qualitative evaluations, so cannot be said to be sufficient. What is now required is to perform evaluation as far as possible in a uniform and quantitative manner, and we look forward to improvement through accumulation of effort in this area.

According to government statistics, CO₂ emissions by the industrial sector in fiscal 2001 were 5.1% lower than fiscal 1990 levels, but residential and transport sector emissions increased by 25.4% and 22.8% over the same period, demonstrating the indispensability of effective measures and policies for the residential and transport sectors. Given this situation, there should be the maximum possible publication of how industry can contribute to reductions in the residential and transport sectors, not just being restricted to industry emissions, and of clear delineations of scope, and of actual action by industry. There are already 23 industries or companies in the residential and transport sectors participating in the Voluntary Action Plan, but there are many outstanding issues for both of these sectors, including the fact that it is difficult to determine the status of data acquisition and management, and to set common targets. In addition to further effort on sector-to-sector scope adjustments and on setting appropriate targets, there is a need for discussion on how action on lifecycle approaches to domestic appliances and logistics can be positioned as an extension of the Voluntary Action Plan.

3. Further issues

The Evaluation Committee considers that issues that need to be addressed in order to enhance the credibility and transparency of the Voluntary Action Plan include action by Nippon Keidanren in addition to the areas for improvement identified in last year's findings.

(1) Active promotion of information disclosure

The participating industries and companies are proactive in improving their plans, but in order to enhance credibility, there is a need for external checks to correct points that the companies themselves are not aware of. For that reason and other reasons, thorough information disclosure is indispensable in addition to action on the consistency in premises of forecasts and other areas for improvement identified in last year's findings.

As stated above, the targets used in the Voluntary Action Plan for the industrial and energy-converting sectors are total emissions targets, and the targets for individual industries are selected from four different types of index. From a third party perspective, it is extremely difficult to see how total emissions targets and the individual targets (especially intensity targets) relate to one another. In addition to information disclosure at the individual industry level, the Nippon Keidanren needs to make a clear explanation of how the individual industry targets are related to the overall targets of Voluntary Action Plan, and of how the achievement of the total emissions targets is secured.

(2) Role of specialist agencies

The potential for evaluation by specialist agencies was identified in the report for the last fiscal year, and in order to further enhance the credibility and reliability of the Voluntary Action Plan, it is proposed that investigation is made into a role for specialist agencies that can make an objective judgment and that have the specialist expertise needed in order to confirm the consistency of the figures provided by individual industries with national government statistics, to confirm the consistency of the Plan's overall targets with the targets of individual industries, to check the appropriateness of individual industry targets, to develop means of evaluating the effectiveness of the Voluntary Action Plan, to publish monitoring reports, and to make international comparisons of energy efficiency.

(3) Accumulation of data

As identified in the last fiscal year's evaluation report, there is a need to develop databases. The current situation in Japan is that a number of different organizations are gathering and managing different sorts of data according to their own particular purposes. However, there are not necessarily any organized links between these databases, and the data is not being used in the most effective manner. In order to ensure accurate evaluation of the Voluntary Action Plan and Japan's global warming measures, it is necessary to construct a database to accumulate the data provided by companies, including information from a lifecycle perspective, and to regularly maintain the database, enabling the data to be used effectively ^#6.

(4) Examination of intensity targets and international comparison of energy efficiency

Regarding the initial issue of what sort of index should be used for greenhouse gas emissions reduction targets, it was pointed out when the targets for each country were set by the Kyoto Protocol that using total emissions targets would exceed the extent to which each country was able to take responsibility. For the Voluntary Action Plan, using total emissions targets makes it easier to be consistent with the national reduction target (total emissions target) provided for by the Kyoto Protocol, but because there are many different factors in changes in emissions, it makes it difficult to see the level of effort made by each individual industry, and in addition, there is a risk that it may not be possible for a particular industry to secure its target through its own efforts alone ^#7.

Improvement of intensity figures is the approach that allows each industry to act fully on the basis of its own responsibility. It is important to extract external factors and enable the industry to see the success of the effort it has made. Action and follow-up directed towards achieving the current targets determined by the Voluntary Action Plan must of course be continued. Nippon Keidanren's role is to examine not just total emissions targets, but also intensity targets that enable each industry to take full responsibility. At the same time, it must also take care to publish comprehensive information regarding the effectiveness of intensity targets ^#8.

According to our surveys, voluntary agreements in Germany, the Netherlands and the United Kingdom all use intensity targets, making it easy to reflect companies' efforts regardless of the state of the economy. Furthermore, in Germany and the Netherlands, maintaining international competitiveness of the country's companies was cited as a factor when setting targets. When the Voluntary Action Plan is viewed from the perspective of maintaining international competitiveness, what is more important than a chart of changes in emissions over time is the ability to see how the level of energy efficiency achieved by each industry measures up in international terms, and the ability to see the marginal cost of CO₂ reductions. Publishing this sort of data enables a fair evaluation taking into account the effect on international competitiveness, and also makes it possible to simultaneously achieve economic and environmental benefits.

4. Conclusions -- Approach to voluntary action

The results of the fiscal 2003 follow-up process confirm that CO₂ emissions from the industrial and energy-converting sectors have been kept to below fiscal 1990 levels since fiscal 1998, five years in succession, and that overall, steady progress is currently being made towards achieving the target for fiscal 2010 ^#9. However, actual figures for fiscal 2001 show that Japan's overall greenhouse gas emissions have increased by 5.2% over the fiscal 1990 level, and achieving the target set for Japan in the Kyoto Protocol will be extremely difficult.

The Japanese Government is planning to review its Basic Principles for the Promotion of Measures Dealing with Global Warming this year, and as the second step, policies and measures for cutting emissions are likely to be made more stringent. In these circumstances, questions are being raised about how to evaluate the credibility, transparency, and effectiveness of the Voluntary Action Plan, in which the industrial sector plays a central role. In order for the industry to be able to continue with the Voluntary Action Plan and gain proper credibility, it is indispensable to explain and account for the Plan to a greater extent. Because "voluntary action" is voluntary, it is only natural that more effort is required to explain the system so that the general public can appreciate its effectiveness.

Prospects for ratification of the Kyoto Protocol and other international moves regarding the approach to global warming countermeasures are still unclear, and if the Voluntary Action Plan is to be seen as producing results that bring credibility to Japan's industry, it is particularly important to produce more certain prospects for achieving the targets.

From such a perspective, the sort of voluntary agreements seen in European countries are one point of reference in considering the future of the Voluntary Action Plan on the Environment. As we understand it, a voluntary agreement does not necessarily need to be legally binding or to be associated with penalties and the like. Checking of the data by the government or independent specialist agencies can ensure transparency and credibility, and if the implementation of the Plan on the basis of an agreement is positioned as a pillar of the action taken by industry, then if we could secure a commitment that no additional measures will be implemented as long as targets are being met, this would enhance the incentive for the participating industries.

From the perspective of respecting the voluntary nature, enhanced communication with NGOs and other private sector bodies, and monitoring by the private sector should also be considered as potential choices for gaining a positive evaluation from society.

1. Reports were requested on adjustment of scope of follow-up, premises of forecasts, clarification of reasons for use of emission or intensity targets, explanation of reasons for changes in emissions (all short-term issues) and on evaluation from the perspective of lifecycle assessment (a medium-term issue). See section 2 of the main text for a description of how the action taken was evaluated. Lifecycle assessment (LCA) is a method of objectively analyzing and evaluating the influence and impact on the environment over the whole lifecycle of a product, from extraction of resources to manufacture, logistics, sales, use, and disposal.
2. Conducted by interviews with representatives of the five industries at a meeting of the Committee on December 19, 2003.
3. These adjustments are made in order to avoid double counting of emissions.
4. It was confirmed that adjustments have been made by the Federation of Electric Power Companies, the Japan Iron and Steel Federation, the Japan Chemical Industry Association, the Cement Association of Japan, the Japan Paper Association, the Japan Automobile Manufacturers Association, the Japan Lime Association and the Japan Rubber Manufacturers Association, and further confirmed that adjustments were not applicable to the Petroleum Association of Japan, nor to the Japan Dairy Industry Association.
5. BAU (Business as Usual): A scenario showing the extent of increase in fiscal 2010 CO₂ emissions, energy consumption, CO₂ emission intensity, and energy intensity if the Voluntary Action Plan were not implemented in fiscal 2003 and subsequent years.
6. Separate investigation is required to determine the approach to be taken regarding the costs of database construction and maintenance, and the approach to be taken regarding use of the database.
7. It should be noted that the start of the Voluntary Action Plan predates the agreement on the Kyoto Protocol, so the targets in the Plan were not set on the basis of maintaining consistency with the national targets in the Protocol.
8. The type and nature of products and services provided by a particular industry mean that for some industries it is difficult to make an appropriate selection of intensity figures. It should be borne in mind that this makes it difficult to make cross-industry comparisons by utilizing common intensity figures.
9. Note, however, that in fiscal 2002, emissions performance was affected by a deterioration in the CO₂ emission coefficient.