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Initiatives for Carbon Accounting

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Carbon Accounting: An evaluation of business activities involving CO2 focused on the amount of greenhouse gas emissions (GHG) related to CO2 produced or reduced by business activities. Mizuho Bank developed its own methodology, "Carbon Accounting," to evaluate "Environmental Burdens" and "Environmental Preservation Effects" in power plant projects it financed via project finance. Our evaluation approach is described and the results published since FY 2006.

Objective of Carbon Accounting

The objective of Mizuho Bank's Carbon Accounting is to calculate how much a business activity, financed by the bank, contributes to or reduces greenhouse gas (CO2) emissions.

Other financial institutions are starting similar measures to calculate greenhouse gas emitted by the entities they finance. For instance, the International Finance Corporation (IFC), a member of the World Bank Group that provides financing for private–sector projects, started calculating greenhouse gas emissions for each project in 2008 (the calculation results are not disclosed). U.S. and U.K. export credit agencies have begun a similar calculation with regard to project finance, disclosing the results. The objective of such initiatives by some financial institutions, including Mizuho Bank, is to use the accumulated results as information for future management, thereby contributing to a low carbon society.

Outline of Carbon Accounting

Setting the application range of carbon accounting

Carbon accounting is applied to new power generation projects for which project finance is provided.

Reasons for applying carbon accounting to project finance

Project finance limits the source of repayment to values of the project assets and cash flows generated by the construction, possession and operation of facilities for the project. As supporting data for cash flows, energy use, facility specification and other technical information are disclosed to the bank, which makes it easier to obtain data on CO2 emissions.

Reason for applying carbon accounting to power plant projects

Compared to petrochemical plants, the operational process of power plant projects is simple and CO2 emissions can be calculated using the specification of used energy, the annual electricity production volume generated from the power plant and the heat rate (Note 1). It is possible to obtain such data with regard to project finance. The target projects to which carbon accounting is applied are power plant projects using fossil fuels and those using renewable energy sources.

"Environmental Burdens" and "Environmental Preservation Effects"

Definition of "Environmental Burdens"

Annual CO2 emissions from power plant projects for which project finance is provided are defined as "Environmental Burdens." The Environmental Burdens from power generation for each kind of energy used are shown in the following chart. The horizontal width stands for the amount of calorific value produced by each energy source. The vertical width shows CO2 emissions from three kinds of fossil fuels (coal, oil and natural gas) by power generation in case the same amount of calorific value is produced by each energy source. If the CO2 emissions generated by a coal–fired power plant are 100 tons, then the CO2 emissions in the case of an oil–fired power plant would be about 80 tons and for a natural gas–fired power plant would be about 60 tons (Note 2).

In principle, CO2 emissions by renewable sources such as wind power are zero. To shift to energies with less environmental burden, it is necessary to prioritize the feasibility assessment of power generation using renewable energies. Alternatives to coal should be assessed with natural gas as the priority, followed by oil among fossil fuels.

Definition of "Environmental Preservation Effects"

Assuming the environmental burden from coal–fired power plants as a baseline, the difference between the baseline and the environmental burden in case of power generation to produce the same amount of calorific value using each energy source is defined as the "Environmental Preservation Effects." If the environmental burden of generating the same annual electricity by burning coal is 100 tons, the Environmental Preservation Effect of power generation using renewable energies is 100 tons, that of natural gas is approximately 40 tons and that of burning oil is about 20 tons. The objective of calculating the Environmental Preservation Effects using emissions from burning coal as the baseline is to evaluate the potential CO2 reduction values and promote financing for the use of energies with fewer emissions.

Overview of the "Environmental Burdens" and the "Environmental Preservation Effects"
Image: Overview of the "Environmental Burdens" and the "Environmental Preservation Effects"

(Legend)

  • Blue Section: "Environmental Burdens" = CO2 Emissions (ton)
  • Light Green and Green Section: "Environmental Preservation Effects" = Reduced CO2 Emissions (ton)
  • The horizontal width stands for the amount of calorific value produced by each energy source.
  • For this given amount of electricity produced, if the CO2 emissions generated by a coal–fired power plant are 100 tons, then the CO2 emissions in the case of an oil–fired power plant would be about 80 tons and a natural gas–fired power plant would be about 60 tons.
  • In principle, CO2 emissions by renewable sources such as wind power are zero.

Contribution of Banks' Financing Services to the Reduction of CO2 Emissions

Let the ratio of the amount that Mizuho Bank (MHBK) finances for a project to the project's total costs as MHBK's Contribution Ratio (x)%. The "Environmental Burdens" multiplied by MHBK's Contribution Ratio is defined as "MHBK's Contribution to CO2 Emissions," and the "Environmental Preservation Effects" multiplied by MHBK's Contribution Ratio is "MHBK's Contribution to CO2 Emission Reductions."

For instance, for natural gas project "Project Y", if the Environmental Burden is Y(a) tons and MHBK's Contribution Ratio is (x)%, MHBK's Contribution to CO2 Emissions is obtained by Y(a) multiplied by (x)% tons. If the Environmental Preservation Effect of Project Y is Y(b) tons, MHBK's Contribution to CO2 Emission Reductions is Y(b) multiplied by (x)% tons.

  • Note 1.Heat Rate: It is expressed as the number of heat value required to produce a kilowatt–hour of energy. A measurement used in the energy industry to calculate how efficiently a generator uses heat energy.
  • Note 2.The CO2 emission factor of each energy source (Coal: 0.0946; Oil: 0.0733; Natural Gas: 0.0561 [Unit: KgCO2/MJ]) is based on the 2006 IPCC Guidelines for National Greenhouse Gas Inventories. Based on the condition of producing the same calorific value using each energy source, if CO2 emissions by coal are counted as 100 tons, those of oil and natural gas are 80 tons (100 tons x (0.0733 / 0.0946) = 77.3 tons) and 60 tons (100 tons x (0.0561 / 0.0946) = 59.2 tons), respectively.

The Result of Evaluations

The table below shows the result of power plant projects to which Carbon Accounting has been applied. In FY2014, the total number of power sector projects is 41, including 19 fossil fuel–fired power plants and 22 renewable energy power plants.

The Result of Evaluations of Carbon Accounting about Power Sector Projects (Unit: kiloton–CO2)
Source of Energy FY Fossil Fuel–Fired Power Plant Project Renewable Energy Power Plant Project Total
Environmental Burdens (Mizuho's Contribution to CO2 Emissions*1) FY2010 328 0 328
FY2011 1,708 0 1,708
FY2012 389 0 389
FY2013 930 0 930
FY2014 1,961 0 1,961
Environmental Preservation Effects (Mizuho's Contribution to CO2 Emission Reductions*2) FY2010 225 867 1,092
FY2011 580 567 1,147
FY2012 41 1,077 1,117
FY2013 614 583 1,197
FY2014 1,274 1,213 2,487
  • *1:Equivalent to Blue Section in Conceptual Diagram.
  • *2:Equivalent to Light Green and Green Section in Conceptual Diagram.
The Result of Evaluations of Carbon Accounting (Number of transactions)
FY Fossil Fuel–Fired Power Plant Project Renewable Energy Power Plant Project Total
Coal Oil Natural Gas Wind Solar Hydro Geothermal Biomass
FY2010 0 0 1 5 5 0 0 0 11
FY2011 3 0 5 4 3 0 0 0 15
FY2012 1 1 0 9 15 0 0 0 26
FY2013 0 0 6 2 21 1 1 0 31
FY2014 1 0 18 9 10 2 1 0 41

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