## Fiscal policy and Financing — MURAOKA Hiromichi

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**Canonical URL:** [Fiscal policy and Financing — MURAOKA Hiromichi](https://www.imf.org/-/media/files/oap/oap-home/2023/session-2-1-hiromichi-muraoka.pdf)

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### Introduction
- Urgency: Tackle both mitigation and adaptation under compounded risks by COIVD-19 and conflicts.
- New topic for all and Public goods: Need intensive coordination among stakeholders.
- Uncertainty: Frequency/magnitude of disaster; New possible technology (such as hydrogen, ammonia, CCUS).
- Opportunities and role of fiscal policy:
  - It is a good opportunity to accelerate green recovery and growth to build resilience to diverse risks.
  - Fiscal policies play important role with sustainable and innovative policy instruments by utilizing experience and knowledge of wider stakeholders (even areas with uncertainty).

### Carbon Tax and Emission Trading
- Core message:
  - Carbon Tax and Emission Trading is absolutely important.
  - Several countries and areas have already started it (for the trading, such as EU, China, Tokyo etc.) or are preparing it (for carbon tax, such as Indonesia etc.)
  - The point is to ‘get right price’.
    - It may take time to get right price.
    - In parallel, it is necessary to prepare other relevant policy instruments to address climate change.
- Allowance / Emission Trading (US$/CO2-t) and Carbon Tax (US$/CO2-t):
  - Allowance / Emission Trading: EU87; China9; Tokyo (Japan)4; J Credit（Japan）25.2 (April 2022)
  - Carbon Tax: Japan*2.3; Indonesia**2.0
  - Footnotes preserved as in source: *Other tax on energy source; **Minimum rate and not yet effective

### Preparation of policies and their instruments
- National-level planning and process:
  - National Commitment (such as LTS, NDC) to cover all sectors with priority.
  - Strategies/Roadmaps on sector/subsector to prepare the detail and mainstreaming; to listen voices from academia/private; to accommodate new possible technologies.
  - Setting policy instruments and budgeting to enhance effectiveness against climate change.
  - Implementation and review to monitor and modification for more effectiveness.
- Principle: Since climate change is public goods and new topic for all, pursue ‘wider’ (sectors, stakeholders, technologies) and ‘mainstreaming’ and ‘PDCA cycle’ under the strong commitment; it is necessary to pursue any options.

### Example in Japan
- Governance and planning:
  - Basic Direction for green transformation has just finished public comments (feel difficulty and unclear on burden on people...).
  - Commitment by Prime Minister, LTS and NDC; many strategies and roadmaps of sector/subsector with academia and the private (utilizing experience and knowledge of wider stakeholders).
  - Example transition roadmaps: Power, Gas, Iron & Steel, Housing & Building, Ships etc.
- Policy instruments and financing:
  - Green Innovation Fund（2 trillion Yen for development & deployment of new technologies, such as ammonia, hydrogen, battery, CO2 separation & utilization etc.）
  - Subsidies on energy efficient appliance, house & buildings.
  - Mandatory of roof-top solar housing (Tokyo) etc.
  - Financial mobilization: under the planned law, the government will issue 20 trillion yen in ‘green transformation bonds’ over the 10 years from fiscal 2023.
- Implementation and review:
  - ‘Green Transformation Panel’ launched by Prime Minister Kishida.

### JICA’s Experience with developing countries
- Issues to be considered:
  - Commitment by developing countries (almost all countries made including LTS and NDC).
  - Fiscal liquidity or Fiscal risk.
  - Enhancement of capability of relevant organizations/polices to address climate change.
  - Continuous dialogue, co-creating (e.g. dialogue on disaster risk finance policy framework with the Philippines).
- Goal: For implementable and effective measures.

### Case 1: Indonesia Climate Change Program Loan
- Objective: To address both fiscal liquidity and policy actions including capability against climate change (Under recovery from impact by Asia currency crisis and Rehman shock in 2009).
- Period: 2008, 2009, 2010 (with AFD).
- Financing Amount: 95,407 mil JPY.
- Main Policy Action:
  - National Action Plan, measures to be taken and refection into National Development Plan.
  - Regulation of renewable energy development with incentive (with WB).
  - Regulation of energy efficiency (audit and labelling).
  - Regulation on reduced emissions from deforestation and degradation (REDD).
  - Regulation and Formation of integrated river basin management plan.
- Follow-up: After the program loans, continuous dialogue with technical cooperation and finalization on PPP regulation/Infrastructure Guarantee/Geothermal risk reduction for the private mobilization were achieved later.

### Case 2: Philippines Post Disaster Standby Loans
- Objective: To accommodate both fiscal risk（by natural disaster to happen）and policy actions including capability against climate change; provides finance quickly when natural disaster happens.
- Period: 2014, 2020 (3rd standby loan under preparation).
- Financing Amount: 100,000 mil JPY.
- Main Policy Action:
  - National and Local Disaster Risk Reduction Management Plan.
  - National Disaster Response Plan.
  - Guidelines of use of Local DRR Fund.
  - Nationwide Operational Assessment of Hazards.
  - Rules and regulations for adequately insurance of key properties, assets and other insurable interests. (with WB)
- Others:
  - 2nd Standby Loan include declaration of Public Health Emergency by the President etc. as trigger of disbursement to quickly response financial needs under COIVD-19.

### Co-Creation of Policies and tools
- Evolution of JICA cooperation:
  - Project -> Program Loan (fiscal liquidity. 2000s～) -> Standby Loan (fiscal risk. 2010～) including relevant policies and instruments (with relevant policies such as enhancement of plan and investment in DRR).
  - Response to the urgent voices on fiscal liquidity: Program loan with the most concessional terms and conditions (about 20 countries with 700 bil. JPY).
- New financing sources and instruments:
  - Green Climate Fund (‘Building Climate Resilient Safer Islands in the Maldives’; Forestry in Lao under preparation).
  - Private Sector Investment Finance (revived in 2011).
- Call to action: Voice from all of you are important to make further efforts (Co-Creation).

### Summary — Key principles and recommendations
- Core principles for adequate fiscal policies and instruments:
  - ‘Wider’ (sectors, stakeholders, technologies) and ‘Mainstreaming’ and ‘PDCA cycle’ under the strong commitment since climate change is public goods and new topic for all.
  - Any options should be considered (such as new possible technologies).
  - Continuous dialogue and utilization of experience and knowledge of wider stakeholders (listen to the voices).
- Final appeal: With further continuous dialogue, co-creation is sought to further address climate change.

### Case of Blended Finance: Energy Efficiency and Conservation Financing Promotion Project, Bangladesh — JICA
- Project objective: Promote energy savings for industry and other economic activity, including commercial buildings and residential appliances; provide incentives to private firms to install updated energy efficient equipment.
- Financing instrument and terms:
  - JICA provides loans to the Government of Bangladesh in two phases (including the cost for consultancy services):
    - Phase 1: JPY 11,988 million (approximately USD 87 million; 0.01% interest rate, 40-year tenure with 10-year grace period).
    - Phase 2: JPY 20,076 million (approximately USD 145 million15) 0.90% interest rate, 30-year tenure with 10-year grace period).
  - Process: Two-step loan (TSL): JICA → GoB institutions (IDCOL and BIFFL) → private sector end-users (sub-project owners).
  - Typical terms from IDCOL/BIFFL to end-users: 4–7% interest rate and repayment period up to 10 years.
  - Eligibility: Loans only for procurement of eligible energy efficient equipment; if sub-project includes non-eligible components (e.g., building/expanding factories), partner financial institution helps arrange commercial finance to be blended with JICA finance.

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_Source: https://www.imf.org/-/media/files/oap/oap-home/2023/session-2-1-hiromichi-muraoka.pdf_