Emissions market attracts plant engineers

The Nikkei Weekly (Japan)
June 21, 2004

The Kyoto Protocol is inspiring plant engineering firms and general
contractors, although they emit only limited amounts of greenhouse
gases, to launch operations aimed at trading carbon dioxide emission
rights as a new source of revenue.

Japan is expected to find it difficult to achieve its CO2 reduction
target under the Kyoto pact – a 6% cut in overall emissions in fiscal
2008-2012 from 1990 levels. That will likely force companies that emit
large amounts of the greenhouse gas, such as electric power companies,
oil refiners and steelmakers, to obtain emission rights by working
on overseas projects that help to cut emissions abroad. That will
provide a business opportunity for other firms.

JGC Corp. plans to launch operations in China’s Henan Province as
early as 2006 to collect and break down dinitrogen monoxide, which
has 310 times the global warming effect of CO2. The firm has begun
studying business feasibility with the support of New Energy and
Industrial Technology Development Organization (NEDO). It expects to
invest 1-2 billion yen in the operations.

By collecting N2O, a byproduct of nylon materials production, JGC
expects to obtain 2-3 million metric tons of CO2 emission rights
annually, equal to about 0.4% to 0.6% of annual CO2 emissions by
Japan’s industrial sector. The company is also studying operations
to collect CO2 emissions from natural gas fields.

Similarly, Toyo Engineering Corp. plans to launch operations in
Kazakhstan as early as 2005 to collect methane from coal mines to use
for fuel in power generation. The firm expects to secure about 120,000
tons of emission rights annually from the operations. Methane has a
global warming impact 21 times that of CO2. Toyo Engineering plans
to solicit investors for the project, which is expected to cost a
total of about 500 million yen.

General contractors are also considering operations to collect
methane from waste disposal facilities for use as fuel. Shimizu Corp.
plans to launch such operations in Armenia in 2005 and Ukraine in
2008. The company will also pursue these operations in China as soon
as it obtains permission from the government.

Kajima Corp. and Obayashi Corp. are investigating the feasibility of
such operations in Malaysia and Thailand, respectively.

The move by plant engineering firms and general contractors to enter
greenhouse gas emission rights operations underscores how these firms
see global warming as a business opportunity and not solely as an
environmental risk.

JGC and Toyo Engineering established companywide teams about a year
ago to look at potential projects that follow the Kyoto mechanism
allowing industrialized nations to obtain emission rights by helping
developing nations cut their emission volumes.

Because plant engineering firms and general contractors do not operate
factories, their carbon dioxide emission volumes are much lower than
those of electric power companies, oil firms and steelmakers. So
these firms plan to sell the emission rights obtained through overseas
projects to help reduce greenhouse gas emissions. In turn, the extra
revenue will help boost the profitability of their overseas operations.

The companies are also aiming to get a head start on South Korean and
Chinese rivals by pursuing plant construction projects in developing
countries and former communist bloc nations. This is because under
the Kyoto mechanism, both South Korea and China are categorized as
developing nations, and thus are ineligible to obtain emission rights
by working on projects outside their borders.

Japanese engineering firms and general contractors will focus on
reducing emissions, such as methane and chlorofluorocarbon gas, which
have a much higher global warming impact than CO2. So even if the
firms’ investments are relatively small, they may be able to obtain
a large amount of emission rights when calculated in CO2 equivalents.