ENVIRONMENTAL AUDITING

1. Introduction

This country paper is prepared by the Board of Audit of Japan (hereafter “the Board”) for “audit on climate change”, one of the themes of the 4th Seminar on Environmental Auditing to be held in Malaysia in September 2012, according to the guidance sent from SAI Malaysia prior to the Seminar. 

This paper reviews the environmental policies in Japan and touches upon how the “climate change” has been dealt with in these policies and what kind of impacts the “climate change” would make. Then the paper will illustrate how the Board has coped with programs related to the environmental conservation and introduce a relevant audit case.

2. Environmental Policies of Japan

 2.1. Basic Environment Act

Environmental policies in Japan have been implemented according to the Basic Environment Act. Before this act was enacted, policies had been implemented according to the Environmental Pollution Prevention Act and the Natural Conservation Act. However, as the environmental policies had extended its coverage to the problems such as pollution caused by urban life, waste, global environment, it had become difficult to take appropriate measures based on existing laws and regulations. Responding to this situation, the government submitted a draft Basic Environmental Act to the Diet based on a report submitted by the Central Environment Council in April 1992 and the act was issued and became effective in November 19, 1993.

The purpose of this act is to stipulate basic principles regarding conservation of the environment, while clarifying the responsibilities of the State, regional municipalities, business operators, and citizens, as well as stipulating items that form the foundation for the measures pertaining to the conservation of the environment, in order to promote a comprehensive and systematic approach toward implementing programs for the conservation of the environment, thereby contribuitng to ensuring a healthy and culturally-rich lifestyle for the citizens of today and the future as well as to the welfare of mankind. The following three are the basic principles: (1) enjoyment and inheritance of the blessings of the environment; (2) establishment of sustainable development by society, with minimal stress to the environment; and (3) proactive promotion of global environmental conservation through international collaborations.

2.2 Formulation of a Basic Environment Plan

Pursuant to the Article 15 of the Basic Environment Act, the Basic Environment Plan sets out overall and long term government policies on the environmental conservation. The first Basic Environment Plan was formulated in December 1994 and the plan has since been revised three times. The fourth plan was formulated for the purposes to present the direction of the environmental polices of Japan from the long term perspective by extensively and properly grasping the current situations and challenges relevant to the environment, such as measures addressing to the Great East Japan Earthquake.

The “climate change”, theme of this country paper is dealt with as an topic relevant to the “efforts for global warming issues” in the Basic Environment Plan. The Plan describes that it is pivotal to recognize the importance of implementing polices in close corporation with various entities, since avoiding global warming and adapting to it are common challenges to human kind and that, recognizing emerging damages caused by the global warming, in order to fulfill our responsibility to grapple with such common challenges, it is essential to achieve global emission reduction by contributing to emission reduction not only inside but also outside Japan by making the best use of our environmental technologies and products. The Plan proposes, as efforts that the Japanese Government should focus on, programs and measures to develop scientific knowledge, measures to reduce energy origin CO₂ based on the Kyoto Protocol, and contribution to international global warming countermeasures. The Plan also exemplifies, as indexes for the promotion of those projects, emission and absorption of greenhouse gas and the situation of emission reduction of the State entities.   

Among reports which explain the impact of the climate change in Japan, the integrated report on global warming forecast and its impact assessment tilted “Climate Change and its impact in Japan” (October 2009) prepared by the Ministry of Education and Science, Japan Meteorological Agency and the Ministry of the Environment describes the impact in future as follows.

According to the result of observations for a long period of time, the temperature in Japan has increased by approximately 1.1 Celsius in these 100 years, and the climate change may have something to do with the tendency where the number of torrential rain has increased in recent one century and the colonies of alpine plants as fragile ecosystem have decreased. The result of the climate change forecast by supercomputers shows that if the global level reduction in greenhouse gas would not be realized, the average temperature in Japan would go up by about 2 – 4 Celsius and subsequently, various changes in climate such as increasing number of sweltering nights and hot summer days are anticipated. Followed by these changes, wide range of areas closely related to the lives of citizens will be affected and among those, the total amount of damages caused by floods, landslides, loss of habitats suitable for beech trees, loss of sand beaches, high tides in western Japan, death risks by heat stress would possibly reach to approximately 17 trillion yen (USD 189 billion, 89.75yen against 1 dollar as of October 2009) (in present value) each year at the end of 21^st century.  

3. Outline of Environmental Conservation Expenses

The Ministry of the Environment coordinates polices on the budget estimation made by other ministries and agencies in order to implement the overall government’s policies on environmental conservation efficiently and effectively, and compiles the expenses relevant to the global environment conservation, pollution prevention and protection and maintenance of natural environment as Environmental Conservation Expenses. These policies are implemented by various ministries and agencies other than the Ministry of the Environment, such as the Ministry of Economy, Trade, and Industry, Ministry of Agriculture, Forestry and Fisheries and the Ministry of Land, Infrastructure, Transportation and Tourism.

The total estimated amount of Environmental Conservation Expenses in FY2012 is 1531bilion 8 thousand million yen (USD 18,493 million, 82.83yen against 1 dollar as of April 2012, hereafter the same exchange rate will apply) and categorized into seven policy fields. The seven policy fields are shown in Table 1 and (1) “conservation of the global environment”, (2) “conservation of atmospheric environment” and (4) waste and recycling measures account for approximately 79.5% of the total budget. Expenses of measures against global warming are included in the category (1) “conservation of the global environment”.

Table 1: Breakdown of Environmental Conservation Expenses (Initial Budget for FY2012)

4. Environmental Audit of Japan

4.1. Basic Policies on Audit

Since 1999, the Board has been annually formulating and publicizing a “Basic Policy on Audit”, in order to show to each audit division how the Board recognizes the social and economic trends and conditions and conditions surrounding the Board and how audits are to be conducted, thereby ensuring that relevant and appropriate audits are carried out based on audit plans that are formulated by respective audit divisions uniformly in accordance with the Basic Policy. “Environmental conservation” has been continuously stipulated as one of the policy areas for the Board to focus its audit activities on since 1999.

4.2. Environmental Audit of Japan

In order to strengthen audits that respond to the increasing significance of measures related to environment, Environment and Regional Development Audit Division was established within the Board by integrating a division and an office during the organizational reform in April 2009. In addition, as other ministries and agencies than the Ministry of the Environment are also involved in the environmental conservation programs and other programs relevant to environment, other audit divisions in charge of such ministries and agencies also audit environment related projects implemented by corresponding ministries and agencies.

Article 20 (3) of the Board of Audit Act stipulates “the Board of Audit shall conduct its audit from the aspects of accuracy, regularity, economy, efficiency, and effectiveness and from other necessary aspects of auditing”. As such the Board conducts audits on policies related to environment conservation from these aspects as well.

4.3 Results of Environmental Audit

The number of audit cases of the Board in these 3 years is 14. Names of ministries and agencies, and policy fields relevant to the cases are as follows.

Table 2　Results of Environmental Audit（2008～2010JFY）

Regarding the policy fields of the audit findings, 10 cases are related to conservation of the global environment and among them four cases are concerning to energy saving. Other six cases are relating to CO₂ emission control.

5. Case of Environmental Audit Reported in the Annual Audit Report

Finally, this report introduces an audit case reported in the Annual Audit Report regarding the emission control project on CO₂ which has considerable impacts on the climate change titled “Regarding subsidized projects to reduce CO₂ emissions, the Board presented opinions that the Ministry should efficiently and effectively implement projects by, for example, setting up the target amount of emission control”.

Outline of the subsidized projects on CO₂ emission control

For carbon dioxide generated with a use of energy (hereafter “energy origin CO₂”), the Ministry of the Environment has delivered subsidies to various projects undertaken in order to control and reduce the emission of CO₂ (hereafter “emission control”). For the contents of these subsidized projects (hereafter “subsidy menu” and for the project implemented by the subsidies based on the subsidy menu, hereafter “subsidized project”), those contents were stipulated such as in the outline of subsidy delivery and the project implementation guideline (hereafter “outlines”).

Audit result

The audit on 126 subsidized projects (total project costs: approximately 23,542 million yen (USD 284.2 million), subsidized project costs: approximately 17,918 million yen (USD 216.3 million) and total subsidy: approximately 7,889 million yen (USD 95.2 million)) relating to 18 subsidy menus implemented from FY2005 to FY2009 revealed following findings.

 (1) Setup of the target amount of emission control on energy origin CO₂ 

The objective of all 18 subsidy menus was aiming at the emission control on energy origin CO₂. As such, in order to grasp the effect of subsidized projects properly, it was required to set up a appropriate target amount for the emission control on energy origin CO₂ (amount of energy origin CO₂ to be controlled which the implementing entities proposed as the result of the emission control when applying for subsidy, hereafter “target amount”) and compare it with the amount of energy origin CO₂ actually controlled by the implementation of the subsidized projects (hereafter “actual amount”).

However, the audit revealed that with regard to the four subsidy menus (23 subsidized projects, total project costs: approximately 1,608 million yen (USD 19.4 million), subsidized project costs: approximately 1,575 million yen (USD 19.0 million) and total subsidy: approximately 795 million yen (USD 9.6 million)), the outlines did not specify that the target amount should be set up. As a result, although in some subsidized projects, implementing entities had set up target amounts calculated by their own standards, the calculations were not conducted based on clear grounds and neither of the implementing entities was able to grasp the effect of subsidized projects appropriately.

 (2) Achievement situations of the target amount of emission control on energy origin CO₂

With regard to 103 subsidized projects under 14 subsidy menus where the target amounts had been set up, the audit revealed that while in 57 projects the actual amounts met the target amounts, except for four projects where the achievements were not confirmed, in 42 projects, they failed; considerable discrepancies among the projects have been observed.

Among these 42 projects, in six projects, in case the project failed to meet the target amount, the implementing entity should purchase the emission entitlement equivalent to the unattained amount from other entities according to the Voluntary Emissions Trading Scheme of the Ministry of the Environment. However, in 36 projects, such measures to be taken were not determined in the same situation and among those projects, it was noted that in 13 projects of those projects (total project costs: approximately 4,315 million yen (USD 52.1 million), subsidized project costs: approximately 3,428 million yen (USD 41.4 million) and total subsidy: approximately 1,573 million yen (USD 19.0 million)), the rates of the actual amounts against the target amounts were less than 50%.

The Ministry responded that the objectives of subsidized projects were for the implementing entities to develop a plan to reduce CO₂ by incorporating a target amount and build infrastructure according to the plan but there was no such obligation for the entities to reduce CO₂. The Board deemed that considering that the financial resources of subsidies were provided by such as taxes, it was inappropriate not to specify concrete measures to promote the target achievement in the outlines.

 (3)　Unit price of emission control on 1 ton of energy origin CO₂

As an index to evaluate the effect of 103 subsidized projects under 14 subsidy menus where the target amounts had been set up, the Board calculated the amount of subsidies spent for the emission control on 1 ton of energy origin CO₂ (unit price for actually controlled amount) and the amount of subsidies granted to the implementing entities (unit price for target amount) by using the actual amounts one year after the project completion year and target amounts which the entities proposed for subsidy; both among the subsidy menus, and among the subsidized projects in the same subsidy menu, considerable discrepancies were observed.

The Board deemed it inappropriate that in some subsidy menus, the discrepancy between unit price for actually controlled amount and target amount reached as high as more than 1000 times, in view of effective implementation of subsidized projects.

As mentioned above, the Board deemed that the situation in the Ministry where appropriate measures for effective implementation of subsidized projects were not taken and measures to improve the effect of subsidized projects were not properly taken, was not appropriate and should be rectified; such as not setting up target amounts in the outlines, not specifying concrete measures in the outlines when the actual amount did not meet the target amount and considerable discrepancies observed in some subsidy menus between unit price for actually controlled amount and target amount.

Opinions presented by the Board

The Board presented following opinions that the Ministry should take measures to efficiently and effectively implement subsidized projects relating to emission control on energy origin CO_2;

A  The Ministry should order relevant departments to set up appropriate target amounts for the subsidy menus where no target amount for emission control was set up considering the contents of each subsidy menu:

B  The Ministry should specify concrete measures to promote the achievement of the target amount according to the extent in case the actual amount did not reach the target amount: and

C  For the subsidy menus where the unit costs for target amount were high, the Ministry should consider strengthening the examination to avoid adapting inappropriate menus and for the menus where the unit costs for actually controlled amount were high, checking the appropriateness of those menus by reconsidering their contents.

6. Conclusion

In this country report, the environmental policy in Japan and audits on its projects by the Board were introduced from the perspective of “climate change”. As mentioned above, in the Environment Conservation Expenses, the conservation of the global environment accounted for 37 percent, which occupies the major part of the environmental policy. In Japan, entities such as the State and local governments have strived to implement measures and projects to reduce greenhouse gas by six percent as agreed in the Kyoto Protocol and to reduce greenhouse gas emission continuously and considerably. Under this circumstance, as it is quite likely that many relevant projects will be implemented, it is essential for the Board to continue to conduct audits on “climate change”.