new mechanism feasibility study for improved household...

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New Mechanism Feasibility Study 2011 – Final Report

New Mechanism Feasibility Study for Improved Household Energy Efficiency through Introduction of Low-CO2 Houses and

Promotion of Energy-Efficient Appliances in Mexico

The Japan Research Institute, Limited

FS Partner(s) Baja California state government, Ahorro Sistemático Integral (ASI), MGM Innova, Panasonic Mexico, Sumitomo Mitsui Banking Corp.

Location of Project Activity Mexico (Baja California) Category of Project Activity Energy Efficiency / Energy Savings Description of Project/Activity Power demand in Mexico has been increasing at

near-consistent pace, and this trend is expected to continue into the future. In addition to limiting energy-related subsidies, another issue facing the Mexican government is curbing power consumption to achieve greenhouse gas reductions. In order to limit power demand, various energy-savings programs are being planned and implemented under the leadership of the federal government. For the purpose of tying these energy-savings programs to a bilateral offset credit mechanism (BOCM), the Low CO2 House, which integrates energy-saving and energy-generating technologies, was proposed for programs being implemented by ASI (an energy-savings promotion organization affiliated with a power utility) to promote more widespread use of energy-efficient home appliances.

This study covers a local technology demonstration of the Low CO2 House, measurement of resulting energy savings, research on related regulations and policies, etc. at the federal and state levels, creation of an MRV methodology for improved energy efficiency of houses and home appliances, and policies for coordination with the federal government, state government and financial institutions. Drawing on the findings of this study, the aim is to clarify the feasibility of this greenhouse gas reduction project in the BOCM scheme and to promote more widespread use of Japan's outstanding energy-efficient home appliances through the BOCM scheme.

Reference Scenario and Project/Activity Boundary

The reference scenario is the scenario in which households participating in the project use existing appliances for the duration of their service life and then replace them with standard appliances available on the market. Reference emissions take into account change in energy consumption efficiency when appliances are replaced. The boundary is households participating in the project arranged by climate zone because of the impact of air temperature on air conditioning load and other factors.

New Mechanism FS 2011 – Report

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Monitoring Methods and Plan Monitoring is conducted in a survey of installed facilities and a survey after the project is implemented.

For the survey of installed facilities, the following items will be recorded during the period the project is implemented and the information will be compiled into a database. • Quantity of facilities installed for the project and related

information • Quantity of facilities removed in connection with

updating facilities for the project, and related information The survey after the project is implemented will survey the

following items. • Power consumption for the most recent one-year period • Change in family composition • Any house renovations • Operating status of installed home appliances and solar

power facilities GHG Emissions and Reductions If 10% of houses in Mexico are installed with

energy-efficient air conditioning and lighting and with 3 kWp solar power generators, annual reduction of approximately 8.89 million tons-CO2 can be expected.

MRV System for GHG Reductions

The MRV methodology involves assessing the amount of reduction in energy consumption for the same existing house before and after the project, on a whole house basis, making reference to the CDM methodology AMS-III.AE for conducting MRV at the house level.

Regarding measurement, monitoring is conducted of power consumption, power generation and parameters that affect them because all products handled in the project operate on electricity or produce electricity.

On reporting and testing, it is important that there is a system in place for reporting and verifying the project plan in advance for project operators and verification bodies. Also, as in this project, if reference emissions are updated annually, their appropriateness should be adequately verified before and after the fact.

Analysis of Environmental, Socioeconomic and other Impacts (including Securement of Environmental Integrity)

When energy-savings programs are promoted, disposal of inefficient facilities that had been used previously becomes a major issue. Old household appliance products not only contain toxic substances, air conditioners and refrigerators contain coolants, which, if not properly disposed of, have the potential to release greenhouse gases into the atmosphere far beyond levels reduced by the programs. In addition, if inefficient facilities are not disposed of but rather are used by other demand-side customers, reductions provided by the programs are limited considerably. Accordingly, in order to ensure environmental integrity it is important to create a system for incorporating management and disposal of facilities into energy-savings programs and ensure that environmental impact is not increased due to inappropriate disposal.

Financial Planning Creation of financing schemes for Japanese products utilizing ASI’s energy-savings programs is considered in order to lessen the initial investment required of households. Specifically, there needs to be policies for promoting the Mexican government’s various regulations and incentives as


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well as low-interest financing schemes that lessen the cost of energy-efficient home appliances and other facilities.

Introduction of Japanese Technology

ASI is currently planning and testing new energy-savings programs and is working to expand existing initiatives. The organization has taken a positive stance toward linkage with the BOCM scheme, so financing schemes that use BOCM credits as a resource are considered. The next step would be financing ASI and creating low-interest loans that can be used when installing products from Japanese manufacturers.

“Co-benefits” (i.e. Improvement of Local Environmental Problems)

More widespread use of energy-saving and energy-generating facilities can be expected to reduce power consumption and this can be expected to reduce power generation by thermal power plants, reduce sulfur oxide, nitrogen oxide and smoke dust released into the atmosphere and improve air quality.

The impact may be minimal because natural gas-fired thermal power, the main source of power in Baja California, releases only small amounts of airborne pollutants, but if the amount of power generated increases in line with demand growth, in 2025 NOx concentration is projected to increase from 0.60 kg/MWh to 0.68 kg/MWh (power utility forecast). More widespread use of energy-saving and energy-generating facilities can be expected to limit growth in power demand and therefore also limit corresponding increases in NOx concentration.

Contribution to Sustainable Development in Host Country

Mexico is a base of production for U.S.-bound products. A large variety of products are produced in Mexico, including automobiles, household appliances, and daily necessities. It is expected that these products will continue to be produced and supplied to U.S. and South American markets. At the same time, rising economic levels should also help Mexico itself develop into a large market.

The market is expected to gradually shift from inexpensive, inefficient facilities, which can be seen throughout the developing world, to appropriately priced, high-efficiency facilities through widespread adoption in Mexico of energy-saving and energy-generating facilities from Japanese manufacturers.


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Study Title: New Mechanism Feasibility Study for Improved Household Energy Efficiency through Introduction of Low-CO2 Houses and Promotion of Energy-Efficient Appliances in Mexico Organization: The Japan Research Institute, Ltd. 1. Study Administration • Contractor: The Japan Research Institute, Ltd. • Subcontractor: MGM Innova: Local coordination and monitoring when existing

local houses are converted to Low CO2 Houses (houses installed with energy-saving and energy-generating facilities from Japanese manufacturers). Assistance in gathering basic information on Baja California and information on global warming measures in Mexico, energy-savings programs, regulations related to household electrical facilities (hereinafter, "home appliances") and their availability on the market, etc.

• Partner: Panasonic Mexico: Technical assistance when converting existing local houses to Low CO2 Houses. Advice on gathering information on home appliance-related regulations and markets in Mexico.

• Partner: Sumitomo Mitsui Banking Corp.: Advice related to financing schemes, from the perspective of a financial institution. Support for information-gathering at offices in Mexico.

2. Project / Activity Overview 1) Project / Activity Description Power demand in Mexico has been increasing on an overall basis. In 1990, power generated was 100.2 TWh, and by 2008 the figure had nearly doubled, increasing to 207.9 TWh. Moreover, according to projections made by Ministry of Energy, the amount is expected to increase to 365.3 TWh by 2024. Along with limiting energy-related subsidies, the Mexican government faces the challenge of curbing power consumption in order to reduce greenhouse gas (GHG) emissions.

In order to limit power demand, various energy-savings programs are being planned and implemented in Mexico under the leadership of the federal government, state governments and electric power utility. In order to contribute to these programs, this feasibility study proposes Low CO2 Houses that integrate exceptional energy-saving and energy-generating technologies (inverter technology and solar power) from Japanese manufacturers for programs being implemented by ASI (energy-savings promotion organization under the power utility) to promote energy savings at the household level. Low CO2 Houses feature home appliances with better energy efficiency than those generally used in Mexico as well as solar power facilities, which reduce household power consumption and thereby will help reduce Mexico’s power consumption and GHG emissions.

The proposal involves installing high-efficiency home appliances and other facilities from Japanese manufacturers in existing local houses to partially convert them to Low CO2 Houses, and conducting a demonstration by measuring their energy consumption to verify potential reductions to power consumption and GHG emissions.

The research conducted by the study specifically involves measuring energy consumption by Low CO2 Houses in Mexicali, Baja California, surveying regulations and policy at the federal and state levels, creating an MRV methodology for increased


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efficiency of home appliances and houses, and consideration of policies for coordinating with the federal government, state governments and financial institutions. The aim is to draw on the findings of this research to clarify the feasibility of this GHG reduction project under the bilateral offset credit mechanism (BOCM) and to promote more widespread use of Japanese energy-efficient appliances through the BOCM scheme. 2) Conditions in Host Country

The Mexican government’s stance on the BOCM scheme consists of flexibly accommodating activities that help reduce greenhouse gas emissions in the country. Until COP17/CMP7 held in November and December 2011, Mexico served as the COP/CMP chair, so it was difficult for the government to take a positive stance on the BOCM scheme, but it recognizes the value in the mechanism itself, and as long as the mechanism stands alongside and does not duplicate existing credit systems like the Kyoto mechanisms, Mexico has indicated that it is able to cooperate with Japan and take part in projects. The stance of the Baja California state government regarding the BOCM scheme is the same as the Mexican government. Moreover, from the standpoint of local governments, some programs run by the central government are implemented without considering local conditions, so there have been programs to date that have failed. For this reason, if the local governments can finance its own energy-savings programs through the BOCM scheme, it has indicated an interest in implementing energy-savings programs that have proved difficult to implement to date due to a lack of funding.

In Mexico, the National Commission for Energy Saving was established in 1989 to promote energy conservation and reduction of GHG emissions, and the Electricity Sector Energy Savings Program (PAESE) was initiated at the same time. The next year, in 1990, the Trust Fund for Electricity Savings (FIDE) was established through investment by power utilities, private-sector corporations and others. Various government and private-sector partnership projects have subsequently been conducted to promote energy savings in power consumption, with FIDE playing a leading role.

Establishment of this framework has resulted in various energy-savings programs involving the private and public sectors being implemented. In recent years, focus has been placed on programs for promoting replacement of low-efficiency incandescent bulbs with high-efficiency fluorescent lights as well as conversion to high-efficiency refrigerators and air conditioners. The most recent program is a new energy-savings program started in 2009 called "Para Vivir Mejor" (For A Better Life), which aims to reduce power consumption by 7,871 GWh over the four-year period from 2009 to 2012 by promoting more widespread use of fluorescent bulbs and high-efficiency refrigerators and air conditioners. Energy-savings programs being conducted throughout Mexico to replace 45.8 million incandescent bulbs with fluorescent bulbs are part of the Para Vivir Mejor program.

AT COP16, held in November and December 2010, Mexico announced four priority areas positioned as Nationally Appropriate Mitigation Actions (NAMA) and is working to accelerate corresponding initiatives. The four priority areas are housing, transportation, the cement industry and the steel industry, and they are all either sectors for which measures prove difficult because their scope is so broad or which emit large volumes of greenhouse gases.

Regarding which projects specifically will be accredited as NAMA, discussions led by the Ministry of Environment and Natural Resources (SEMARNAT) are making


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progress on MRV methodology and creating standards in coordination with the Ministry of Energy (SENER) and the Foreign Ministry (SRE), and other agencies.

The Mexican government regards NAMA as a means of accelerating reduction of greenhouse gas emissions. Through NAMA projects it is aiming to promote widespread participation in greenhouse gas reduction activities and scaling up from a technological standpoint. In the household sector, the Mexican government's medium/long-term aim is to incorporate eco-house programs for low-income residents ("Green Mortgage" and "This Is Your House") into urban planning for further reduction of greenhouse gases. 3) Eligibility as a New Mechanism Mexico's economy is experiencing growth just behind emerging countries (Mexico's 2010 nominal GDP was $1.0391 trillion, ranking fourteen in the world (source: IMF)). Nominal GDP per person is $9,566 (61st in the world; source: IMF), and living standards are rising for regular families. Regarding home appliance products, Mexico is a base of production for the U.S. market, and home appliances are widely available domestically as well. Penetration rates for most home appliance products are increasing. While penetration rates are increasing, most products roughly meet energy efficiency standards set by the Mexican government; there is not widespread use of air conditioners and refrigerators with inverter technology. (A survey of air conditioners for sale at home appliance retailers in Mexicali found that only low-priced products were available, including products from Japanese manufacturers, and there were no air conditioners with inverter technology on the sales floor.) Regarding solar power facilities, installation subsidies and feed-in tariff schemes have not been established, so the facilities have not spread at all to regular households, despite good sunlight conditions.

Energy-savings programs are being conducted by the Mexican government and local governments, but funds are limited, and they are mostly implemented with funds from the World Bank, etc. At the local government level in particular, there are some cases of programs not being implemented according to plan due to the lack of adequate budgets.

Compared to facilities generally used in Mexico, energy-efficient facilities from Japanese manufacturers offer considerably more energy savings, but they are relatively expensive, so they have been slow to make ground. As for solar power facilities, electricity rates are relatively low, so there is little potential for greater penetration as of the present. Accordingly, this project, which involves reducing power consumption and GHG emissions in Mexico by facilitating more widespread use of energy-saving and energy-generating facilities from Japanese manufacturers, faces practical barriers from an objective standpoint, so it is regarded as being eligible for quantification and evaluation of emissions reductions under the bilateral offset credit mechanism. 4) Policies for Widespread Promotion of Project/Activity In Baja California, Ahorro Sistemático Integral (ASI) (Spanish for comprehensive, systematic savings program), an organization affiliated with the national power utility CFE, conducts energy-savings programs for households. Programs to date have included conversion to high-efficiency air conditioners and refrigerators and distribution of fluorescent light bulbs. Going forward, ASI is considering promoting more widespread use of solar water heaters, systems for making power use transparent, solar power generators and other facilities. Based on its track record as


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an administrator of energy-savings programs, ASI can be regarded as having strong execution and administrative capabilities, and it is widely known by consumers, so in order to promote energy-saving and energy-generating facilities from Japanese manufacturers, a realistic approach would be to carry out the project in partnership with CFE and ASI. 3. Study Content 1) Study Issues • Related to energy-savings programs of Baja California state government Details and implementation status of past programs Details and implementation status of new energy-saving programs conducted

with IDB State government's basic global warming and environmental measures

• Related to energy-savings programs of ASI Details and implementation status of past programs Future, planned program details and implementation plans FIDE and CFE roles and coordination Possibility of coordinating with bilateral offset credit schemes and financial

schemes that utilize them • Demonstration of power consumption and GHG emissions reduction by

energy-saving and energy-generating facilities from Japanese manufacturers Energy consumption by houses in Mexico and Baja California Specifications and quantity, etc. of energy-saving and energy-generating

facilities comprising the Low CO2 House when the concept is applied to regular houses in Baja California

Confirmation of whether reduction effects can be obtained in line with product specifications

Confirmation of possibility of providing both comfort for users and reduced power consumption and GHG emissions

• Mexican government's NAMA and bilateral offset credit scheme initiatives Status of NAMA-related initiatives (project formation, establishment standards,

MRV, etc.) Assessment of bilateral offset credit schemes

• Energy-related policy in Mexico Electricity rates Energy regulations and standards related to home appliances Energy regulations and standards related to houses

• Penetration of home appliances in Mexico Air conditioners Refrigerators Lights

• MRV methodology for the energy-saving/generating facility installation project for regular houses Method for setting baselines Monitoring method


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2) Study Details: (1) Energy-savings programs of Baja California state government and ASI related The Baja California state government is actively carrying out energy conservation initiatives and has been involved in household energy savings since 1990. In 1990, it established FIFPATERM (Spanish acronym for home insulation foundation), and implemented a program that loaned funds for home insulation at favorable interest rates to 25,000 households.

Interest rates are extremely high in Mexico (above 20%), so a government program that allows money to be borrowed at rates around 10% provides a major incentive for energy conservation. The program was expanded in 1997, and a project was started to finance conversion to high-efficiency refrigerators and replacement of incandescent bulbs with fluorescent lights. In 2002, the program was expanded to include high-efficiency air conditioners and other states in northern Mexico. In 2003, it absorbed a refrigerator replacement program, and in 2005 the geographic scope was expanded substantially. In this way the program gradually grew into a comprehensive energy conservation program covering all of Mexico.

Presently, FIFPTERM is called ASI, and ASI carries out energy-savings programs in all of Mexico, except for the area centering around Mexico City, which is handled by FIDE. Branch offices have been set up in six regions with differing climates so that the energy-savings programs that are implemented conform to the local climate and energy consumption patterns. The ASI branch office in Baja California, where Mexicali is located, the site of the demonstration conducted for this study, is considering promoting future energy-saving programs involving solar hot water heaters, daylight lighting, LED lights, systems for making energy consumption transparent, solar power generation and other facilities. The four types of facilities not including solar power generation are subject to a pilot program targeting approximately 3,000 CFE employee households. The plan is to run experiments at CFE employee houses and then expand the scope to regular houses. For solar power generation, the scope includes both CFE employees and regular houses.

The Baja California state government launched a sustainable energy use program in 2009 and has begun introducing renewable energies and building energy-efficient houses for low-income residents. These initiatives are being conducted with support from IDB. Wall insulation and high-efficiency air conditioners were installed at 35 houses and the respective benefits were compared between houses. In 2011, energy consumption by the houses was measured and the benefits were demonstrated.

Regarding linkage with a bilateral offset credit scheme, it was concluded that ASI would play a central role. As discussed above, ASI has an extensive track record in implementing energy-savings programs, is proactive regarding implementing new programs, and has a nimbleness that makes it possible to implement programs when funding and technical specifications are set. Given these considerations, it was decided that linkage with a bilateral offset credit scheme would be carried out with ASI playing a key role.

(2) Demonstration of power consumption and GHG emissions reduction by energy-saving and energy-generating facilities from Japanese manufacturers Regarding the demonstration of power consumption and GHG emissions reduction by energy-saving and energy-generating facilities from Japanese manufacturers, it was conducted at a house (owned by Mr. Reynaga) in Mexicali that agreed to participate in the test. Inverter air conditioners, a refrigerator, a 3 kWp solar power system and other


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facilities were installed at the house. The replacement air conditioners and refrigerator had nearly the same capacity as the existing air conditioners and refrigerator, based on conditions in the house and power consumption of the appliances. The following is a summary of the appliances that were installed.

Appliance Summary

Air conditioners Two 1.5 t mini split-inverter models and one 2 t mini split-inverter model replace a 5t central-type

Refrigerator Equivalent capacity inverter refrigerator with catalog specs replaces a 18 ft3 (equiv. to 550 liters) capacity refrigerator

Solar power generator 3 kWp solar power generator installed Other ● LED television replaces CRT television

● CFL lights replace two incandescent bulbs Looking at power consumption by the house as a whole, during the period in which

existing facilities were in use (eight-day period from August 28 to September 4), power consumption averaged 170.2 kWh per day. By contrast, power consumption when the new facilities were in use (eight-day period from September 18 to September 25) averaged 97.7 kWh per day. This study demonstrated energy savings of 42.6% for the entire house. A majority of the reduction was from the 5t mini split-inverter air conditioners (average temperature was 36.0°C before the upgrade and 31.3°C after the upgrade, so reduced air conditioning load due to lower temperature is one of the factor for reduced power consumption. When a scatter diagram for temperature and power consumption before and after the upgrade is created and power consumption at 31.3°C, the average temperature after the upgrade, is compared on a similar curve, the energy savings is 53.3% (straight comparison yields 59.7%). The impact of the temperature is therefore estimated to be roughly 6%.) Taking into accounting power generated by the solar power generator, consumption of purchased electricity was 83.1 kWh per day, for energy savings of 51.2%.

Figure 1 Change in House Power Consumption after Upgrade

The Reynaga house currently still has appliances with poor energy efficiency;

specifically, two mini split air conditioners and an electric water heater. Some walls

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have also not been insulated. It can be expected that adding insulation and replacing these appliances with mini split inverter air conditioners and a solar hot water heater create substantial energy savings and significantly lower costs. Based on simple calculations, fully converting the Reynaga house to a Low CO2 House would potentially reduce power consumption by around 70-80% compared to before any upgrades were made. Solar water heaters and insulations are appliances and technologies that can be manufactured inexpensively in Mexico, and to achieve a Low CO2 House, it is important to incorporate not only exceptional energy-saving and energy-generating facilities from Japanese manufacturers, but these types of technologies from the development country side so that the entire house is comprised of facilities and technologies that facilitate GHG reductions. (3) Energy-related policy in Mexico Electricity rates for houses in Mexico are comprised of a standard set of rates for low-income residents and low-usage consumers, for which unit rates are kept low through government subsidy, and a set of rates for consumers that exceed a certain level of power consumption (DAC; Spanish acronym for high consumption), for which no subsidy assistance is provided.

With the standard set of rates, for which assistance is provided through subsidies, electricity rates are set for regions subdivided based on low summer temperatures, and although there are some differences, rates are around one peso (approx. 7 yen) per kilowatt-hour. In contrast, electricity rates for DAC customers are approximately 3.2 pesos (approx. 22.4 yen) per kilowatt hour. Each regions has established power consumption levels for which DAC rates are applied.

The Mexican government keeps electricity bills low through subsidies to avoid a situation in which majorities of citizen are unable to use energy due to poverty. However, electricity rates kept low through subsidies means there are few rewards for energy savings, and for most household customers, there is little incentive to buy expensive energy-efficient appliances. Under the DAC set of rate of high consumption, there are no subsidies, so rates are extremely high at three pesos per kilowatt hour. Mr. Reynaga, who participated in the demonstration, used to be on standard rates, but he was switched to DAC due to increased power consumption and expressed a desire to return to standard rates by reducing power consumption through greater energy efficiency. As indicated here, DAC customers have an incentive to conserve energy, and for customers on the borderline between DAC and standard rates in particular, there is sufficient appeal to energy-savings if the number of years required to recoup investment is addressed. 4. Findings of Feasibility Study on New Mechanism Project/Activity 1) Emissions reduction through conducting the project/activity a. Grounds/basis of emissions reduction and demonstration method GHG emissions from houses reduced by a combination of any of the following three methods. • Home appliances with higher efficiency than existing facilities are installed • GHG emissions are reduced by installing solar power facilities and partially

replacing grid power • Power used at other sites is partially replaced by installing solar power facilities

and supply power to the grid

The method for demonstrating GHG emission reductions via installation of


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high-efficiency home appliance and consumption of power generated onsite by solar power facilities consists monitoring the test house's power consumption on CFE electricity bills and comparing with power consumption in the same month of the year prior to implementation of the project. GHG emission reductions are calculated by multiplying the power grid's emissions coefficient by the amount of power consumed.

Regarding supply by solar power facilities to the grid, the amount of power is ascertained by monitoring the amount of power generated by the solar power facilities (monitoring amount supplied to the grid if power is consumed onsite). GHG emission reductions are calculated by multiplying the amount of power supplied to the grid by the power grid's emissions coefficient. b. Methodology for demonstrating reduction effects

The MRV methodology adopted assesses the amount of reduction in energy consumption for the same existing house before and after the project, on a whole house basis, making reference to the CDM methodology AMS-III.AE for conducting MRV at the house level.

All products handled in the project are devices that operate on electricity or produce electricity. Emissions reductions corresponding to electricity generated by the solar power facilities that is not supplied to the power grid are measured by monitoring the amount of power purchased.

When solar power that is generated is supplied to the power grid, GHG reductions are calculated not only by monitoring the amount of power purchased but also the amount of power supplied.

Details are provided in "5) Measurement, reporting, verification (MRV) methods for emissions reductions."

c. Research necessary for constructing the methodology The following items were considered in order to construct the methodology. • Risk of excess credit issue in the proposed MRV methodology: Conceivable risks

considered include, living standard lowered, electricity purchased from another company but not reported, energy-saving / energy-generating activities not reported, and external factors not considered.

• Measures to address risk of excess credit issue 1. Design incentives for purchasers of home appliances, etc. (another party for credit

acceptance) 2. From monitoring correction group (set safety ratio) 3. Ensure reporting by purchasers of home appliances, etc. (compare electricity

amounts from two years prior and one year prior)


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Figure 2 Relationship Between Excess Credit Issue Risk and Countermeasures

Source: The Japan Research Institute, Ltd. • Assess reductions from visibility and public awareness • Assess reductions from structural changes in buildings • Positive list standard proposal for ensuring eligibility 2) Reference scenario and boundaries a. Reference scenario of project/activity and its validity I. Regarding home appliances The reference scenario is the scenario in which households participating in the project use appliances before updating for the duration of their service life and then replaces them with standard appliances available on the market. Accordingly, reference emissions consider change in energy consumption efficiency associated with buying new appliances.

In order to more accurately calculate power consumption in the reference scenario, power consumption is calculated for each home appliance in the house. By contrast, calculating the reference scenario for all electric appliances is unrealistic given the amount of work involved, so it is valid to limit analysis to major electric appliances.

Specifically, power consumption by each appliance within the household is investigated for the target households and regions, and home appliances that account for a large proportion of power consumed are indentified. To do so, monitoring data from monitoring correction groups (*see the full report) in each region is utilized.

The study was not able to obtain corresponding data for Baja California or Mexicali, so the configuration of energy appliances and energy consumption in the monitor house prior to the demonstration test was used.

Regarding individual reduction activities, totals for power consumption prior to the project use figures listed on electricity bills from the power company. Appliances that consumed large amounts of power (at least 10% of the total) at the monitor house were air conditioners, lights and the refrigerator. For these appliances, future energy

Living standard lowered

Electricity purchased from another company

but not reported

Energy-saving / energy-generating

activities not reported

External factors not considered

Risk of excess credit issue

Design incentives for purchasers of home appliances

(another party for credit acceptance)

From monitoring correction group (set safety ratio)）

Ensure reporting by purchasers of home appliances

(compare electricity amounts from two years prior and one year prior)

Scheme to suppress the excess credit issue

Eliminate the operator's behavior leads to excess credit issue

Discounting to quantify the risk of excess credit issue

Inhibit the action of the operator leads to excess credit issue


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consumption trends similar to the reference scenario are considered. Power consumption by other appliances is left unchanged from amounts prior to the project.

As to factors affecting energy consumption and GHG emissions levels, this study focuses on home appliance technology and product trends, change in appliance penetration rates, and related regulations and promotional policies that impact appliance penetration rates. Moreover, in order to take into account the timing of appliance upgrades based on individual reduction activities, focus is placed on the frequency of appliance upgrades. GHG emission levels change depending on the effects of improved efficiency in individual appliances, and penetration rates and upgrade frequency for appliances with improved efficiency (see the figure below).

Figure 3 Calculating Electricity Consumption Reduction by the Project

Source: The Japan Research Institute, Ltd.

(1) Home appliance technology and product trends It is necessary to grasp two trends, efficiency improvement through technology innovation (e.g., conversion of lighting from incandescent bulbs to CFL) and efficiency improvement in products with the same technology (e.g., improved COP in air conditioners from better heat exchange performance).

The following table organizes technology and product trends in Mexico for each type of home appliance.

Table 1 Technology Trends in Major Home Appliances in Mexico

Air conditioner Lighting RefrigeratorsEfficiency improvement throughtechnology innovation

Non-inverter→inverter

incandescent→CFL

No

Efficiency improvementin products with the same technology

Yes Yes No


(2) Change in appliance penetration rates The efficiency of products that project participants would have purchased if the project had not been conducted is estimated stochastically by estimating market share for each product category available on the market. That is to say, for appliances for which efficiency improvements occur due to technological innovation, overall average

Project period

ElectricityConsumption

At the start of Project（Year N）

Year N＋３

Project scenario

BAU scenario

※Year N +3 case is when to update the existing equipment,if there is not the project

Reference scenario（＝Baseline scenario）

Electricity consumption reductions

Electricity consumption of the distributed product（Changes in the efficiency and market share of product distribution）

Electricity consumption before the start of project


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efficiency is calculated based on average efficiencies and market shares of products with co-existing technology formats.

(3) Frequency of appliance upgrades Regarding upgrade frequency, interview-based surveys are conducted with monitoring correction groups, discussed above in "c. Research necessary for constructing the methodology," on the timing of upgrades to major home appliances, and average period for each specified region is set as the standard upgrade frequency. II. Power generators In terms of household power generators that reduce GHG emissions, only solar power facilities are assumed by the study. According to the IEA's "PVPS Trends Report 2010," solar power generators installed in 2010 totaled 5.6 MW and are expected to be 15 MW in 2011. However, there are 27.0 million households in Mexico, so just 0.005-0.0005% of Mexican households install solar power facilities annually.

Accordingly, the reference scenario assumes that solar power facilities are not installed and that electricity is purchased from the power grid. III. Validity of reference scenario The reference scenario considered in this scenario was judged to be valid based on interviews with domestic experts. b. Differences between project/activity BaU scenario and reference scenario The business-as-usual (BaU) scenario is the scenario in which the policies and product penetration discussed above are not conducted and current energy consumption continues as it is. c. Necessity of setting the boundary Regarding boundaries, in considering the above reference scenario, regions and target sectors to which regulations and promotion policies related to the policy authorities (Mexican government, Baja California state government, ASI, etc.) are applied are confirmed primarily, and regions and sectors for which application of the MRV methodology or reference scenario proves exceedingly difficult are excluded from the boundary. 3) Monitoring method and plan a. Monitoring plan, method, items and frequency The following activities are included in monitoring items.

1. Reference scenario survey 2. Survey of installed facilities 3. Survey after project implemented

Regarding "1. Reference scenario survey," researchers, etc. visit houses subject to

project activities, survey the following items through interviews and visually, and put the information into a database (visit all households or conduct sampling). • Basic information for identifying the household • Electricity bills from the past two years • Inventory of major home appliances (air conditioners, lighting, refrigerators, etc.)


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Regarding "2. Survey of installed facilities," the following items are recorded during the project implementation period and put into a database. • Quantity of facilities installed in project activities and related information • Quantity of facilities removed due to updating facilities through product activities

and related information

Regarding "3. Survey after project implemented," the following items are surveyed. Onsite surveys are conducted through sampling for only a portion of reduction activities; other reduction activities are confirmed via email, document submission, etc. This survey is conducted each year until the end of the project. • Power consumption for the most recent one-year period • Family makeup • House renovations • Operating status of installed home appliances and solar power facilities d. Basis for feasibility of monitoring method in host country There is only one power company in Mexico that supplies electricity to households, CFE, so houses in Mexico that use electricity all have electricity bills delivered to them in the same format, which makes monitoring possible. e. Measures necessary to make monitoring method applicable on a large scale Mexico has only one power utility, CFE, so if the scope is confined to Mexico, electricity charges are in the same format for every house. On this premise, this methodology does not monitor power consumption by each individual appliance, but rather calculates reductions by obtaining electricity bills. For this reason, it can be applied on a large scale within Mexico. If it is possible to obtain power consumption figures directly from CFE, and not from individual households, monitoring becomes very straightforward. 4) Greenhouse gas emissions and reductions a. Method for quantifying of reference scenario emissions through the project/activity and corresponding estimations This section discusses reference scenario emissions related to home appliances, etc. Reference scenario emissions related to power generation facilities are 0-tons-CO2 per year.

I. Method for quantifying reference scenario GHG emissions for entire houses Based on the approach to reference scenario calculations, GHG emissions are specially calculated using the following method.

yELECCOyREFy EFERE ,,2, ×=

REy ：Reference scenario GHG emissions in the year y〔tCO2/year〕 EREF,y ：Reference scenario electricity consumption in the year y

〔kWh/year〕 EFCO2,ELEC,y ：CO2 emission factor for electricity grid in the year y

〔tCO2/kWh〕

The following discusses the method for quantifying reference scenario power


＜16＞

consumption for air conditioners. For the period until the deadline for updating facilities used prior to the project, it is

the same as power consumption prior to the project. The following formulas are used for the period after the deadline for updating facilities used prior to the project.

renewACACbeforeyACREF EE ,,,, α×=

ACbeforebeforeACbefore FEE ,, ×=

renewInvnonACrenewInvACrenewAC ,,,,, −+= ααα EREF,AC,y ： Reference scenario electricity consumption of air conditioner in

the year y 〔kWh/year〕 Ebefore,AC ：Annual electricity consumption for air conditioner before the start

of the project activity〔kWh/year〕 Ebefore ：Annual electricity consumption for household before the start of the

project activity〔kWh/year〕 Fbefore,AC ：Ratio of air conditioner electricity consumption at the the start of

the project activity〔%〕 αAC,renew ：Reduction rate by improving the efficiency of air conditioner

distributed at the last update time〔%〕 αAC,,Inv,renew ：Reduction rate of inverter air conditioner distributed at the last

update time〔%〕 αAC,,non-Inv,renew ： Reduction rate of efficiency non-inverter air conditioner

distributed at the last update time〔%〕

renewInvnonAC

renewInvACrenewInvACrenewInvAC MS

,,

,,,,,,

−

×=ee

α

MSAC,,Inv,renew ：Market share of the inverter air conditioner at the last update time

〔%〕 εAC,,Inv,renew ：Average efficiency of the inverter air conditioner at the last update

time〔%〕 εAC,,non-Inv,renew ：Average efficiency of the non-inverter air conditioner at the last

update time〔%〕

( )beforeInvnonAC

renewInvACnonrenewInvACrenewInvnonAC MS

,,

,,,,, 1

−

−− ×−=

ee

α

εAC,,non-Inv,before ：Average efficiency of the inverter air conditioner at the the start of

the project activity〔%〕

Lighting facilities are calculated in the same way, by replacing the non-inverter / inverter air conditioner pair with incandescent / CFL. For refrigerators, there is no efficiency improvement in available products, and the same figures as power consumption prior to the project are used.


＜17＞

II. Estimations of reference scenario GHG emissions for entire applicable houses Regarding EFCO2,ELEC,y (CO2 emissions coefficient for grid power), 0.5126 t-CO2/MWh is used, the figure that was used for a CDM project in Mexico (El Verde landfill gas recovery project, registered on October 27, 2010). For calculation of reference emissions when the project is actually conducted, emissions coefficients are set each year based on data published by CFE. Trial calculations have put GHG emissions for the monitor house in the reference scenario at 14.6-16.6 tons-CO2.

Table 2 GHG Emissions from Monitor House Home Appliances (Reference Scenario)

【before startingthe project】

【after startingproject】⇒

Unit Year N Year N+1 Year N+2 Year N+3 Year N+4Energy consumption of household atthe before the start of the project

kwh/year 32,347

GHG emission of household at thebefore the start of the project activity

tCO2/year 16.6

Reference GHG emission tCO2/year 16.1 16.1 14.6 14.6Emission factor tCO2/MWh 0.5126 0.5126 0.5126 0.5126 0.5126Reference scenario energy consumption kwh/year 31,503 31,503 28,405 28,405

In、air condioner kwh/year 19,080 19,080 17,670 17,670In、lighting kwh/year 5,447 5,447 3,759 3,759

In、refrigerators kwh/year 3,492 3,492 3,492 3,492In、the other kwh/year 3,484 3,484 3,484 3,484


b. Method for quantifying emissions for project/activity implementation scenario and corresponding estimations GHG emissions in the project/activity implementation scenario are calculated using actual power consumption figures and actual power grid emissions coefficients during the implementation period.

( ) yELECCOypjyPjy EFEGEPPE ,,2,, ×−= PEy ：Project/activity implementation scenario GHG emission

in the year y 〔tCO2/year〕 EPPJ.y ：Project/activity implementation scenario electriciyconsumption

in the year y 〔kWh/year〕 EGPJ.y ：Electricity supplied to the grid in project activity period

in the year y 〔kWh/year〕 EFCO2,ELEC,y ：CO2 emission factor for electricity grid in the year y

〔tCO2/kWh〕 Net power consumption (EPPJ,y - EGPJ,y) uses power consumption stated on

electricity bills from CFE.

Net power consumption (EPPJ,y - EGPJ,y) uses power consumption amounts listed on electricity bills from CFE. As of the time of this study, power consumption for one year following implementation of the project cannot be measured, so trial calculations have been conducted by estimating annual power consumption based on power consumption during the demonstration period. As a result, GHG emissions by the monitor house in the project/activity implementation scenario is 6.5 tons-CO2.


＜18＞

Table 3 GHG Emissions of Monitor House Appliances (Project/Activity Implementation Scenario)

Unit Value per dayrunning daysper year

Equivalent annualconsumption

Project/activity implementationscenario energy consumption

kwh 56.4 - 12,642

In、air condioner kwh 42.9 180 7,722In、lighting kwh 16.8 365 6,123

In、refrigerators kwh 1.8 365 668In、the other kwh 9.5 365 3,484

In、photovoltaic generation（amout of power）

kwh -14.7 365 -5,355

Emission factor tCO2/MWh 0.5126 - 0.5126Project/activity implementationscenario GHG emission

tCO2 0.0289 - 6.5 Source: The Japan Research Institute, Ltd.

c. Estimation of emissions reduction potential in overall host country (or overall sector) if project/activity becomes widespread The potential for energy emissions reductions in the housing sector overall in the host country can be calculated with the following formula.

Emissions reduction potential =Total power consumption in household sector × GHG emissions coefficient of

power grid × Power reduction ratio per household Power reduction ratio per household =Σi (power consumption per appliance i × power reduction ratio per appliance i) + Power generated by solar power generators / power consumption per household

Regarding the configuration of appliances for energy consumption and reduction

ratios for each appliance, the same appliance configuration ratios as the monitor house are applied to the housing sector for Mexico overall.

Based on the trial calculations, if energy-efficient air conditioners and lights and 3 kWp solar power generators are installed at 10% of houses in Mexico, it would resulted in a project reduction of approximately 8.89 million tons-CO2 per year. 5) Measurement, reporting, verification (MRV) methods for emissions reductions a. Description of MRV methods for reductions from implementing the project/activity I. Qualifications • Project involves installing home appliances with higher efficiency than existing

facilities (efficiency standards defined in cooperation with ASI) or solar power facilities. Not all the home appliances that are installed need to be high efficiency; houses qualify even if just some home appliances are high efficiency as long as there is high efficiency overall.

• Houses with air conditioners that run on fossil fuels are outside the scope. • Houses that are renovated (insulation added or removed) during the period

necessary for setting the reference scenario is outside the scope. • Houses less than one year old are outside the scope of the project. • Houses with changes in family composition (family members and their number)


＜19＞

during the period necessary for setting the reference scenario are outside the scope.

• When there are changes in family composition (family members and their number) during the project implementation period, the house is outside the scope at that point. However, if there is a net increase in the number of people through birth or moving in, the house may continue as part of the project.

• Houses are outside the scope if upgrades to higher efficiency home appliances, removal of home appliances, or installing of renewable energy facilities take place during the period necessary for setting the reference scenario.

• If appliance upgrades or new installations cause electricity consumption to increase, the house remains within the scope of the project.

Under this methodology, the project is limited to only power consumption amounts

for which monitoring is straightforward. From the perspective of broadening the scope of reduction activities, one task going forward is to create a scheme that is also capable of evaluating upgrades and fuel conversion for appliances that use fossil fuels, not just electric appliances. II. Boundary Geographically, the CDM's program of activities (PoA) is set for each climate zone and individual houses are set as the CDM program activity (CPA). The boundary is entire houses within the project's scope that have installed solar power facilities and home appliances. When power is generated by the solar power facilities and supplied to the power grid, the boundary is all solar power facilities that are physically connected to the power grid that receives the power. III. Eligibility Regarding appliances subject to the project, eligibility is ensured in cooperation with ASI by creating a positive list that takes into account a certain level of efficiency, etc. and restricting the scope to only facilities registered in advance on the list. The positive list is updated around once a year while considering local state and federal policy trends, product penetration trends and other factors. IV. Method for setting reference emissions Already stated in "4) Greenhouse gas emissions and reductions," "a. Method for quantifying of reference scenario emissions through the project/activity and corresponding estimations." V. Estimation of emissions reductions Regarding emissions following project implementation, already stated in "4) Greenhouse gas emissions and reductions," "b. Method for quantifying emissions for project/activity implementation scenario and corresponding estimations."

If high-efficiency appliances and solar power facilities to be installed are transferred from another project activity, leakage emissions must be considered. Based on the above approach and formulas, emissions reductions are calculated with the following formula.

( ) yyy LEPEREyER −−= ERy ：GHG emission reduction in the year y 〔tCO2/year〕 REy ：Reference scenario GHG emissions in the year y 〔tCO2/year〕


＜20＞

PEy ：Project/activity implementation scenario GHG emission in the year y 〔tCO2/year〕

LEy ：Leakage GHG emissions in the year y 〔tCO2/year〕 VI. Credit period The credit period start date is the date home appliances and/or solar power facilities are installed. The credit end date is either date all corresponding home appliances and solar power facilities are removed or seven years (standard replacement frequency for home appliances in Mexico), whichever is sooner. VII. Monitoring method Already stated in 3) Monitoring method and plan. VIII. Reporting and verification Regarding reporting and verification, this portion is basically shared by the bilateral offset credit mechanism overall and is not dependent on individual projects. In discussions with the Mexican government and ASI, there was the fear that the verification process would become too complex. With CDM, there was an emphasis on the project's additionality, but it was thought that there is need for a reporting and verification method that focuses on verification of the appropriateness of emission reductions obtained through the project. Accordingly, it was thought important to have a mechanism for reporting and verifying the project implementation plan, which includes the reference scenario and project details, in advance with the administrative organization and verification body. Also, there should be adequate verification of appropriateness before and after the fact when reference emissions are updated each year as in this project. b. Grounds for considering MRV methods valid Referencing existing CDM methodologies (*see the full report), MRV methodologies for houses that install high-efficiency appliances, etc. include the method of conducting MRV on individual appliances and the method of conducting MRV on a building basis. If solar power facilities and energy-efficient appliances are installed at houses, there is the potential for a variety of appliances to be installed. Houses subject to the project potentially range between thousands and tens of thousands, so setting references for individual devices would involve considerable work and cost from an administrative standpoint.

Products handled in this project are all appliances that either operate on electricity or generate electricity. Electricity generated by the solar power facilities that is not supplied to the power grid is consumed onsite whether high-efficiency appliances are used or not, so power purchased by corresponding households is reduced and GHG emissions are reduced. That is to say, energy reductions and GHG emissions reductions by onsite consumption of solar power or use of energy-efficient appliances can be ascertained by monitoring power consumption as long as energy use and GHG emissions by appliances other than those installed remains fixed.

In addition, the feasibility and importance is increasing energy-savings options for going beyond individual appliances and assessing at the building level, specifically behavior modification associated with smart meters and HEMS systems as well as integrated control.

Given these factors, this study deems valid an MRV methodology that assesses the amount of reduction in energy consumption for the same existing house before and


＜21＞

after the project, on a whole house basis, making reference to the CDM methodology AMS-III.AE for conducting MRV at the house level.

When solar power is supplied to the power grid, monitoring is conducted not only for power consumed but also power supplied, making it possible to calculate GHG emissions reductions. I. Analysis of related CDM methodologies that form the basis of the study methodology's approach The following related CDM methodologies references. • (AMS-II.E、AMS-III.AE) Buildings • High-efficiency lighting (AM0046, AMS-II.C, AMS-II.J) • Energy-saving home appliances (AM0070, M0071, AMS-II.C, AMS-III.X) • Solar power generation (AM0019, AM0026, ACM0002, AMS-I.A, AMS-I.D,

AMS-I.F) c. Basis for thinking MRV method acceptable to host country where project/activity conducted Mexico is considering utilization of various credit schemes in addition to bilateral offset credit mechanisms, including CDM, NAMA, and the California state government's emissions trading program. With all the various schemes, there are expectations that they will appropriately coordinated. The proposed MRV methodology was explained to the Mexican government officials, including at SEMARNAT (environment ministry), as having been considered with reference to CDM methodology, and its validity was confirmed. It references CDM methodology, so there should be minimal issues related to coordination with other schemes, as is expected by the Mexican government, and there is a strong likelihood that it will be accepted by the Mexican government. d. Considerations regarding whether MRV method achieves level of adoptable as international MRV guideline The method references CDM methodology, so it can be considered sufficient as an international MRV guideline. 6) Ensuring environmental integrity Regarding the issue of ensuring the project's environmental integrity, it is necessary to analyze the environmental impact in Baja California and surrounding regions of more widespread utilization of energy-efficient facilities, solar power generators, and other facilities as a result of energy-savings programs from the standpoint of the supply chain based on the characteristics of the business.

When energy-savings programs are promoted, disposal of the inefficient facilities that had been used previously is a major issue. Old household appliance products not only contain toxic substances, air conditioners and refrigerators contain coolants, which, if not properly disposed of, have the potential to release greenhouse gases into the atmosphere far beyond levels reduced by the program. In addition, if inefficient facilities are not disposed of but rather are used by other demand-side customers, reductions provided by the program are limited considerably. Accordingly, in order to ensure environmental integrity, it is important to create a system for incorporating management and disposal of facilities into energy-savings programs and ensuring that environmental impact is not increased due to inappropriate disposal.


＜22＞

7) Other indirect impacts Regarding other indirect impacts of the project, it is assumed that accelerating widespread installation of energy-saving and energy-generating facilities in Mexico will enlarge the market for such products and increase the market competitors involved, both domestic and foreign. For Japanese manufacturers, the competitive environment will become more difficult, but the ability to provide financing schemes tied to the bilateral offset credit mechanism and comprehensive service covering down to repair and maintenance, an area of strength, should work to differentiate them from the competition. 8) Comments from stakeholders Stakeholders in the project include ASI, the counterpart in Mexico, the Baja California state government and Mexican government.

ASI has a strong interest in bilateral offset credit mechanisms and has indicated the potential for coordination with ASI's energy-savings programs. Specific proposals regarding coordination have not been made, so this view is a more of a general statement, but from ASI's standpoint, if a proposal is made in a format acceptable to ASI, such as integration with energy-savings programs in the works, there is sufficient potential for coordination.

The Baja California state government has high expectations for the bilateral offset credit mechanism. At the same time, its experience to date with developing energy-savings programs for low-income households has highlighted the difficulty in carrying out the programs given problems specific to low-income households (unauthorized resale or disposal of facilities, high crime rates make cooperation difficult to obtain). Products from Japanese manufacturers in particular are high performance and expensive, so the government believes this will likely be a major issue.

The Ministry of Environment and Natural Resources (SEMARNAT), the body within the Mexican government that handles NAMA and the bilateral offset credit mechanism, is considering utilizing various schemes to help reduce the country's GHG emissions, and has taken a positive stance toward the bilateral offset credit mechanism as one of these schemes. At the same time, it is concerned about there being too many schemes, and believes that they should be coordinated within a given scope and that rules should converge. 9) Implementation framework for project/activity The project will be registered as a project for GHG reduction through more widespread utilization of products from Japanese manufacturers in a bilateral offset credit mechanism, provided that the Japanese government and Mexican government conclude a bilateral treaty regarding the mechanism. Registration of the project in the bilateral offset credit mechanism is expected to make Japanese government financing for the mechanism easier to utilize, and financing schemes, such as a fund that provides financing for ASI, will be constructed through Japan-affiliated and Mexican financial institutions. It is assumed that ASI will not only receive funding but play the role of project administrator for GHG reduction projects.

ASI will utilize the money to fund low-interest financing programs and make loans to regular households for installation of energy-saving and energy-generating facilities from Japanese manufacturers. In making loans to regular households, potential recipients will be screened based on the MRV methodology to ensure they meet the terms of the project.


＜23＞

Figure 4 Project Framework Under Bilateral Offset Credit Mechanism Centering on ASI

10) Financing plan The project involved promotion of energy-saving appliances, etc. in the household sector, so it is not necessary for Japanese manufacturers to provide funds for capital investment. In order to lighten the initial investment burden on households, financing schemes will be considered that provide leases or loans for energy-savings programs involving products from Japanese manufacturers.

Specifically, in addition to the Mexican government's existing regulations and promotion policies, it will likely be necessary to have financing schemes that reduce the high cost of energy-saving home appliances and other facilities. Use of energy service company (ESCO) programs, which are being increasingly utilized in Japan as well, formation of funds with credit income under a bilateral offset mechanism, creation of micro-finance programs, and various other schemes are potentially applicable. Finance schemes suitable to local needs and conditions should be considered while also taking into account the intentions of ASI. 11) Policies for promoting installation of Japanese technologies FIPATERM /ASI have conducted various energy-saving programs for houses in Baja California since 1990, and consumer and market recognition of them as program administrators is extremely high. Moreover, assuming that low-interest loans will be provided as an incentive to purchase energy-saving and energy-generating facilities from Japanese manufacturers, ASI would be a very capable administrator given its experience in administering low-interest loans for insulation and high-efficiency refrigerators and air conditioners. Feasibility is higher than if the program were

Government of Japan

Government of Mexico

ASI( Executor of the energy

saving program)

Baja California State Government

BOMcommittee

Households Distributor of the home electronics

Japanese manufacturer

Consultants

Bilateral agreementson the new mechanism

Consultation

BOM carbon credits

Technical cooperation

Support the promotion of the use of the PJ

(ex. Publicity)

Low-interest financingProduct

deliveryBOM project related SupportProject Management SupportMRV implementation support

Payment

Purchasethe Energy saving /

generating equipment

Inefficient facilities disposalRecycling

manufactures

Support the promotion of the use of the PJ (ex. Publicity)

Relatedfinance

scheme with BOM

Finance Issuancerequest


＜24＞

administered by another body or independently. ASI is planning and running trials for new energy-savings programs and trying to

expand existing initiatives. The agency has taken a positive stance to coordination with the bilateral offset credit mechanism, so financing schemes will be considered that are funded with credits from a bilateral offset mechanism, these will be used to provide funds to ASI, and low-interest loans will be created that can be applied to products from Japanese manufacturers.

When selling products from Japanese manufacturers and administering this as a GHG reduction project, the project will be conducted efficiently by obtaining cooperation from ASI and CFE, its parent organization, with regard both to setting a reference scenario and monitoring.

In order to successfully implement the plan, it will be necessary to have the cooperation of ASI, CFE, the Baja California state government and Mexican government. In particular, the cooperation of ASI as the energy-saving program administrator and GHG reduction project participant is essential. It will be necessary to design the energy-savings program based on the intentions of ASI, which includes consistency with energy-savings programs ASI has conducted to date and organization of who will be eligible to receive assistance, based on the premise of products from Japanese manufacturers (based on their price range, it is possible that there will be many DAC households). 12) Prospects and issues going forward In order to conduct this project with the bilateral credit offset mechanism, the following there points are of particular importance. • Building a cooperative framework with ASI • Building a sales system for energy-saving and energy-generating facilities from

Japanese manufacturers • Coordination with the Japanese government's scheme financing, such as JBIC,

NEXI and JICA

Regarding a cooperative framework with ASI, considerations are taking place on whether it would be possible to add the option of installing energy-saving and energy-generating facilities from Japanese manufacturers on a pilot basis to new energy-savings programs launched by ASI in 2011. ASI and its parent organization CFE have responded positively, so efforts are being made to work out the details of the energy-saving program, like deciding on the technical specifications for applicable products, and will be conducted for several dozen households at an early date.

With regard to implementation of the project with a bilateral offset credit mechanism, the intentions of ASI's Baja California branch office and CFE, which will actually implement the project, are being confirmed with regard to schemes for which ASI will play a leading role, in parallel with the pilot energy-savings program, and discussions are expected to continue to take place, including on finance schemes in which ASI has expressed interest.

With regard to building a sales system for energy-saving and energy-generating facilities from Japanese manufacturers, the findings of this study suggest the possibility of promoting mini split-inverter air conditioners and CFL lights, and in some cases solar power generators, to DAC households (approx. 37,000) and 1F households on the verge of becoming DAC (approx. 318,000) in Baja California for the purpose of reducing power consumption and electricity bills, so there is value in doing so on a full-fledged basis. It will take time to train dealers and improve


＜25＞

installation techniques and service levels, so the project is projected to begin with exceptional dealers in Mexicali and Baja California as the core and then gradually expand from there.

Regarding coordination with the Japanese government's scheme financing, such as JBIC, NEXI and JICA, at the stage when cooperation with ASI becomes more concrete and results of the pilot project begin to become clear, it will be necessary as the next step. ASI's funding comes from CFE, and in order to implement a new energy-savings program of more than a certain size, funds for supporting it are necessary. If using scheme finance from the Japanese government slows down the project overall, a variety of options for financing schemes will be closely examined and considered, including forming private-sector funds.

5. Survey of co-benefits There are three areas subject to assessment in the Co-Benefit Quantitative Assessment Manual 1.0: prevention of water pollution, improvement of air quality, and management of waste. Achievement of GHG reductions through more widespread use of energy-saving and energy-generating facilities from Japanese manufacturers, which is taken up by this study, is accomplished through reduced power consumption, so it can be expected that power generated by thermal power plants will decline, sulfur oxide, nitrogen oxide and particulate matter released into the atmosphere will decline, and air quality will improve.

In Baja California, there is a mini-grid that is independent of Mexico's main domestic power grid. The majority of electricity used on the mini-grid comes from natural gas-fired thermal power plants, while the rest is from geothermal plants and small-scale oil-fired plants. Natural gas-fired thermal power plants release minimal air pollutants, so the impact will be slight, but if power generated increases in line with growth in power demand, in 2025 NOx concentration is projected to increase from 0.60 kg/MWh to 0.68 kg/MWh (CFE forecast). More widespread use of energy-saving and energy-generating facilities can be expected to limit growth in power demand and therefore also limit corresponding increases in NOx concentration. 6. Survey on contribution to sustainable development President Calderón has announced the Mexico 2030 plan, a set of long-term goals. Concrete, numerical targets have been set for the main categories of rule of law and public safety, competitive economy and job creation, environmental sustainability (sustainable development), and effective democracy and responsible diplomacy. Regarding economic development, the plan calls for increasing per-person GDP to $29,000, approximately three times the current level, and attaining a level equivalent to developed countries in terms of competitiveness and technological development. Mexico is currently a base of production for U.S.-bound products. A large variety of products are produced in Mexico, including automobiles, household appliances, and daily necessities. It is expected that these products will continue to be produced and supplied to U.S. and South American markets. At the same time, rising economic levels should also help Mexico itself develop into a large market.

The market is expected to gradually shift from inexpensive, inefficient facilities, which can be seen throughout the developing world, to appropriately priced, high-efficiency facilities through widespread availability in Mexico of energy-saving and energy-generating facilities from Japanese manufacturers.

Electricity rates are currently supported by large subsidies, so the situation will not autonomously produce more widespread use of high-efficiency facilities, but the large


＜26＞

subsidies put a considerable burden on government finances, so it is assumed that electricity subsidies will be reduce as the economy develops. When that occurs the market will be supplied with energy-saving and energy-generating facilities, which should accelerate energy saving and energy generating in Mexico.

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