|Unaligned||No consistent shadow carbon price appears to be applied at JICA.|
In February 2020, JICA undertook a ‘Review of JICA Guidelines for Environmental and Social Considerations’. These guidelines date back to 2010 and recommendations were made in the review. It is unclear if these recommendations will be adopted in a new version of the guidelines.
The review document suggested that some form of carbon pricing has been applied to some projects, although it is not clear if a consistent internal carbon price has been applied outside of the example projects. The document states:
“economic analysis of JICA projects, including reviewed projects, takes into account an increase in GHG emissions as project costs and a decrease in GHG emissions as project benefits to calculate Economic Internal Rate of Return (EIRR). In particular, projects with large GHG emissions such as large-scale power generation projects include GHG emissions into cost benefit analysis..”
This suggests that a carbon price is applied in a project with large associated GHG emissions. Two example projects are provided:
- The Navoi Thermal Power Station Modernization Project in Uzbekistan which replaced an existing thermal power plant with a Gas Combined Cycle Cogeneration Power Plant (CCPP). In this project, reduction of GHG emissions was considered a project benefit. It used the average spot rate for the certified emission reduction (CER) of Blue Next, a European environmental trading exchange that was considered the largest CO2 permit spot market.
- The Shahid Rajaee Power Plant Construction Project was a project to construct high-efficiency gas turbine combined cycle power generation units in Qazvin Province, Iran. It has also calculated the benefit of GHG emission reduction using the trading price of the European Union Emission Trading Scheme (EU ETS).
E3G could not find project specific documentation that detailed how exactly these carbon prices were applied for each project. However, it suggests that the carbon price acted as an economic benefit because the price was applied to the difference between the baseline and proposed project. This has the effect of increasing the economic attractiveness of gas power plants. E3G suggests that carbon pricing should be applied to absolute emissions of projects and a zero carbon alternative must be included within the analysis.
E3G recommends that JICA:
- Applies a shadow carbon price across all investments.
- Uses carbon price scenarios that are at the highest end of the range of the High-Level Commission on Carbon Prices as a screen for alignment with limiting warming below 2°C. JICA should also apply a second – higher – carbon price scenario to assess alignment with limiting warming to below 1.5°C.
- Ensure that indirect emissions, even if not directly controlled by the project (Scope 3), are included. Their inclusion can substantially change the assessment of the environmental impact and thus are material to investment decisions.
- Clarify the procedures on how the shadow carbon pricing is applied to decision making. This includes disclosing which discount rates are used for country categories, alongside the rationale and evidence for such rates.