February 4, 2014


Green Gift -- an Innovative Financial Flow

Keywords: Money Newsletter 

JFS Newsletter No.137 (January 2014)

Solar installationImage by CoCreatr. Some Rights Reserved.

In Japan, the number of houses with solar panel installations has been increasing. That much is obvious when we look out the train window or walk along the street. Making the initial investment is now much easier as the price of solar panels is declining due to volume efficiency. The feed-in tariff (FIT) system introduced in the summer of 2012 also plays a part, as it helps investors steadily recoup their initial costs.

Even so, many people find it impossible introduce photovoltaic power systems even though they would like to and their houses have suitable roof configurations. Asking around into the reasons for this, I found that there are two distinctive groups of people who have not introduced these systems even though they would like to.

One group is younger households with lower salaries and the need to spend a lot of money on their children's education. They cannot afford the initial cost of a solar system even though they know they will eventually recoup their investment. Although solar panels have become less expensive than before, initial costs still run from about 1.5 to 2 million yen (about US$ 14,563 to US$ 19,417) to install an average household solar system.

The other group is the elderly, who might have no problem with the initial costs but are likely to be concerned about the length of the payback time. Taking their age into consideration, they may feel that 10 to 15 years is too long a time to recoup their investment.

An innovative financial measure, Green Gift, has come into being to link up these two groups so as to allow them to overcome these respective obstacles to introducing photovoltaic power systems, with the further result of accelerating the introduction of renewable energy sources.

The way it works is, for example, grandparents may wish to give some money to their son to celebrate the birth of a grandchild, but instead of giving cash, they invest in an installation of solar panels on the roof of their son's house.

From that day forward, Japan's renewable energy sources will increase a little. And the son and his family will receive an annual net income, usually over 100,000 yen (about US$ 970.87), from selling surplus electricity. If they had just been given a single large amount of cash, they would most likely feel less grateful over the long run. On the other hand, the solar panels on the roof continuously generate power once they are installed. Every time they see their solar panels, and every time they receive income from electricity sales, it will remind them of their parents' generosity.

Some parents might say, however, "That sounds like a good idea, but our son's family lives in an apartment where solar panels cannot be installed."

In such a case, the grandparents can invest in a renewable power generation project and the profits from electricity sales are paid into the children's or grandchildren's bank account.

Thus, the grandparents' generation can contribute to building renewable energy sources, while also creating assets that can be handed down to their grandchildren that include profits from electricity sales of over a hundred thousand yen annually. This income will amount to a considerable sum by the time the grandchildren reach adulthood, and if this money has been saved for the grandchildren's education, the grandparents can thereby help pay for their grandchildren's college education with the dividends from the renewable energy project.

This Green Gift concept was created by Yusuke Matsuo, a senior policy researcher at the Institute for Global Environmental Strategies (IGES). The main point is that parents can endow their offspring with assets and promote renewable energy at the same time.

IGES estimates the current scale of cash and asset transfers from parents to offspring in Japan at about four trillion yen (about US$ 38.83 billion) per year. In addition, inheritance payments (asset transfers to offspring after their parents' death) are estimated at 27 trillion yen (about US$ 262.14 billion) per year, together accounting for about 30 trillion yen (US$ 291.26 billion) per year.

In an IGES opinion survey concerning asset transfers and spending, about 70 percent of respondents say that they want to transfer their assets (inheritance) to their offspring. Also, when asked about future spending, 33 percent of respondents said they would like to spend money "on their grandchildren," the third highest ranking purpose. In addition, it is also well known that the elderly have relatively high aspirations with respect to making a contribution to society and the environment.

If all or even part of these four trillion-yen or 30 trillion-yen (about US$ 38.83 billion or US$ 291.26 billion) worth of asset transfers could be used to promote renewable energy, it could be a major driving force for its development.

Moreover, the questionnaire survey results show that about 20 percent of the elderly said they would be interested in Green Gifting. However, almost half the respondents replied "I don't know," because they had no image of what Green Gift meant. Once it becomes a trend, more people will want to get involved.

When asked about how much they could give as a Green Gift, the average number quoted was about four million yen (about US$ 38,835). If 20 percent of the 20 million elderly households in Japan each gave four million yen (about US$ 38,835) as a Green Gift, the total investment would be about 16 trillion yen (US$ 155.34 billion).

This enormous investment would theoretically create around 40-50 million KW of renewable energy in the medium term. According to a preliminary calculation, this would reduce Japan's import bill for fossil fuels by about 7.8 trillion yen (about US$ 75.73 billion), reduce CO2 emissions by about 0.5 billion tons, and generate around one million jobs.

This major change could be realized through a system that matches ordinary people's need to transfer assets across the generations.

If this scenario becomes a reality, the money paid for electricity by Japanese people will not flow out of the country to purchase fossil fuels (Japan's energy sufficiency rate is merely four percent; it depends on foreign imports for 96 percent). Instead, this value will be returned to people in Japan, creating a virtuous cycle and a domestic green economy.

For this to happen, it will be essential to exempt asset transfers for renewable energy investments from taxation. This would be a great incentive for elderly people.

The Green Gift (Official name: Tax-exempt measures to promote asset transfer across generations for diffusion of low-carbon facilities) was included in the proposed FY2014 Taxation Reform Request submitted by the Ministry of the Environment (MOE).

Reference: FY2014 Taxation Reform Request by the Ministry of the Environment (excerpt) Tax-exempt measures to promote asset transfer across generations for diffusion of low-carbon facilities (gift tax) [New] (only in Japanese)

This document suggests, "Establish measures to waive the gift tax when grandparents transfer assets to their grandchildren for the purpose of installing low-carbon facilities, including solar power generation systems and high-efficiency hot-water supply systems."

See the body text at: (page.23) (In Japanese)

There is some concern that promoting the Green Gift by making it tax-exempt will result in decreased tax revenue. According to a preliminary calculation, however, an increase in the consumption tax may compensate for this or lead to an overall tax revenue increase. We feel that this measure takes precedence because it will allow us to reduce our dependency on foreign fossil fuels with their continuously soaring prices. From this perspective, such a tax waiver would be a major advance for the Japanese government and the entire society.

Matsuo of IGES has said, "The Green Gift system would be the first of its kind in the world if Japan puts it into practice." The above MOE proposal to establish tax exemption for Green Gifts is currently laid out in a large package of tax revisions that will be discussed by the governing party for implementation in fiscal 2014. We hope for the implementation of this measure at the earliest possible date.

We hope that the Green Gift system will come into being in Japan, creating a major flow of renewable energy investment in the domestic market as well as spreading to other countries as a good example and serving as a driving force to promote renewable energy around the world.

Written by Junko Edahiro