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The Cosmo Oil Group began environmental accounting in fiscal 2000, and the practice is now in its sixth year.
  In order to create an environmental accounting, we reference the Ministry of Environment's "Environmental Accounting Guidelines (Fiscal 2005 Edition)" and "Environmental Conservation Cost Categories Guideline 2003 Edition," and tabulated environmental conservation costs and environmental conservation benefits. In addition, in tabulating the environmental conservation costs, all accounting items in the financial accounts were covered, the same as in the past. The following characteristics must be taken into consideration when considering the environment in relation to the petroleum industry:

1. In order to control the substances with environmental impact generated when products are used (at the time of combustion) by the customer, an enormous cost must be incurred (refer to upstream/downstream costs).

2. Since petroleum products from Middle Eastern crude oil are high in sulfur content, a tremendous amount of investment has been made for many years in terms of environmental conservation (refer to year-end acquisition costs).

In order to make it possible to ascertain these characteristics in value terms, we created "upstream/downstream costs" accounting items in the environmental conservation costs. Furthermore, in order to make it easier to understand the aggregate cost in the past, we also tabulated "year-end acquisition costs."

Period and Scope
Calculation Period:
Fiscal 2006 (from April 1, 2006 to March 31, 2007)

Scope of Calculation:
Four Retineries owned by Cosmo Oil, Yokkaichi Kasumi Power Station, Head Office, branches, R&D center, Cosmo Matsuyama Oil Co., Ltd. and Cosmo Oil Lubricants Co., Ltd. For affiliates, only those costs and benefits which are closely related to our refineries are identified and compiled.

Site-by-site Data:
Site-by-site data are shown for four Retineries of Cosmo Oil, R&D Center, Cosmo Matsuyama Oil Co., Ltd. and Cosmo Oil Lubricants Co.,Ltd. (Yokkaichi Refinery's data includes that of Yokkaichi Kasumi Power Station.)

Company	Site	Remarks
Cosmo Oil Co., Ltd.	Chiba Refinery	Calculated all data at the site
	Yokkaichi Refinery	Calculated all data at the site
	Sakai Refinery	Calculated all data at the site
	Sakaide Refinery	Calculated all data at the site
	Yokkaichi Kasumi PS	Calculated all data at the site
	Head Office Branches	Environment-related donations, environmental report production costs and electricity bills
		Costs of recycled paper, environmental remediation costs
	R&D Center	Only environmental conservation costs and benefits of R&D
Cosmo Matsuyama Oil Co., Ltd.		Costs for environmental impacts of products, etc.
Cosmo Oil Lubricants Co., Ltd.	Chiba Plant	Green purchase costs of lubricant raw materials (other than those are included in the figures of Cosmo Oil Chiba and Yokkaichi refineries)
	Yokkaichi Plant

Changes from the Previous Year
There is no particular change compared with the previous year for environmental accounting.

Methods of Compiling Environmental Costs

Investments/Expenses Difference: Fiscal 2006 - 2005
Investments•••Capital investment for depreciable assets acquired for the purpose of environmental conservation.
Expenses•••Expenses during the period associated with environmental activities (including depreciation)

1. Business Area Costs
Pollution Prevention
•Air pollution prevention costs (Sulfur recovery units, nitrogen oxide control units, etc.)
•Water pollution prevention costs (Wastewater treatment equipment, sour water treatment equipment, etc.)
•Soil contamination prevention costs (Soil contamination investigation costs, etc.)
•Levies under the Law concerning pollution-related health damage compensation and other measures
Global Environment Conservation
•Costs associated with establishment of energy conservation equipment such as cogeneration facilities
Resource Circulation
•Costs associated with waste treatment and recycling

2. Upstream and Downstream Costs

Green Purchasing

•	Costs associated with the financial difference in purchasing environmentally friendly products instead of regular products

Reducing Sulfur Content of Products
•	Costs associated with reducing sulfur content in products to reduce sulfur oxides emitted when products are in use

Replacement of Toxic Substances in Gasoline
•	Costs associated with reduction and refinery of toxic substances in gasoline such as benzene and lead

Reduction of Aromatic Substances of Petrochemical Products
•	Costs associated with removal of aromatics and olefins from raw materials used in petrochemical products

3. Administration Costs
Costs associated with environmental education for employee, management and maintenance of the environmental management system, plant maintenance and afforestation of offices and monitoring and assessment of environmental impacts

4. Research and Development Costs
Costs associated with environment R&D activities

5. Social Activity Costs
Costs associated with non-business activities, such as afforestation

6. Environmental Remediation Costs
Costs associated with soil decontamination at service stations

Methods of Compiling Environmental Benefits

Reduction: Amount of fiscal 2005 - Amount of fiscal 2006

1. Benefits Corresponding to Business Area Costs
Concentration/Unit Values
•Environmental impact per crude oil equivalent throughput
Environmental Impact
•Environmental impact originated from business areas

Note: Yokkaichi Kasumi Power Station and Cosmo Matsuyama Oil Co., Ltd. are excluded from the concentration/unit values calculation, as crude-based processing volume estimation is impossible with these facilities where crude process is not carried out.

2. Benefits Related to Upstream and Downstream Costs
Benefits of reducing environmental impacts of products

Concentration/Unit Values

•	Reducing sulfur content of products: sulfur content in products
•	Replacement of toxic substances in gasoline (low-benzene gasoline): benzene concentration in gasoline
•	CO2 emissions from product use: value obtained by dividing the environmental impact (see below) by the output of petroleum products

Environmental Impact
•	Potential environmental impact: Potential environmental impact expected to occur from product use
•	Reducing sulfur content of products: amount of potential SOx emissions obtained by multiplying the average sulfur content of products by production volume
•	Replacement of toxic substances in gasoline (low-benzene gasoline): value obtained by multiplying average benzene concentration of gasoline by production volume
•	Reduction of aromatics in petrochemical products: volume of aromatics in petrochemical products eliminated in business areas
•	CO2 emissions from products use:value obtained by multiplying per unit CO2 emissions of each product by production volume

We do not take into account the desulfurization of flue gas at our customers' sites: therefore the actual SOx emissions are lower than the potential SOx emissions.

As we select the optimum production method based on the relationship between cost and environmental conservation, the sulfur content value in each product is lower than the JIS specification.

Naphtha is used as petrochemical raw material and fertilizer raw material and does not emit SOx or CO2; however it is included in the value.

In relation to CO2 emissions, we calculate the data by the method recommended by "Guidelines for accounting for greenhouse gas emissions from the industry" issued from Ministry of Environment and Ministry of Economy, Trade and Industry.

We revised the amount of recycled industrial waste for fiscal 2005 from 14,532 tons to 19,231 tons since we reviewed the method to calculate the amount of industrial waste recycled at Yokkaichi Refinery and Yokkaichi Kasumi Power Station.

We revised the amount of CO2 emissions for fiscal 2005 from 77,015 to 76,971 thousand t-CO2 due to changes in the CO2 emissions calculation method guideline.

We calculated the difference of reduction benefits of environmental impacts between fiscal 2005 and 2006 without rounding off the raw data. So as a total, the last figure may differ by one. The same method is applied for the site data.

Methods of Compiling Economic Benefits

Energy Conservation (cogeneration)
Conservation by cogeneration = Conservation by steam generation + conservation in electricity - fuel costs (LPG, heavy fuel oil, etc.)

Catalyst Recycling
Purchase cost of new catalysts saved by recycled catalysts in oil refining, plus disposal costs of waste catalysts

Gypsum Sales
Sales proceeds of gypsum, a by-product of fuel-gas desulfurization at Yokkaichi Kasumi Power Station

Ammonia Recycling
Purchase price of ammonia saved by recycled ammonia at Yokkaichi Kasumi Power Station, plus disposal costs of waste alkali

R&D (royalties)
Income received for royalties, and cost conservations realized through R&D activities

Electricity Expenses (Head Office)
Year-on-year difference in electricity expenses at the Head Office between fiscal 2005 - 2006

Environmental Conservation Costs
The calculation results in fiscal 2006 indicated an investment of 7.4 billion yen, an increase of 4.8 billion yen compared with the previous year, duc to the construction of FCC gasoline desulfurization units for producing sulfur-free gasoline at the Sakaide Refinery.Furthermore, expenditure reached 82.8 billion yen, an increase of 14.7 billion yen compared with the previous year, chiefly due to a drastic increase in the price of fuels consumed in our refineries in proportion to a sharp rise of the cost of crude oil.
The year-end acquisition cost was 174.3 billion yen increased by 6.3 billion yen compared with the previous year.

Environmental Conservation Benefits
As for environmental conservation benefits in business areas, the environmental impact per crude oil equivalent throughput was reduced compared with the previous year. The main reason is that the amount of crude processed decreased due to the accident at the Chiba Refinery.

Item	Environmental Conservation Costs
	Investment		Expense
	Fiscal 2006	Change	Fiscal 2006	Change
1. Business area costs
Pollution prevention	295	83	6,231	658
Global environment conservation	136	119	12,604	2,493
Resource circulation	1	1	829	186
2. Upstream and downstream costs
Green purchasing	0	0	169	49
Reducing environmental impact of products	6,707	4,507	60,233	10,782
Reducing sulfur content of products	(6,441)	(4,912)	(45,421)	(8,295)
Replacement of toxic substances in gasoline	(235)	(-436)	(14,666)	(2,476)
Reduction of aromatics in petrochemical products	(30)	(30)	(145)	(11)
3. Administration costs	83	69	377	14
4. Research and development costs	158	58	1,571	370
5. Social activity costs	0	0	1	0
6. Environmental remediation costs	0	0	816	166
Total	7,380	4,838	82,831	14,717

Note: Change compared with previous year (fiscal 2006 - 2005)

Item	Fiscal 2006	Change
Purchase cost of recycled paper (whole amount booked)	9	5
Environment related donations	43	2
Sustainability report production cost	47	14

Note: Change compared with previous year (fiscal 2006 - 2005)

Environmental Conservation Benefits

Item		Environmental Conservation Benefits
		Concentration/unit value		Environmental impacts
		Reduction	Fiscal 2006	Reduction	Fiscal 2006
1. Benefits corresponding to worksite costs
Resources input into business activities
Energy input		-0.19 (kl-crude/1,000kl)	9.15 (kl-crude/1,000kl)	4,505 (TJ)	70,913 (TJ)
Water input		-8 (kg/kl)	186 (kg/kl)	590 (1,000t)	42,214 (1,000t)
Benefits related to environmental impacts and wastes generated by business activities
Emission to air	CO2	-0.68 (kg-CO2/kl)	23.91 (kg-CO2/kl)	239 (1,000t-CO2)	4,847 (1,000t-CO2)
	SOx	0.6 (g/kl)	20.9 (g/kl)	438 (t)	5,105 (t)
	NOx	0.2 (g/kl)	13.8 (g/kl)	253 (t)	2,901 (t)
	Benzene	0.0 (g/kl)	0.03 (g/kl)	-1.74 (t)	12.11 (t)
Discharge to water	COD	0.04 (g/kl)	0.60 (g/kl)	18.2 (t)	119.9 (t)
Industrial waste	Generated	-51 (g/kl)	259 (g/kl)	-8,670 (t)	55,304 (t)
	Recycled	-23 (g/kl)	100 (g/kl)	-5,511 (t)	24,742 (t)
	Landfill	0 (g/kl)	2 (g/kl)	-43 (t)	422 (t)
2. Benefits related to upstream and downstream costs
Benefits of reducing environmental impact of products
Reducing sulfur content of products		(sulfur: mass %)	(sulfur: mass %)	(potential SOx emissions: t)	(potential SOx emissions: t)
High octane gasoline		0.0000	0.0004	1	6
Regular gasoline		-0.0001	0.0005	0	35
Naphtha		-0.0034	0.0317	-78	1,035
Jet fuel oil		-0.0006	0.0147	-101	530
Kerosene		0.0000	0.0005	8	22
Diesel fuel oil		0.0001	0.0006	4	58
Heavy fuel oil A		-0.0204	0.4253	2,932	23,411
Heavy fuel oil C		-0.2941	1.8806	5,138	127,291
LPG		0.0001	0.0005	1	6
Total		-0.0202	0.3554	7,905	152,393
Reducing benzene in gasoline		0.0054 (vol %)	0.4927 (vol %)	3,124 (t)	27,371 (t)
Reduction of aromatics in petrochemical products				-1,239 (kl)	8,558 (kl)
Reduction of CO2 emission from product use		0.0095 (t-CO2/kl)	2.5131 (t-CO2/kl)	-8,718 (1,000t-CO2)	68,253 (1,000t-CO2)

Detail of Benefits	Amount
Energy Conservation (cogeneration)	400
Catalyst recycling (disposal cost savings, etc.)	3
Gypsum sales	105
Ammonia recycling	140
R&D (royalties)	1
Electricity conservation (Head Office)	1
Total	650

We have engaged in integration of environmental impacts and environmental productivity since fiscal 2001 to enrich the content of environmental accounting. The Environmental Impact Points (EIP: index value by JEPIX) for the impacts arising from business areas was 8,920 million EIP, decreased of 760 million EIP compared with the previous year, owing to a decrease in the amount of crude process due to the accident at the Chiba Refinery.
  Environmental productivity calculates the production volume per unit of integrated environmental impacts, and the larger this volume, the more was produced with less environmental impacts.

Environmental load amounts have been revised and figures of the Yokkaichi Kasumi Power Station (IPP) from the Yokkaichi Refinery have been excluded. As a result, the environmental load amount for fiscal 2005 was adjusted from 9,795 million EIP to 9,680 million EIP.

JEPIX	Weighted Environmental Impact
	Fiscal 2006	Reduction (versus with the previous year)
Business area
Greenhouse gases	4,505	270
Ozone depleting substances	2	-1
Toxic air pollutants	453	67
Optical oxidants	622	76
NOx	1,789	190
SPM10	476	-50
COD to rivers	0	0
COD to sea areas	374	65
Nitrogen	573	131
Phosphorous	103	16
Landfill waste	23	-3
Total for the business areas	8,920	760

JEPIX	Production Volume per Integrated Environmental Impacts
	Fiscal 2006	Improvement (versus with the previous year)
Total for the business areas	0.02144	0.00011