Carbon Pricing in Japan

271 Pages·2021·5.843 MB·English

by  Toshi H. Arimura, Shigeru Matsumoto

Economics, Law, and Institutions in Asia Pacific
Toshi H. Arimura
Shigeru Matsumoto   Editors
Carbon
Pricing in
Japan
123
fi
Economics, Law, and Institutions in Asia Paci c
Series Editor
MakotoYano,ResearchInstituteofEconomy,TradeandIndustry(RIETI),Tokyo,
Japan
The Asia Pacific region is expected to steadily enhance its economic and political
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Editorial Board
Aoki, Reiko (Commissioner, Japan Fair Trade Commission, Japan)
Chun, Youngsub (Professor of Economics, Seoul National University, Korea)
Dixit, Avinash K. (John J. F. Sherrerd ‘52 University Professor of Economics,
Emeritus, Princeton University, USA)
Fujita, Masahisa (Fellow, The Japan Academy, Japan)
Kamihigashi, Takashi (Director and Professor, Center for Computational Social
Science (CCSS), Kobe University, Japan)
Kawai, Masahiro (Project Professor, Graduate School of Public Policy, The
University of Tokyo, Japan)
Lo, Chang-fa (Honourable Justice, The Constitutional Court, Taiwan)
Matsushita, Mitsuo (Professor Emeritus, The University of Tokyo, Japan)
Nishimura, Kazuo (Professor, Research Institute for Economics and Business
Administration (RIEB) and Interfaculty Initiative in the Social Sciences (IISS),
Kobe University, Japan; Fellow, The Japan Academy, Japan)
Yabushita, Shiro (Professor Emeritus, Waseda University, Japan)
Yoshino, Naoyuki (Professor Emeritus of Keio University; Director of Financial
Research Center, Financial Services Agency, Government of Japan)
More information about this series at http://www.springer.com/series/13451
Toshi H. Arimura Shigeru Matsumoto
(cid:129)
Editors
Carbon Pricing in Japan
123
Editors
ToshiH.Arimura ShigeruMatsumoto
Faculty of Political ScienceandEconomics Department ofEconomics
Waseda University Aoyama GakuinUniversity
Shinjuku-ku, Tokyo,Japan Shibuya-ku, Tokyo,Japan
ISSN 2199-8620 ISSN 2199-8639 (electronic)
Economics, Law, andInstitutions inAsia Pacific
ISBN978-981-15-6963-0 ISBN978-981-15-6964-7 (eBook)
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Preface
Carbon pricing (CP), in the form of, for example, an emissions trading scheme
(ETS)oracarbontax,hasreenteredtheglobalspotlightsincetheParisAgreement
enteredintoforce.InJapan,thegovernmenthassetalong-termreductiontargetfor
greenhousegas(GHG)emissions,andconsequently,theimportanceofCPhasbeen
reaffirmed as a tool of effective mitigation measures. However, Japan has failed to
adoptcarbonpricingatalevelthatcansubstantiallyreduceGHGs:Thecarbontax
introduced in 2012 was set at a very low level, and a nationwide emission trading
program has not been introduced. In contrast, two local governments, Tokyo and
Saitama, haveintroduced ETSs. The initiatives of these twolocal governments are
little known to the rest of the world.
The research project underlying this book is “An ex post analysis of carbon
pricingandtheproposalofpolicyoptionstoachievetheJapaneselong-termGHG
emissions reduction target (Principal Investigator: Toshi H. Arimura).” Seven
research groups at six universities/institutes in Japan joined this project under the
Research Institute for Environmental Economics and Management (RIEEM) at
Waseda University. The project was a three-year endeavor from April 2017 to
March 2020 and was supported by the Environmental Research and Technology
Development Fund (2-1707) of the Environmental Restoration and Conservation
Agency.Withoutthisgenerousfinancialsupport,wecouldnothavecompletedthis
book.
ThisresearchprojectconductedanempiricalstudyofJapanesemitigationpolicy
with a focus on CP by examining the impacts on firms and households.
Furthermore, we proposed possible policy options by using a newly constructed
economic model. The project consists of the following two teams: the Empirical
Analysis Team (four subthemes) and the Economic Modeling Team (three sub-
themes) and aims to contribute to Japanese environmental policy and institutional
design for achieving the long-term emission reduction target.
The aim of this book is to evaluate various measures introduced in Japan to
mitigatecarbon emissionsfrom aneconomicperspective.Althoughcountries have
created several such policies in response to pressing climate change issues, the
effectiveness of those programs has not been sufficiently analyzed or compared.
v
vi Preface
In particular, policy evaluations in the Asian region lag far behind those in North
AmericaandEuropeduetodatalimitationsandpoliticalreasons.Weofferaseries
of empirical analyses of Japanese mitigation policies to satisfy research needs.
Moreover,thedomesticpoliciesimplemented inAsiaarelessknowntotherest
oftheworld.Thesecondaimofthisbookistointroducevariousmitigationpolicies
in various Japanese sectors to the world. The book covers mitigation policies
targeting the sectors of manufacturing, electric power, services, households, and
transport.Thisaspectofthebookwillbeusefulforacademicsandpolicymakersin
emerging countries seeking to design carbon mitigation policies in corresponding
sectors.
Finally, we intend to offer policy options for the Japanese economy. Although
theJapanesegovernmentsetalong-termemissionreductiontargetof80%by2050,
ithasnotspecifiedpolicymeasurestoachievethistarget.Weofferacarbonpricing
optionforthelong-termtargetandassesstheeconomicburdenatboththefirmand
household levels.
The book consists of three parts. In the first part of the book, Japanese climate
mitigation policies are summarized by sector, and their progress is assessed.
AlthoughemissionstradingandcarbontaxationhavebeenusedinJapan,thereare
few studies that have assessed their impacts. The second part of the book shows
howthosepolicieshavechangedthebehavioroffirmsandhouseholds.Inaddition,
macroeconomic simulations are offered that account for the potential of renewable
energy. Given these comprehensive assessments, the effectiveness of measures to
prevent climate change is compared between Japan and Western countries. Each
chapter is written independently, and the contents are related across each chapter.
Therefore, readers can start from any chapter following their own interest.
Part I addresses policy issues and reviews Japanese climate policies in various
sectors. Chapter 1 is the introductory chapter for the entire book and provides an
overall assessment of current carbon pricing in Japan. Based on the concept of
effective carbon rates proposed by the OECD, this chapter illustrates that Japan’s
nationwideaverageeffectivecarbonrate islower than theaverage effective carbon
rates of OECD countries and rejects the claim that Japan has already introduced
sufficiently high-carbon prices through energy taxes.
Chapter 2 focuses on the commercial sector, which faces the highest reduction
targets among all sectors. After explaining the carbon policies in the commercial
sector, the chapter summarizes the results of a survey on the implementation of
energy efficiency measures in office buildings. The results show that Tokyo leads
the other regions of Japan in the implementation of energy efficiency measures.
Chapter 3 studies energy consumption in the household sector, where energy
conservation measures are slow to progress. The Japanese government has intro-
ducedvariousenergyconservationmeasurestoreducehouseholdenergyusagefor
the past several decades. The chapter selects several major energy conservation
measures and evaluates their cost effectiveness.
Chapter4addressesthetransportsector,whichfaceshigheffectivecarbonrates
but accounts for a high share of greenhouse gas emissions. Japanese vehicle users
need to pay acquisition, ownership, and gasoline taxes to use their vehicles. In the
Preface vii
first half of the chapter, the authors combine those taxes and estimate the effective
carbonrate.TheJapanesegovernmenthaspromotedelectricvehicles(EVs).Inthe
latter half of the chapter, the authors conduct a cost–benefit analysis of EVs.
Chapter5usesoligopolymodelstoanalyzetwopoliciesthathaveactuallybeen
implemented in Japan. The first policy is to improve the efficiency of fossil fuel
powergeneration,anditisshownthatefficiencyimprovementdoesnotnecessarily
leadtoareductioninCO emissions.Thesecondpolicyisacombinationoffeed-in
2
tariffsandcarbontaxes,andtheanalysisshowsthatsocialwelfarecanbeenhanced
by combining the two policies.
Part II assesses the impact of two local ETSs currently implemented in Japan,
i.e., the Tokyo ETS and Saitama ETS. Chapter 6 illustrates the design of the
Tokyo ETS and evaluates its impact on energy consumption by universities. The
authorscollectthedatafromamailsurveyadministeredtouniversitiesinJapanand
conduct a difference-in-differences analysis before and after the implementation
of the Tokyo ETS. The empirical results demonstrate that the Tokyo ETS has
decreased CO emissions by 3–5%.
2
Chapter 7 investigates whether the Target-Setting Emissions Trading (TSET)
Program (Saitama ETS) in Saitama Prefecture has reduced CO emissions. The
2
author finds that the TSET program was successful in reducing emissions even
though the program includes no penalty for facilities that do not meet emission
goals. The analysis also revealed that the program functioned as an incentive for
facilities that are not covered by the program to lower their energy consumption.
Chapter 8 uses nationwide facility-level data to compare CO reductions in the
2
manufacturing sector between the Tokyo ETS and Saitama ETS. The authors find
that the Tokyo ETS reduced electricity consumption by 16 percent, but the
SaitamaETSdidnotreduceitinastatisticallymeaningfulway.Theauthorsfurther
examine whether manufacturers switched from dirty fuels to clean fuels after ETS
implementation.
PartIIIconductsatop-downmodelanalysistoassessthemacro-levelimpactof
carbon pricing. Chapter 9 develops input–output tables for the analysis of the next
generationenergysystems(IONGES)toanalyzetherippleeffectsofCO emissions
2
from the introduction of renewable energy power plants and to analyze the three
types of carbon tax: upstream, midstream, and downstream. The authors revealed
that the taxation effects of one unit of carbon tax differ depending on the type of
carbontax.Theirempiricalresultsalsohaveimplicationsforchangesinhousehold
energy consumption attitudes according to carbon tax types.
Chapter10conductsacomputablegeneralequilibrium(CGE)analysis,whichis
themostcommonlyusedapproachfortheassessmentoftaximpactsandexamines
how carbon pricing affects the international competitiveness of the Japanese
economy. The CGE simulation shows that the CO reduction planned by the
2
JapanesegovernmentgenerateslargenegativeimpactsontheJapaneseeconomyin
the absence of preventive measures. Border adjustments can only slightly mitigate
the negative macroeconomic impact.
viii Preface
Chapter 11 focuses on the effective carbon rate and estimates the effects of
carbon policies that increase the effective carbon rate to a 30 euro threshold. The
findings indicate that the short-term effect of a carbon tax that raises the effective
carbon rate for all industries above 30 euros will affect not only energy-intensive
industries but also downstream industries that already have high effective carbon
rates. Furthermore, the analysis shows that the carbon tax implemented in 2012
increased the difference between taxed emitters and non-taxed emitters. Thus, tax
exemptions for energy-intensive industries reduce economic efficiency.
Chapter 12 compares the impact of carbon pricing across various households.
The chapter shows that there is significant heterogeneity in the tax burden across
geographical regions and income classes. In particular, low-income households
living in cold regions are expected to be seriously affected by carbon pricing. The
chapter proposes redistribution policies to avoid damaging the living standards of
vulnerable people.
Chapter13addressestheissueofdoubledividends.Toobtainpublicsupportfor
carbon pricing, several countries use revenue from a carbon tax to reduce existing
distortionary taxes. The authors first show that the Japanese long-term emissions
reductiontargetcanbeachievedthroughacarbontaxwithrevenuerecycling.Then,
theauthorsassesstwotypesoftaxrevenuerecycling(RR):reductionsincorporate
taxes and social security payments. Their simulation results demonstrate that RR
can increase public support for a carbon tax.
The knowledge offered by this book is valuable for various readers. First, we
expect it will be useful to academic and non-academic researchers who work on
environmental economics and environmental policy. Another group of target
readersconsistsofgraduatestudentsineconomicsorpublicpolicy.Wealsobelieve
that the contents of this book will help inform government officials and policy
makers who seek cost-effective measures to mitigate carbon emissions in devel-
oping and emerging economies.
We are indebted to a number of colleagues and researchers for insightful
comments and feedback on our research. We are grateful to the formal advisors
of the project: Akira Yokoyama (Chyuo University), Kanemi Ban (Osaka
University), Toru Morotomi (Kyoto University), and Kyoshi Fujikawa (Nagoya
University). Most of the chapters were presented at the annual meetings of the
SocietyforEnvironmentalEconomicsandPolicyStudies,wherewereceiveduseful
comments for the revision. We also hosted three annual symposiums at Waseda
Neo in Tokyo by inviting David Brown (University of Alberta), Yukari Takamura
(University of Tokyo), and Hyungna Oh (Kyung Hee University) as keynote
speakers. All the speakers helped us improve our research. We also appreciate
administrative support from Mriduchhanda Chattopadhyay, Yukie Iwatuska, and
Yuki Mikami.
Many of the chapters have been presented at international workshops and
conferences.WebenefittedfromcommentsfromJianZhou,AlunGu,andBinLiu,
who generously hosted a workshop at Tsinghua University in Beijing. Several
chapters of this book were presented at the annual meeting of East Asian
Association of Environmental and Resource Economics, Beijing 2019. We
Preface ix
appreciate Maosheng Duan (Tsinghua University) for his useful comments in the
thematic session that we organized jointly with Hyungna Oh. Moreover, we were
fortunate to have presented several chapters at workshops at Resources for the
Future in the USA and the University of Manheim/Center for European Economic
Research in Germany. We benefited from comments from Dick Morgenstern,
Karen Palmer, Dallas Burtaw, Alan Krupnick, Joshua Linn, Ulrich Wagner, and
other participants in the workshops.
Withrespectandgratitude,wewanttodedicatethisbooktoProf.KanemiBan,
who supported the project from the outset and attended our first symposium at the
annual meeting of the Society for Environmental Economics and Policy Studies,
Kochi University of Technology. Unfortunately, he passed away in 2018 without
seeing the completion of the project. Without his encouragement and support, we
could not have completed this project or the book.
Tokyo, Japan Toshi H. Arimura
Tokyo, Japan Shigeru Matsumoto