Environmental and Resource Economics

, Volume 37, Issue 2, pp 377–410 | Cite as

Climate Change Taxes and Energy Efficiency in Japan

  • Satoru Kasahara
  • Sergey Paltsev
  • John Reilly
  • Henry Jacoby
  • A. Denny Ellerman


In 2003 Japan proposed a Climate Change Tax to reduce its CO2 emissions to the level required by the Kyoto Protocol. If implemented, the tax would be levied on fossil fuel use and the revenue distributed to encourage the purchase of energy efficient equipment. Analysis using the MIT Emissions Prediction and Policy Analysis (EPPA) model shows that this policy is unlikely to bring Japan into compliance with its Kyoto target unless the subsidy encourages improvement in energy intensity well beyond Japan’s recent historical experience. Similar demand-management programs in the US, where there has been extensive experience, have not been nearly as effective as they would need to be to achieve energy efficiency goals of the proposal. The Tax proposal also calls for limits on international emission trading. We find that this limit substantially affects costs of compliance. The welfare loss with full emissions trading is 1/6 that when Japan meets its target though domestic actions only, the carbon price is lower, and there is a smaller loss of energy-intensive exports. Japan can achieve substantial savings from emissions trading even under cases where, for example, the full amount of the Russian allowance is not available in international markets.


climate change policy emission trading energy efficiency subsidy 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. AIM Project Team (2003), Tentative Calculation of Climate Change Tax Rate and its Economic Impact, Central Environmental Council, General Policy and Climate Change Division, Climate Change Tax Expert Committee, Appendix 2 in its 12th committee. (in Japanese) (–12/mat02.pdf)Google Scholar
  2. Azar C., Dowlatabadi H. (1999) A Review of Technical Change in Assessment of Climate Policy. Annual Review of Energy and the Environment 24:513–544CrossRefGoogle Scholar
  3. Babiker M., Reilly J., Ellerman D. (2000) Japanese Nuclear Power and the Kyoto Agreement. Journal of Japanese and International Economies 14:169–188CrossRefGoogle Scholar
  4. Babiker M., Metcalf G., Reilly J. (2003) Tax Distortions and Global Climate Policy. Journal of Environmental Economics and Management 46:269–287CrossRefGoogle Scholar
  5. Bernard, A., S. Paltsev, J. Reilly, M. Vielle and L. Viguier (2003), Russia’s Role in the Kyoto Protocol. MIT Joint Program on the Science and Policy of Global Change Report No. 98Google Scholar
  6. Boeringer C. (1998) The Synthesis of Bottom-up and Top-down in Energy Policy Modeling. Energy Economics 20:233–248CrossRefGoogle Scholar
  7. Burniaux, J.-M. and J. Martins (2000), Carbon Emission Leakages: A General Equilibrium View. Organization for Cooperation and Development (OECD), Economics Department, Working Paper No. 242Google Scholar
  8. Edmonds J., Reilly J. (1985) Global Energy: Assessing the Future. Oxford University Press, New YorkGoogle Scholar
  9. Felder S., Rutherford T. (1993) Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Basic Materials. Journal of Environmental Economics and Management 25:162–176CrossRefGoogle Scholar
  10. Government of Japan (2002), Guideline for Measures to Prevent Global Warming, Global Warming Prevention Headquarters. (
  11. Hertel T. (1997) Global Trade Analysis: Modeling and Applications. Cambridge University Press, Cambridge, UKGoogle Scholar
  12. IEA (2000), Energy Balances of OECD Countries, 1997–1998Google Scholar
  13. Institute of Energy Economics, Japan (2004), EDMC Handbook of Energy and Economic Statistics in Japan. Tokyo: Institute of Energy Economics, JapanGoogle Scholar
  14. Jacoby H., Eckaus R., Ellermann A. D., Prinn R., Reiner D., Yang Z. (1997) CO2 Emissions Limits: Economic Adjustments and the Distribution of Burdens. The Energy Journal 18:31–58Google Scholar
  15. Jacoby, H. and I. Sue Wing (1999), ‘Adjustment Time, Capital Malleability, and Policy Cost’, The Energy Journal, Special Issue, The Costs of the Kyoto Protocol: A Multi-Model Evaluation, 73–92Google Scholar
  16. Jacoby, H., J. Reilly, J. McFarland and S. Paltsev (2006), ‘Technology and Technical Change in the MIT EPPA Model’, Energy Economics 28(5–6), 610–631Google Scholar
  17. Kainuma M., Matsuoka Y., Morita T. (2000) The AIM/end-use Model and its Application to Forecast Japanese Carbon Dioxide Emissions. European Journal of Operational Research 122:416–425CrossRefGoogle Scholar
  18. Kemfert C., Lise W., Tol R. S. J. (2004) Games of Climate Change with International Trade. Environmental and Resource Economics 28:209–232CrossRefGoogle Scholar
  19. Liski M., Virrankoski J. (2004) Frictions in Project-based Supply of Permits. Environmental and Resource Economics 28:347–365CrossRefGoogle Scholar
  20. Loughran D., Kulich J. (2004) Demand-Side Management and Energy Efficiency in the United States. The Energy Journal 25(1):19–43Google Scholar
  21. Masui T., Matsuoka Y., Kainuma M. (2006) Long-term CO2 emission reduction scenarios in Japan. Environmental Economics and Policy Studies 7:347–366Google Scholar
  22. Matschoss P., Welsch H. (2006) International Emissions Trading and Induced Carbon-Saving Technological Change: Effects of Restricting the Trade in Carbon Rights. Environmental and Resource Economics 33:169–198CrossRefGoogle Scholar
  23. Ministry of Agriculture, Forestry, and Fisheries (MAFF) (2004), The Measures for Forest Sink in the Efforts to Address the Global Warming. (in Japanese) (http://www.–11gatu/1129rinseisin.htm)Google Scholar
  24. Ministry of Economy, Trade and Industry (METI) (2004), Interim Report toward Future Climate Change Policy. (in Japanese) ( Scholar
  25. Ministry of Environment of Japan (MOE) (2002), The Greenhouse Gas Emissions in 2002. ( Scholar
  26. Ministry of Environment (MOE) (2003), Draft of Climate Change Tax Proposal for a national dialog REPORT. ( Scholar
  27. Ministry of Environment (MOE) (2004a), Assessment and Review of the Climate Change Policy Program Interim Report. ( Scholar
  28. Ministry of Environment (MOE) (2004b), A Concrete Plan for the Environmental Tax Report of Discussions on International Climate Change Strategy. (in Japanese) ( Scholar
  29. Ministry of Land, Infrastructure, and Transport (MLIT) (2004), The Interim Report of the Environmental Division of the Transportation Policy Committee. (in Japanese) ( Scholar
  30. Moe, A., K. Tangen, J. Stern, M. Grubb, U. Berdin, T. Sugiyama and A. Korppo (2001), A Green Investment Scheme, Climate Strategy. ( Scholar
  31. Nippon Keidanren (2004a), Results of the Fiscal 2004 Follow-up to the Keidanren Voluntary Action Plan on the Environment. ( Scholar
  32. Nippon Keidanren (2004b), The Political and Economic Situation in Japan. ( Scholar
  33. Paltsev, S. (2000), The Kyoto Protocol: “Hot Air” for Russia?, Discussion Papers in Economics, University of Colorado, Working Paper 00-09Google Scholar
  34. Paltsev S. (2001) The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage. The Energy Journal 22(4):53–79Google Scholar
  35. Paltsev, S., J. Reilly, H. Jacoby, A. D. Ellerman and K. H. Tay (2003), Emissions Trading to Reduce Greenhouse Gas Emissions in the United States: The McCain-Lieberman Proposal. MIT Joint Program on the Science and Policy of Global Change Report No. 97Google Scholar
  36. Paltsev, S., J. Reilly, H. Jacoby and K.H. Tay (2004), The Cost of Kyoto Protocol Targets: The Case of Japan. MIT Joint Program on the Science and Policy of Global Change Report No. 112Google Scholar
  37. Paltsev, S., J. Reilly, H. Jacoby, R. Eckaus, J. McFarland, M. Sarofim, M. Asadoorian and M. Babiker (2005), The MIT Emissions Prediction and Policy Analysis (EPPA) Model: Version 4. MIT Joint Program on the Science and Policy of Global Change Report No. 125Google Scholar
  38. Reilly J., Prinn R., Harnisch J., Fitzmaurice J., Jacoby H., Kicklighter D., Melillo J., Stone P., Sokolov A., Wang C. (1999) Multi-Gas Assessment of the Kyoto Protocol. Nature 401:549–555CrossRefGoogle Scholar
  39. Sue Wing, I. (2006), ‘The Synthesis of Bottom-up and Top-down Approaches to Climate Policy Modeling: Electric Power Technology Detail in a Social Accounting Framework’, Energy Economics, forthcomingGoogle Scholar
  40. Takedo, S. (2006), ‘The Double Dividend from Carbon Regulations in Japan’, Journal of the Japanese and International Economies, forthcomingGoogle Scholar
  41. UNFCCC (2001), The Marrakesh Accords and the Marrakesh Declaration, from
  42. Victor, D. G., N. Nakicenovic and N. Victor (1998), The Kyoto Protocol Carbon Bubble: Implications for Russia, Ukraine and Emission Trading. IIASA Interim Report IR-98-094Google Scholar
  43. Weyant, J. and J. Hill (1999), ‘Introduction and Overview, The Costs of the Kyoto Protocol: A Multi-Model Evaluation’, The Energy Journal, Special Issue, vii–xlivGoogle Scholar
  44. World Bank (2004), Options for Designing A Green Investment Scheme for Bulgaria. Energy and Infrastructure Department, Europe and Central Asia Region, and Carbon Finance Unit (

Copyright information

© Springer Science+Business Media, Inc. 2006

Authors and Affiliations

  • Satoru Kasahara
    • 1
    • 2
  • Sergey Paltsev
    • 1
  • John Reilly
    • 1
  • Henry Jacoby
    • 1
  • A. Denny Ellerman
    • 1
  1. 1.Joint Program on the Science and Policy of Global ChangeMassachusetts Institute of TechnologyCambridgeUSA
  2. 2.Climate Change Group, Electric Power Development Co., Ltd. (J-Power)TokyoJapan

Personalised recommendations