The Japanese Parliament Passed a Bill to Introduce a Carbon Tax / 地球温暖化対策税の導入と効果試算

日本語解説は後述されております/Japanese message follows

The House of Representative of Japan has just passed a bill to introduce a carbon tax, and the Senate is also expected to pass it easily by the end of March with a bipartisan support. The bill will establish a nationwide taxation on fossil fuel based on its carbon content, starting in October 2012.

photo credit: news.com.au

The base rate is at 289 yen per CO2-ton, or about US $3.5 per CO2-ton in 2015. This is relatively small compared to $30 per CO2-ton in British Columbia, Canada, but Japan already has one of the most expensive energy taxes on fossil fuel such as fossil fuel tax, tarrif, electricity tax, and gas tax. Unlike most other developed nations, a sales tax also applies to fuel, whose rate is slated to double to 10%

The major intent of the tax is to mitigate climate change by investing its revenues on various R&D and rebate programs, but higher fuel costs are also expected to give incentives to adopt energy saving technologies and behaviors. The Ministry of the Environment (MOE) estimates that a carbon tax can reduce Japan's CO2 emissions by 1%.

I did an extensive research on a carbon tax at graduate school, and I developed an analysis tool called the C-TAM, which stands for the Carbon Tax Analysis Model. I further refined the C-TAM when I worked for the Washington State Department of Commerce, which examined the feasibility of a state carbon tax in the Washington State Energy Strategy.

I am a strong proponent of a carbon tax as it is the only economy-wide solutions to curb the GHG emissions. I however believe that the MOE underestimates the impacts of a carbon tax on the GHG emissions and thus its overall importance. The MOE's analysis is based on a model called the AIM (Asia-Pacific Integrated Model), which is a type of general-equilibrium model but quite different from its counterparts overseas such as the NEMS (National Energy Modeling System) in the US.

Although the AIM's details are not available for public, its analysis on a carbon tax seems to focus on technology choice, meaning that higher fuel costs would promote the adoption of more energy efficient products. For instance, higher gas price encourages people to purchase more fuel efficient cars, and higher electricity charge results in increased sales of energy efficient air conditioners. As I said earlier, however, a carbon tax does also induce behavioral changes. For instance, it is well-known that higher gas price causes model shift from automobiles to trains and buses, and in the long run, it even affects housing choice and land use.

I believe that the analysis must look at both technological and behavioral effects, and that the C-TAM can be a tool to quantify both effects in theory. C-TAM is based on a price elasticity, which is an economic indicator on how the fuel consumption changes with a given price change. Although some argue that an elasticity is not sufficiently sophisticated to model complex energy dynamics, the World Bank report shows that the results of elasticity-based models are compatible to the general-equilibrium models such as the AIM and NEMS. The C-TAM is fairly complex as an elasticity-based model, and it can account for the impacts on fuel mix for electric generation.

I am using my limited time on weekends to modify the C-TAM, so it may take several months to calculate the results. When I get the results, I will post it on this blog sometime in the spring, and probably draft a report or thesis over the summer. I am hoping such analysis will provide better information on a carbon tax and could play a role in combating climate change.








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