Climate Change Group Coping with the Global Warming

The 5th Keio-Tsinghua Students’ Environmental Sympos ium

Coping with the Global Warming ~ Focusing on Domestic Measures of Japan~

Keio Univ. Faculty of Economics Yamaguchi Seminar Climate Change Group Satoko Ido Yukiko Takeuchi Yoko Miyazaki Saori Yonei

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Climate Change Group Coping with the Global Warming

Structure Introduction Ⅰ. Why additional Measures are Necessary 1. The Situation Surrounding Japan 2. Current Domestic Measures in Japan 3. Our Stance in This Paper Ⅱ. The Characteristics of Measures for Global Warming 1. Command and Control (Direst Regulation) 2. Voluntary efforts 3. Carbon Taxes 4. Emissions Trading Ⅲ. Proposal of a Policy Package 1. Overview 2. Extended Voluntary Action Plan Emission Trading 3. Additional Energy Tax (Carbon Tax) In Conclusion ANNEXⅠ Outline of “Global Warming Prevention Action Plan” ANNEXⅡ Baumol/Oats Tax ANNEXⅢ UK Emissions Trading ANNEXⅣ Energy-Saving Law

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Climate Change Group Coping with the Global Warming

Introduction Global warming is a serious problem on a globally scale. According to current science data1, most of the global warming observed over the last 50 years is attributable to human activities, and the globally averaged surface temperature is projected to increased up to 5.8℃ over the period 1990 to 2100.

Global mean sea level is projected

to increased up to 88cm, unusual weather; heavy rain and drought etc is projected to increased.

Actual trend toward global warming has already effected on fragile

ecosystems.

It is also predicted to cause destructions of ecosystems and widespread of

epidemic and so on in the future. There is some doubt whether Japan has made enough efforts to solve global warming.

Therefore, we decided to examine Japan’s domestic measures for global

warming. After this examination, we came to conclude that existing Japan's policy framework isn’t enough to perform its social responsibility. This paper is divided into three chapters. In chapterⅠ, we will describe the situation surrounding Japan and the current domestic measures in Japan. will explain the reason why additional measures are necessary.

Then, we

In chapterⅡ, we will

outline basic policies and measures for global warming. Then, we clarify the points that Japanese government needs to pay attention to when these policies and measures are introduced.

In chapter Ⅲ, we will propose a policy package of emissions trading

for industry sector and carbon tax for residential & commercial and transportation sectors.

1

IPCC (2001)

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Climate Change Group Coping with the Global Warming

Ⅰ. Why Additional Measures are Necessary In this chapter, we will describe the situation surrounding Japan and current domestic measures in Japan.

Then we will express our stance in this paper.

1. The Situation Surrounding Japan Global warming has been observed since late 1980s.

Triggered by the IPCC

First Assessment Report, announced in 1990, United Nations Framework Convention on Climate Change (UNFCCC) was adopted in 1992, and it came into force in 1994. is the first international action for global warming.

It

The ultimate objective of the

convention is “stabilization of greenhouse gas concentrations in the atmosphere at a level that would not prevent dangerous anthropogenic interference with the climate system”, but there is no provision to clarify what level should be achieved.

There is a

stipulate that the Parties should propose and carry it out to prevent global warming. So, there was need to take more concrete commitment to set specific targets. Therefore, as the concrete commitment to reduce GHGs certainly, Kyoto Protocol was adopted in 1997.

This protocol set quantitative reduction or limitation

targets for the countries included in ANNEX1 for the first commitment period (2008-2012).

Each developed countries has differentiated target, and all of these

targets will ensure the reduction of GHGs from developed countries at least by 5% from 1990 levels (See Table 1). Japan has ratified Kyoto Protocol in June 2002. reduction to 1990 level if the protocol comes into

So, Japan will be required 6%

force2.

Kyoto Protocol comes into force when not less than 55 Parties to the Convention, incorporating Parties included in ANNEXⅠ which accounted in total for at least 55% of the total CO2 emissions for 1990 of the Parties included in ANNEXⅠ,have ratified. 54 countries, which include EU, Japan and Norway have ratified by October 2002, and emissions of these countries account in 37.4% of the total CO2 emissions for 1990 of the Parties included in ANNEXⅠ. It is 17.6% deficiency to the condition. So, Kyoto Protocol will come into force if Russia, whose emissions account in 17.4%, ratifies it. 2

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Climate Change Group Coping with the Global Warming

Table 1.

Reduction or Limitation Targets for some countries Target

Country

10％ Iceland 8％ Australia 1％ Norway 0％ New Zealand, Russia -6％ Japan, Canada -7％ US -8％ EU Source) Kyoto Protocol to the United Nations Framework Convention on Climate Change

2. Current Domestic Measures in Japan 1) Publication and Review of “Global Warming Prevention Action Plan” The total emission of GHGs at the 1990 level in Japan is 1,229 Mt-CO2. Japan has to reduce it by 6% to achieve the target of Kyoto protocol. It means that Japan has to reduce the emissions to 1,550 Mt-CO2.

To achieve this target, Japanese

government made Global Warming Prevention Action Plan in June 1998.

This plan

includes many measures against global warming, and it has been a basic framework of global warming prevention in Japan. However, the total emission of GHGs is still increasing.

It emerged that the

total emissions of GHGs in 2010 will be 1,320 Mt-CO2 that correspond to 7% increase from 1990 level. March 2002.

Therefore, Global Warming Prevention Action Plan was reviewed in

In this paper, we will examine domestic measures that are based on this

new action plan. 2) Outline of Global Warming Prevention Action Plan The purpose of Global Warming Prevention Action Plan is to clarify the measures as a whole, and it contains more than 200 measures.

And most of them are

Command and Control and Voluntary Effort measures. Table2 is the breakdown of 6% reduction (see Table2).

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Climate Change Group Coping with the Global Warming

Table 2.

Breakdown of 6% Reduction Items

Targets

Reduction by domestic measures

−2.5%

Energy origin CO2

±0.0%

CH4, N2O, non-energy origin CO2

−0.5%

Revolutionary technology improvement

−2.0%

Increasing other gases (HFC, PFC, SF6)

＋2.0%

Removals by sink

−3.9%

Utilizing Kyoto Mechanism

−1.6% −6.0%

source）“Global Warming Prevention Action Plan” March,2002

This Action Plan has four fundamental principles, mutual supportiveness of economy and environment, step-by-step approach, shared responsibility among all actors and international cooperation. The purpose of "Mutual supportiveness of Economy and Environment" is creating a system to stimulate Japanese economy by performing these measures against global warming, and it will lead to create many jobs that are related to these measures.

If Japan cannot achieve the target, this description will have an political

meaning. " Step-by-step approach " means that the period from 2002 to 2012 is divided into three steps, and each step will be evaluated and followed up.

The first step is the

period from 2002 to 2004, the second step is the period from 2005 to 2007 and the third step is the period from 2008 to 2012. introduced until 2004.

It implies that new measures will not be

After the result of first step will be evaluated, it will be

examined whether Environmental Taxes and Emission Trading should be introduced or not. "Shared Responsibility among all actors" means that central government, local governments, firms and people should cope with global warming problem together. The present situation is that each council has each basic standard because these council do not deliberate together, should be improved. Finally, "International Cooperation" means that all countries including United States and developing countries have to make efforts to reduce GHGs because this problem may have effect on all over the world. 3) Problems with Global Warming Prevention Action Plan

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Climate Change Group Coping with the Global Warming

Environmental NGO and some scholars criticize Global Warming Prevention Action Plan for lack of enforcement.

There are only a few numbers of measures that

set quantitative reduction targets. For example, this action plan contains the measure such as, “reducing the use of shower by one minute a day”. Kiko Network, one of the environmental NGOs in Japan, pointed it out in detail.

They classified the measures of this action plan into four groups (see Table3).

"The amount of targets that is ensured by law” includes emissions trading and environmental taxes and legislative restrictions that set quantitative reduction targets of GHG emissions.

Only 17% measures have ensured targets.

The achievement of

40% measures is not ensured quantitatively and they depend on enlightenment or technology.

This point is the most important characteristic and problem in this action

plan. Table 3.

Breakdown of the Measures

Achievement of quantitative targets is ensured

17%

Quantitative targets and promotion measures exist

42%

Administrative objective

(12%)

Voluntary action plan

(29%)

Measures for promotion exist

20%

Others (enlightenment etc.)

21% Total

100% Source) Kiko network (Environmental NGO)

.

3. Our Stance in This Paper We think that additional measures were necessary for Japan to achieve the target, so we will examine the possibility of an effective policy package, including utilization of economic measures. We follow the breakdown of 6 % reduction in New Global Warming Prevention Action Plan, on the assumption that 0.5% reduction from 1990 level is needed by domestic measures. There may be controversy whether the restriction of utilizing Kyoto Mechanism is proper or not.

EU insist that they can achieve their target by using

measures that cost them less than 20 euro (2,500yen)/t-CO23.

On the other hand,

Japan has to take measures that cost us 2,700~14,000yen/t-CO2 on the assumption that

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European Commission (2001)

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Climate Change Group Coping with the Global Warming

7 nuclear power plants will be build4.

The Netherlands declares that their reduction

amount of GHGs by Kyoto Mechanism will be 50% of all measures for global warming. Japan has to reduce emission by 13% less than BAU level.

Japanese Government

declares that they will use Kyoto Mechanism to reduce 1.6% emission that corresponds to 12% of all measures. mechanism much more.

For these reasons, it is said that Japan should use Kyoto However, in this paper, we would like to examine domestic

measures on assumption that the use of Kyoto Mechanism restricts to 1.6% in Japan.

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Ministry of environment, Central Environmental Council (2001)

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Climate Change Group Coping with the Global Warming

Ⅱ.The Characteristics of Measures for Global Warming There are four types of domestic measures for global warming, Command and Control (Direct Regulation), Voluntary Efforts, Carbon Tax and Emission Trading.

In this

chapter, we will think about merits, demerits5 and important points of these measures when proposing our policy package.

1. Command and Control (Direct Regulation) 1) What is Command and Control? Command and Control is a measure that central government and local governments set environmental standards and emission standards.

For example,

governments regulate total emission from factories to achieve the environmental standards.

This is the measure of a direct regulation that is compared with economic

measures like Carbon Tax and Emission Trading (see below for details).

2) The Merit and Demerits of Command and Control ①Merit The merit of Command and Control is that it has a direct effect on the environmental performance of polluters if the standards are enforced.

Japan was

successful at reducing industrial pollution from 1960 to 1970 by using this approach. Japanese industry and firms can keep the regulation well, so it seems to be effective for Japan to adopt direct regulations as one of the domestic measures.

②Demerits On the other hand, there are also several demerits of this approach. industry and firms are deprived of their autonomy.

First,

It is clear that firms have only

limited choices in comparison with economic measures.

Second, this approach is

sometimes not suitable for global environmental issues. Though it is important for global warming prevention to change individual life styles, they cannot be regulated, either. Trading.

Third, Command and Control is less efficient than Carbon Tax and Emission When trying to achieve emission amount target, governments need to

regulate firms as the marginal abatement cost of every firm is equal. impossible for governments to calculate marginal costs of all firms. regulation is less efficient than Tax and Emission Trading.

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Concluding the comparison with other measures

9

However, it is

This is why direct

Climate Change Group Coping with the Global Warming

3) The Points of Concern There are various ways in Command and Control approach such as regulation on emission amount, technology and efficiency. Regulation on emission amount is, for instance, the way of k-value regulation. that emit soot and smoke.

It regulates the amount of SO2 from facilities

Regulation on technology means that people and firms have

to use the best technology that they can get such as BAT (Best Available Technology) in the United States.

Regulations on efficiency are included in Global Warming

Prevention Action Plan, for example the Leading Runner Standard. efficiency is suitable for global warming prevention.

Central Environment Council at

Ministry of the Environment also examines this measure. regulation on efficiency. that emit GHGs.

There are two types of

First type is the regulation on efficiency for people and firms

It is effective to regulate firms that emit on a large scale considering

the cost of setting standards and monitoring the farms. depends on how to set the standards. products.

A regulation on

On this occasion, the equity

Second type is a regulation on efficiency for

It is effective to regulate the products that are produced in large quantities

by the small number of companies such as car, electric household appliances. In this case, setting different standards for each product is key to ensure the equity. It is difficult to achieve the target of total emission by utilizing regulation on efficiency. However, if the standards are enforced, the measure of regulation has a direct effect. Therefore it is necessary for governments to utilize this measure with other measures such as tax to achieve the target.

2. Voluntary Effort １）What is Voluntary Effort? The voluntary efforts are measures that organizations voluntarily commit to reduce GHGs emissions.

The reduction plans are usually called voluntary action plans.

Each entity, which participates in voluntary action plan, can select cost-effective methods and act flexibly and promptly against change of a situation.

So, the total

energy saving amount by these plans is expected to be 1/3 of total energy saving amount by Global Warming Prevention Action Plan.

It can be said that these efforts will play a

very important role to achieve target. The entities are needed to announce their plan to the society and to monitor it by themselves.

The entity must be large scale since it costs immense expenses to

monitor the plan. In industry sector, Keidanren (Japan Federation of Economic Organizations) Voluntary Action Plan on the Environment is main framework for global

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Climate Change Group Coping with the Global Warming

warming.

We will describe an outline of this action plan in the next section.

2 ) Keidanren Voluntary Action Plan Keidanren Voluntary Action Plan on Environment is started in June 1997. Common goal of this plan is to reduce total CO2 emission in 2010 to below the level of 1990 and follow up its progress.43 industries participate in this plan to reduce emission and 34 industries of them also participate in follow up. examined this plan in terms of four points.

The ministry of Environment

First one is the question of whether the

reduction target of this plan is enough or not. Second one is how many entities participate in this plan.

Third one is to confirm whether each industry can fulfill their

target or not. Final point is to check the structure of this system to achieve the target. ①Targets There are two targets. One is common goal（±0% compared with 1990）and another is individual targets.

Whether the targets will be achieved as sector depends

on reductions by individual enterprises. different from each industry.

However, the type of individual target is

There are CO2 emissions target, CO2 emissions per unit

target, and energy consumption target, and energy consumption per unit target. Moreover it is difficult to evaluate whether the target is adequate or not because the way of calculating amount and process of making this plan are not announced. According to the follow-up of industry and energy-converting sectors in November 2000, sum of reduction rate is different from the target rate of common goal. This plan set the target for industry sector in 2010 to reduce 7% below the 1990 level.

There is a difference between common goal of new action plan and targets by

Keidanren because Keidanren Voluntary Action Plan started 6 months earlier than New Global Warming Action Plan.

We think that this situation must be improved to

unify these targets.

② Participation in the plan 34 industries participate in follow-up.

They emit 76.5% of total emissions

from industry and energy-converting sector. However, the problem is that most of small-medium enterprises do not participate.

Moreover, incentive measures or

disincentive measures, which promote these industries to participate, should be included in this plan.

③Reduction by each industry According to the index of mining and industrial output, reduction of emission is

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Climate Change Group Coping with the Global Warming

greatly depends on decrease in the number of production because of depression and improvement in electric power consumption rate.

So it is difficult to calculate how

much voluntary efforts contribute to reduce emission. sector is -2.1% below 1990 level. (Table4).

Reduction rate by industry

Keidanren shows how to calculate them but

there is no data to support this way of calculation. This is why we think it has no credibility.

Table4 Increase & decrease（compared with 1990）

Factors Improvements in electric power

−２．２％

consumption per unit Efforts by industries

−２．１％

Expansion of economy

＋４．１％ Total

−０．１％

source）Keidanren regarding results of the third follow-up to the Keidanren Voluntary Action Plan on the Environment

④ Follow-up The both of Keidanren itself and councils conduct follow-up.

However, there

are several problems. First one is that this follow up do not have equity because the third party (outsider) does not check it. The second problem is that the results of this follow up are unreliable because they do not show any solid data to support them. Third problem is that it is not clear who will compensate for companies that seem not to achieve target in the future.

3) Merits and Demerits ①Merits Firstly, this plan has high feasibility. in choosing options to reduce emissions.

Participants can use their own direction

Secondly, transaction cost is lower than other

measures. Thirdly, entities can make every effort to reduce emission.

If they were

forced to take some measures, their efforts to reduce emission will be limited. Moreover they are continuously motivated to seek technical innovation in competitive environment.

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Climate Change Group Coping with the Global Warming

②Demerits Firstly, most of objects are industry sector and it is impossible to force every sector to participate in this plan.

The second is free rider problem. Companies that

do not participate in this plan can also escape from global warming.

The third is that

it is not clear who will take responsibility for companies that cannot achieve their target.

4) Points of Concern Global Warming Prevention Action Plan regards Keidanren Voluntary Action Plan as important. It is said that Keidanren action plan is one of the most successful plans.

This plan should be main framework of global warming prevention in the future.

However, effectiveness of this plan has to be improved to use this plan as part of domestic measures.

3. Carbon Tax 1) What is Carbon Tax? A Carbon tax is the tax imposed on fossil fuels energy source based on its amount of carbon contents.

It aims to make total costs of production, which use fossil

fuels such as oil, carbon and natural gases, more expensive to reduce the number of these products6.

It will lead to reduce total emission of CO2.

Carbon tax has a

character of Baumol/Oates tax that achieves given environmental target at the minimum cost theoretically（see ANNEXⅡabout theoretically explanation）. Energy tax system has been introduced in Japan but carbon tax has never been introduced yet.

However, there is a possibility that a carbon tax will be

introduced after second step of Kyoto Protocol.

Characters of a carbon tax will be

examined introducing discussions in Japan and situations of some foreign countries that have already introduced carbon tax.

We will examine the characteristics of

carbon tax in the next section. ①Tax Base There are two choices of tax base; one is imposed on the amount of carbon

There are arguments that a rise of price of energy by introduction of tax slightly effects on reduction of demands of energy because price elasticity of energy consumption is small. Consumption of energy may not be able to be reduced as soon as price rises. However, it is said that tax enables to change for energy-saving products in long term, and price elasticity of energy consumption isn’t small at all.

6

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Climate Change Group Coping with the Global Warming

contents and another is on energy resources. The tax imposed on carbon contents is more basic way than another one. The tax on energy resources is the same kind of tax as energy tax that has already been introduced in Japan7.

In some foreign countries,

there are both cases of that only carbon contents are taxed, and that both of carbon contents and energy elements are taxed8.

However the tax that isn’t imposed on

carbon contents (that is called energy tax) has no incentive to promote to use alternative energy.

So, it is not effective to reduce total emission of CO2.

②Collection Point In some foreign countries, there are many cases that collection points are entities that supply fossil fuels to end-users (tax on down-stream). That is to say, electricity and sellers of fossil fuels and so on are imposed. this taxation because payers add tax to product price.

In Germany, end-users bear

Eventually, consumers also bear

tax because a tax effects on a price of a product in the long run9.

However, tax

reduction is necessary for some sectors like steel industry, which can’t avoid using a certain volume of carbon by reason of its structure.（this point is showed following） ③Use of Tax Revenue Then, we will describe how to use tax revenue.

In some foreign countries,

there are some cases that tax revenue is included in general finance or used to reduce other taxes and social security taxes.

In Germany, Italy and UK, a part of the tax

revenue is used for environmental purpose and the rest of revenue is used to reduce burden of social security etc.

In Denmark, Holland and Switzerland, governments use

tax revenue for the sector that paid these tax.

In Japan, it is considered that

government will use tax revenue to introduce new technology and equipments to reduce GHGs emissions.

It is also discussed whether reviews of special finance for oil

industry and existing energy taxes are necessary or not.

We think that Japanese

government has intention to use this tax revenue for environmental purpose but there is no specific evidence to prove it. ④Tax Rate Central Environmental Council shows specific tax rate on the supposition that the target of CO2 emissions in 2010 is 2 per cent below 1990 levels (9 per cent below Tax rates are set up by per energy peculiar unit. For example, if it is electric power and is OO yen and an oil product per kWh, it will set up like OO yen per kl. 8 Netherlands has regarded the sum total of the tax amount calculated having responded to the carbon content 50%,calorific value 50% to each tax rates as energy tax since 1992. 9 The rate of a burden depends on consumptive price elasticity. 7

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Climate Change Group Coping with the Global Warming

BAU levels) by introduction of carbon tax.

If government will keep the level of tax

revenue and try to reduce emissions by incentive to use green energy, the price of CO2 will be 30,000 - 50,000 yen / t-C.

On the other hand, If government will use tax

revenue to reduce GHGs emission, the price of CO2 will be 3000 yen / t-C. （see ANNEX Ⅱ about theoretically explanation）.

Moreover, if part of tax revenue is used to reduce

emission of GHGs, the price of CO2 is predicted to be 1,0000yen / t-C10. be changed based on the purpose of the tax.

Tax rate will

If the purpose of tax is making cost of

products more expensive, they should choose high tax rate.

If the purpose is trying to

maximize its tax revenue, government have to set low tax rate 2) Merits and Demerits of Carbon Tax ①Merits Firstly, it can cover all sectors including Residential & Commercial and Transportation.

When emitters are levied taxes on their amount of CO2 emissions,

covering all sectors is impossible because of difficulty of taxing on small companies. However, when the collection point is sectors that supply fuels to end-users, most of all sectors can be covered.

Secondly, it will let people make conscious efforts to improve

environment because people also have to take economic responsibility.

Thirdly, it is

structure that reducing emission will reduce their share of the expenses to tax, so polluters have incentive to reduce emissions positively. Fourthly, the cost to reduce GHGs emissions will be minimized because of market mechanism.

Fifthly, transaction

cost is relatively low since there is a possibility that government can use existing tax system to start carbon tax. ②Demerits Firstly, it is difficult to achieve total amount of CO2 emission target by carbon tax.

Though participants can achieve target in theory, it is uncertain whether they will

really achieve the target or not because government cannot get data of each entity's marginal abatement costs.

Tax rate needs to be changed many times to achieve fixed

CO2 emission volume target.

However, frequent changes of tax rate make taxpayers

confuse, so it is an unrealistic way.

Secondly, it may have negative influence on

competitiveness of nation’s economy11.

Especially firms in carbon-incentive industries

may lose their competitiveness because taxes cost them to pay more tax than other industries in the long run.

Thirdly, it may have bad influence on nation’s economy.

Ministry of environment are many cases the preferential treatment / duty-free measure is taken to the industrial section In order to avoid such a demerit in some foreign countries. The influence on competitive power is eased by performing an encouragement measure to the company which performed curtailment efforts of greenhouse gas, or exempting from taxation. 10

11There

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Climate Change Group Coping with the Global Warming

However, some observations show that this influence is not so serious.

Ministry of

environment calculated the loss of GDP in 2010 on the assumption that relatively high carbon tax rate at 13000 ∼ 35000yen/t-C will be introduced.

According to this

calculation, the loss of GDP in 2010 will be 0.06-0.72% less than the GDP when tax will not be introduced12.

It is necessary to reduce bad effect by using carbon tax with other

measures like subsidies for introduction of new technology and equipments, and international emissions trading.

Fourthly, it may increase commodity price.

It is

possible to reduce the negative effect by restructuring a system of tax or keeping low tax rate etc.

In case that governments set high tax rate, they have to take care of

low-income earner whose amount of energy consumption is small. 3) The Points of Concern When governments introduce a carbon tax, they have to design the system of tax to maximize good effect on environmental and minimize bad effect on the economy by using tax revenue effectively. We will explain the specific case that government should reduce tax rate on specific sectors and the relationship between carbon tax and other energy taxations.

① The Case When Tax Allowance Should be taken When carbon tax is introduced, it might make specific sectors like steel industry pay more tax than other sectors. nation’s economy and competitiveness.

Especially high carbon tax rate will effect on

So, tax allowance is the measure to reduce tax

rate on these sectors. The UK has a system that participants through climate change agreement are exempted 80% of their climate change tax. When Japanese goverment set condition of this system, equity must be secured between those entities that are exempted tax and entities that are not. (see ANNEX Ⅴ) In some countries, there are cases that carbons, which are used as ingredient, are not imposed because polluters cannot shift from coal to other energy fuels.

② Relationship between carbon tax and other energy taxations Chart 5 shows main cases of current energy taxation systems.

These are

customs・tax on oil・promotion of power resources development tax ( its revenue is about 9000 million yen) that are the tax for promoting to improve energy efficiency.

Gasoline

tax・trading tax of diesel oil(its revenue is about 43000 million yen)are taxes for road-use revenue.

12Ministry

Coal hasn’t been levied since it has been given preference because of

of environment

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Climate Change Group Coping with the Global Warming

its steady supply and security reason. If carbon tax or other global warming taxes are introduced, there is need to decide collection points, tax rate and how to use tax revenue. Ministry of Economy, Trade and Industry decided to start the tax on coal from 2003. It aimed at making consumer take more shared economic responsibility by imposing tax according to how much their emissions have negative effects on environment. says “It is necessary to reduce the extreme burden of oil industry.

It also

” Eventually, total

tax revenue will not increase by cutting down tax rate on oil even if governments levy tax on coal. Chart５

Existing Energy Taxation coal

Unit

kg

crude gasoline diesel oil A crude oil lit

lit

Lit

Customs（yen）

0.315

0.315

0.315

Petroleum tax（yen）

2.04

2.04

2.04

Gasoline tax（yen）

lit

LNG kg

0.315 2.04

0.72

53.8

trading tax of diesel oil（yen）

32.1

Consumption tax（yen）

0.265 0.791

5.25

4.1

1.45

0.898

Sum（yen）

0.265 3.146

61.405

38.555

3.805

1.618

Carbon content（C-kg）

0.641 0.723

0.643

0.721

0.736

0.733

95498

53474

5174

2207

Tax per a ton of carbon（yen/C-t）

413

4351

※There is one more taxation that is called “promotion of power resources development tax” source）Satoru Hibiki, Tosihide Arimura『environmental economic』

4. Emissions Trading 1) What is Emissions Trading? Emissions trading as a measure for global warming are the system that permits trading emission allowances between permit-liable entities. There are two types, Baseline & Credit, and Cap & Trade. Baseline & Credit is the scheme that the difference between the baseline and the actual emissions is credited and each entity can trade them.

However, this system cannot ensure the achievement of the target of

Kyoto protocol because it doesn’t set a limitation of total emissions.

Cap & Trade is the

scheme that allows companies to trade their allocated allowances after setting up the total volume of GHG emissions. In this system, total amount of emissions reduction can be ensured as long as each entity is in compliance with its commitment. Therefore, we think that Cap & Trade is more suitable to achieve the target of Kyoto Protocol. So, we will examine the characteristic of this system.

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Climate Change Group Coping with the Global Warming

①To Whom Emission Allowances should be Allocated In designing the system of emissions trading, it should be considered to whom emission allowances are allocated, and how to allocate the emission allowances. There are two options to decide who should be allocated allowances.

One is to allocate to

up-stream (importers or producers of fossil fuels) another is to allocate to down-stream (consumers of fossil fuels).

In the case of up-stream emissions trading, all fossil fuels

that are used in Japan can be covered, but it provides less incentive for producers or importers of fossil fuels to make efforts to reduce emissions.

At the same time,

monitoring costs are relatively low. However, there is also risk that the market will be monopolized because the number of participants is too small.

On the other hand,

down-stream emission trading provides positive incentives for entities to reduce emissions since reduction emissions yield large profits for them.

Another merit of this

system is stabilizing the market because many parties can participants.

The demerit

of this system is that it is impossible to cover all sectors including residential & commercial and transportation because of high monitoring costs.

So, in reality, only

large companies will be covered if emission allowances are allocated to down-stream. ②How to Allocated Emission Allowances There are two ways of allocating allowance to entities. One is called auction and another is grandfathering.

The merit of auction is that it can secure equity

because the amount of reduction emission that has been reduced in the past is meaningless.

However, polluters, who have emitted GHGs legally, and need to

purchase rights to emit emission from first unit, oppose this system.

The merit of

grandfathering is that profits will be the revenue to the government, so it has the same kind of effect as taxation. opposition against it. set allowances.

This system also has high feasibility since there is no strong

However, it costs high transaction costs to reach an agreement to

Another demerit is that it is not easy for new comers to participate in

this market13. ③Hybrid Emissions Trading System In the preceding section, we described the options of emission trading.

As we

explained, all options have both merits and demerits. So, we cannot decide which system is the best.

When governments introduce emissions trading, they need to

To solve this problem, in the case of SO2 emissions trading in USA, Environmental Protection Agency holds a part of emission allowances and provides them to newcomers every March, though normal entities are allocated emission allowances by grandfathering. 13

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Climate Change Group Coping with the Global Warming

create a system based on the purpose and the situation of each country.

Ministry of

Environment examines a hybrid emission trading that is the combination of these options.

This hybrid system can cover both up-stream entities and large companies in

down-stream.

Up-stream entities are allocated emission allowances by auction, while

large companies in down-stream are allocated emission allowances by grand fathering for fear that auction may bring too heavy burden to them because they have to bear the excessive costs of reduction. 2) Merits & Demerits of Emissions Trading ① Merits Firstly, it can achieve the target at the minimum costs because each entity buy the emission allowances if they are cheaper than their own marginal abatement cost to reduce emissions.

In the long run, entity’s marginal abatement cost will be stabilized

and their social costs will be minimized (It can explained by same theory of Baumol and Oates Tax).

Secondly, it can certainly achieve the target. Cap & Trade can achieve

the targets as long as each entity is in compliance with its commitment because it sets up the total amount of emission.

Thirdly, it is possible to cope with inflation or

economic growth. In the case of carbon tax, total emission will increase when inflation or economic growth happen even if marginal abatement cost of each entity is exactly calculated. Fourthly, it gives incentives for entities to make continuous efforts to reduce emission.

In the case of Emissions Trading, unlike Command & Control, the more

entities reduce their emissions, the more profits they can get, so that they are motivated to innovate new technology and reform the structure of production and consumption. Fifthly, it will make new business opportunities.

Though Emissions Trading has been

introduced in only a few countries yet, it is certain that this system will become one of the most important measures for global warming. Expansion of emissions trading will encourage companies to make efforts to use green energy and save total energy use to get emission allowance. ② Demerits Firstly, emissions trading system cannot cover residential & commercial and transportation sector because of high monitoring costs.

Secondly, it is difficult for

companies to calculate the total cost in the long run because the price of emission allowance is decided by market mechanism. There is a risk that the price may raise sharply according to the unpredicted seasonal reasons.

Thirdly, if the number of

entities is small, “over the counter” transactions may be affected by market power. Fourthly, there is some fear that it will have negative effects on international

19

Climate Change Group Coping with the Global Warming

competitiveness because of the high level of the target. Fifthly, it costs extremely high transaction costs to create new emission trading system. 3) The Points of Concern ①Equity There are three types of equity; Equity among permit-liable entities, equity between permit-liable entities and newcomers, and equity between permit-liable entities and the other entities.

In the case of grandfathering, governments need to

create a system in consideration of dissolving unfair condition between existing entities and new participants. And equity between permit-liable entities and the other entities, especially the equity between industry sector and residential & commercial or transportation sector, should be also ensured in a certain form.

According to Figure 1, which shows the

change in CO2 emission in past 25 years, it is clear that emissions of residential & commercial and transportation sector tend to have been increased, while that of industry sector is stabilizing. sector to save energy use.

The main factor of this result is efforts by industry

So, it is necessary to evaluate the efforts by industry sector

and promote additional efforts by residential & commercial and transportation sector. Figure 1.

Change in CO2 emissions in past 25 years

Transportation

CO2 emission (Mt-C)

+23.7%

Residential & Commercial

+17.3% Industry

±0% (Comparison to 1990 level)

Sauce) Ministry of Economy, Trade and Industry

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Climate Change Group Coping with the Global Warming

②Feasibility To enhance the feasibility, governments need to create a system that is not criticized by entities. For this point, there is an idea that governments should make much of the existing voluntary action plan instead of set new legislative limitations (details are described later).

It is also important to calculate the transaction costs, so

there is need to learn from experiences in foreign countries and introduce tentative Domestic Emission Trading to learn how it functioned. ③Relationship with Kyoto mechanisms In the long run, a hybrid system of domestic emission trading and Kyoto mechanisms such as an international emission trading will enable Japan to achieve target more efficiently. It is said that it will stabilize supply and price of emission allowances. An example of this system is permitting entities to buy emission allowance from foreign countries until total amount of trading emission equal to the target amount of Kyoto Protocol. In this case, governments need to make adjustment not to make entities buy emission allowance from foreign countries too much because the prices of these allowances are likely to cheaper than that of Japan.

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Climate Change Group Coping with the Global Warming

Ⅲ. Proposal of a Policy Package It was already mentioned in the beginning that Global Warming Prevention Action Plan does not include economic methods (Emission Trading, Carbon Tax). Moreover, as already clarified by analysis, Emission Trading will surely achieve emissions reduction but it is difficult to cover small-medium enterprises.

On the other

hand, carbon tax can cover all sectors, but it cannot achieve the target certainly. Consequently, taking into account the pros and cons of both measures, we would like to introduce a policy package with combines Emissions Trading and Carbon Taxes.

1. Overview Preparing for participation in Emissions Trading that will start in 2008, people are more and more interested in introducing domestic Emission Trading for accumulating experiences and knowledge.

In England, domestic Emission Trading has

already been introduced in April 2002 and in 2005 it will commence in all of EU. The merit of Emissions Trading is that it can certainly reduce emissions. Moreover, the burden, that participating entities will have to bear, can be reduced depending on how the caps and targets are set. emissions trading.

Targeting only a part of the industry sector is a demerit of

Nevertheless, at the same time, it can be said that Emission

Trading should be introduced into sectors where possible. For this reason, proposing the introduction of the industry sector is effective.

As for emission allowance, in order to

minimize opposition by industry sector and transaction costs, it is desirable to expand the existing Keidanren Voluntary Action Plan. However, because it is necessary to constrict emissions in commercial and transportation where emissions are greatly increasing now and it is unfair if these sectors do not participate in measures to cut down emissions.

In this regard, tax

according to carbon content on the energy consumption should be supported. If only carbon tax is introduced into all sectors without emission trading, the result may be an excessive burden on the industry sector.

If a hybrid system of

emissions trading and carbon tax is introduced, entities, which participate in voluntary action plan, can get out of paying tax, so their burden is relatively light as long as their target total emissions is not so strict.

In this regard, it is needed to ensure

transparency in setting the targets so that responsibilities should be clear when targets are not achieved.

It should be said that an agreement is essential.

rigidly opposed to this point.

Keidanren is

However, we think that it is beneficial for industry sector

to introduce emissions trading even if they accept a compromise.

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Climate Change Group Coping with the Global Warming

Figure2 The Image of Policy Package

＜Residential & Commercial＞

＜Industry＞ （participate in V.A.P）

（not）



Subsidy

Emissions Trading

Individ ual

Individual measures

Individual measures

measu

Revenue

res Carbon Tax

2. Extended Voluntary Action Plan Emission Trading 1) Participants of Extended Voluntary Action Plan Emission Trading Participants are basically firms that are members of Keidanren environmental voluntary action plan (Targets are set for each industry in Keidanren environmental voluntary action plan. Most targets are measured by the energy consumption per unit output.

See below for further details).

However, other firms that are not members in

Keidanren environmental voluntary action plan are able to participate individually and jointly.

If these firms join, the market of emissions trading will be vitalized and the

trading will be fairer. The targets of these participants are measured by the total emission volume, and they have to pay additional energy tax (See below for further details about Additional Energy Tax.).

This may be an incentive to join Keidanren

environmental voluntary action plan because firms that are members in this plan of Keidanren do not have to pay this tax14.

These participants will most likely to be the

sellers of emission, so their participation will prevent the rising of emission price as well. Moreover, if the firm can achieve the Leading Runner Standard of Energy Saving Law

14 However, it is the fact that if firms join in Keidanren environmental voluntary action plan, they have to do other duties.

23

Climate Change Group Coping with the Global Warming

by a large degree, it can join emissions trading with using these excessive emissions, which has been reduced. 2) Gases for Extended Voluntary Action Plan Emission Trading In the Kyoto Protocol, 6 GHGs (CO2, CH4, N2O, HFC, PFC, SF6) are the objects of reduction.

In case of CDM, JI and international emissions trading, we deal

with these 6 gases.

Therefore it is better to deal with these same gases when doing

domestic emissions trading.

Emission trading in EU, that will be examined, deals with

6 GHGs. However, we propose dealing with only CO2 at the level. reasons for it.

There are two

First, most of the GHG emissions are CO2 at present (see Figure 3).

Second, if we deal with 6 GHGs, the monitoring cost will be high and inaccurate. Therefore, though it is needed that we will deal with 6 GHGs in the end, it is suitable to deal with only CO2 now. Figure3 The Breakdown of GHG Emissions in1990

2% 4% 2% 6% energy origin CO2 non energy origin CO2 CH4 N2O HFC、PFC、SF6

86% Source) Ministry of the Environment, Central Environment Council (2001)

3) How to Set Cap and Target ①The Unit When Setting Targets The following should be considered in setting targets.

One is to set target for

sectors with respect to those of existing Voluntary Action Plan. targets for individual companies.

The other is to set

We propose both using a hybrid model.

In order to raise the consciousness of responsibility of each company, the method of setting a target for an individual company is considered to be effective.

But,

it will probably be difficult to get an agreement about forcing each company to set targets.

So, the judgment concerning target setting should be given to the industry in

order to make the regulation-tone less forceful by respecting the independency of

24

Climate Change Group Coping with the Global Warming

industries.

That is, each sector must decide whether to set targets for the whole sector

or for individual companies.

Moreover, group of voluntary participants should be

permitted to set their target for themselves. However, in the case of setting targets for sectors, it is necessary to consider following factors.

Firstly, whereabouts of responsibility should be clarified.

For

example, when a sector’s target cannot be reached due to a marked increase of CO2 emissions of just one company, the responsibility need to be clear whether it lies within just one company or whole sector.

Responsibility to whole sector is good since it will

make a system in which each company supervises each other.

Moreover, there is an

idea that each entity pay certain amount of money to fund for company that cannot achieve targets.

Another point of concern is that when Voluntary Action Plan sets

targets for sectors, sum of individual company's targets and common targets should be corresponded. ②The Kinds of Targets When selecting the kind of target, there are three options.

Target for total

CO2 emissions volume and a mixture of both are intermingled in existing Keidanren Voluntary Action Plan.

In the case of setting a target per unit output even if the target

is achieved, the volume of CO2 emissions will not necessarily be cut down when participants increases its activity. Therefore, there are opinions that the unified use of a target for total CO2 emissions volume is needed.

However, there are many

entrepreneurs who set only target per unit output at present.

Target per unit output

also makes it easy to obtain an understanding of an entrepreneur because it does not give restriction to the enterprises amount of activities.

Considering the environmental

effects, it is best to unify target setting with target for total CO2 emission. Nevertheless, accepting a mixture of both kinds of targets is necessary for the reasons given above.

However, the targets of the voluntary participants that are not included

Voluntary Action Plan should set goals for total CO2 emission volume.

Thus,

discriminating targets between participants by Voluntary Action Plan and voluntary participants will become the incentive to participate in the Voluntary Action Plan. Incidentally, the Ministry of Environment has proposed mixtures of both. IGES has proposed the method of setting targets for total CO2 emissions volume per unit.

UK’s emissions trading scheme is that the voluntary participants set targets for

total CO2 emissions volume and participants in this agreements can choose either. The following item explains this problem in more detail since it deeply relates with the debate on the timing of dealings.

25

Climate Change Group Coping with the Global Warming

４）The rule of Trading ① Timing of Trading Trading can be carried out either during or at the end of the term.

According

to a proposal by the ministry of environment, trading should take place during the term in order to trade smoothly and keep fluidity if targets are set for the total amount of emission. When targeting for efficiency improvement, trading should take place at the end of term because the total amount of emission in this term have to be calculated to get the total amount of emission as a whole. On the other hand, IGES’s proposal suggests that converting emission per unit into the total amount of emission make it possible to trade during term even if targets are set for efficiency improvement. equivalent GHGs as index.

First of all, they can use energy, CO2, and CO2

When targets are set for efficiency improvement, amount

of emissions per unit is converted into the total amount of emission by using predicted number of output, and then target for each year will be set by prediction. take place based on this target.

Trading will

If there is a difference between target and result,

target for next year have to be modified. checks this target and announce them.

The governments have an obligation to Target for efficiency improvement is the

system that each entity can trade surplus after an actual result comes out.

However, it

should be considered to propose a system that each entity can trade even before targets are set for sake of making possible for each entity to make plan and do risk management. By the way, if the sector that set target for improvement efficiency sells excessive amount of emissions rights to the sector that set target for reduction of total emission, there is a possibility that the total amount of emission will increase. total tradable amount of rights has to be restricted.

So, the

In the UK, there is an gateway

between both sectors to solve this problem. This gateway is open when the amount of selling accumulation from a sector that set target for efficiency improvement to a sector that set target for reduction of total emission is less than the amount of reverse trading. On the contrary, the gateway is closed when this selling accumulation equal to the accumulation of reverse trading.

This is the measure to prevent overselling.

We

think that Japan also needs such a system to use target for efficiency improvement and target for the reduction of total emission together.

②Grasp Trading Trend It is considered three options to grasp trading trend.

These are “Inspecting

reports on result”,” Rewriting register” and “Stock exchange transaction”.

26

We will

Climate Change Group Coping with the Global Warming

describe these three options. Firstly, “Inspecting reports on result” is the way to inspect reports that are announced by governments or designated third person organization.

The merit of this

system is to solve the problem that there may be a misunderstanding among entities about the amount of trading.

However, examinations are still needed to decide when

this report should be announced, how to secure the safety of outsiders, what each entity should write on reports. Secondly, “Rewriting register” is the measure that governments or third party organization rewrites register based on a result of dealing that is reported by entity that actually trade. result”.

It has same kind of merit as the measure of “Inspecting reports on

Furthermore, since the government or third person organizations deal all

information together, transparency will be improved.

However, it is needed to be also

considered to decided specific contents of register and timing of submitting reports. Finally we will describe “Stock exchange transaction”.

Stock exchange can

deal all information about trading together and report them to governments. This option can enable to transact quickly and fairly compared to over the counter system. There is also a possibility that establishment of stock exchange will create new business such as an agency business.

However, sufficient amount of trading is indispensable to

keep transaction efficiently.

Moreover, there are still problems with high transaction

costs and rule of transaction.

However, it could be said that this system is efficient if

these problems will be solved,

5) Measures to grasp actual amount of emissions The actual amount of emissions should be calculated by using follow-up system of Keidanren Federation of Economic Organizations Voluntary Action Plan.

The

current situation is collecting data from individual companies. Then, these data will be summed up to get total amount of emission.

Governments and Keidanren itself

conduct follow-up of the progress situation based on the report from the industry. However, this system is inadequate when transactions are based on individual company because government and Keidanren do not follow up the data from individual companies. Therefore, a company and local governments, which are not set specific target by Keidanren action plan, should make use of follow-up system of Keidanren Voluntary action plan individually or with other entities.

3. Additional Energy Tax (Carbon Tax) Next, additional energy tax for entities not participating in domestic emissions trading system will be explained.

27

Climate Change Group Coping with the Global Warming

1) Tax Base We propose the introduction of the tax imposed to energy consumption according to carbon contents. 2) Collection Point Down-stream taxation is desirable to promote many participation and efforts, so we advocate the tax on end-user of energy.

However, electricity sector is imposed

the tax after distribution of energy consumption for generation of electricity to end-use sector according to electricity consumption. It is good idea to utilize the existing collection route of collection of consumption tax, to minimize the transaction cost for tax collection. be an indirect tax that end-user of energy will pay.

So, it should

Then, energy suppliers to end-user

collect tax revenue and pay them to the government.

In this way, there is no necessity

to create new monitoring system since tax amount is calculated by multiplying the amount of energy consumption and tax rate. Some people insist that it is hard for consumer to notice this tax because this is indirect tax.

So tax amount will be excluded to price in order to solve this problem.

If

tax charge is demonstrated clearly, it gives incentives for consumer to save the use of energy, though it is not the main object of this tax.

And it also has the effect to let

people make conscious efforts to improve environment. 3) Tax Rate We propose the low tax rate (3000 yen/t-C) in consideration of feasibility and negative impacts on economy.

Tax revenue will be used to make fund for subsidies.

The main purpose of this tax is not to reduce energy consumption, but making fund for global warming prevention. However, factories under restrictive control of energy-saving law must be set lower tax rate for fear that they may be forced double burden that is cost of investment and payment to this tax. 4) How to Use Tax Revenue The revenue (predicted amount is 1,000 billion yen) will be used as subsides that are given out in auction system.

First, the government seeks for programs

without restricting the specific way to reduce emissions, and applicants, who suggest their plan to reduce gases and set the target for the amount of emission reduction, apply to this program. Then, the government chooses these programs from cheapest one, after checking feasibility of this program.

28

Climate Change Group Coping with the Global Warming

Ministry of Environment says that this system has a potential to reduce CO2 by 2% below 1990 level, with the total cost of 1,000 billion yen, if a government carry out the reduction options from cheaper one to order15.

However, in reality, issues of vested

interests and institutional barrier are obstruction to make this system work well. The purpose of this subsidy system is to remove these obstructions. The resources of subsidies are tax revenue of additional energy tax but the problem is how to give these subsidies to companies.

If government gives subsidies to

designated projects, government must have detailed information about costs, potentials and so on.

But if they are given out by auction, it is achieved in the market

mechanism. Institute of Global Environment and Society (IGES) proposed that the subsidies should be given out after the options have carried out, and only successful options should get subsidies.

But, the problems with this proposal are that some

entities may refrain from participation because of high risk and lack of initial investment fund.

This point should be also considered deeply.

For example, there is

an idea that the subsidies should be given before options carried out, and each entity is obliged to pay them back when they can’t achieve the reduction targets. In this case, entities, which do not have enough initial investment funds, can also apply to get subsidies.

15

Ministry of Environment (2001)

29

Climate Change Group Coping with the Global Warming

In Conclusion As mentioned above, Japanese domestic measures were examined being premised on Global Warming Prevention Action Plan, and the policy package based on the situation of Japan was proposed.

The following describes the points that are the

key elements of our proposal. Firstly, it is the essential to review the revenue structure of the country if a new policy package is introduced.

Without this reviewing, an understanding of the

country’s people will not be obtained even if emissions trading or carbon tax is to be introduced. Moreover, this proposal is just like the structure of the domestic emissions trading in UK.

It will be important probably to learn UK's experience.

However,

UK's emission trading was introduced against the background that it had room for an extensive improvement in energy efficiency.

It is impossible to handle the situation of

UK and Japan in the same way because Japan has already attained high efficiency of energy by 1990, and has little space left for measure of energy saving. attention needed concerning this matter.

Careful

Measures, which have been successful in the

UK, will not necessarily work for Japan. One more point can be said in terms of the differences between the UK and Japan.

In the UK, a conspicuous voluntary agreement system as environmental

measures hadn’t been taken until now.

The Climate Change Agreement of the UK has

been introduced with accordance to the Climate Change Levy. that the new system started smoothly.

Therefore, it is thought

In the case of Japan, the union of Keidanren is

powerful because the voluntary efforts had already been developed.

Therefore, it is an

influential actor. However, it is strong point for Japan that its industry will probably contribute to reduction of GHGs emissions most of all. Industries are very much interested in the measure to slow down global warming, and the sector knows its own potential.

It is thought to be important for industries to cooperate with government in

order to cope with global warming.

Moreover, cooperation is necessary for Japanese

companies to survive internationally. Finally, the possibility to link international emission trading with domestic measures is a matter that should be well examined as it has been described in chapter2. It can be thought that the merit become larger by expanding the market. The concrete rules of the Kyoto mechanism had been mostly decided in Marakesh.

It is necessary to

examine such factors such as trend of future international negotiation and the enforcement situation overseas, etc. Even if all works well, there may be slight effects on the economy and society, which we

30

Climate Change Group Coping with the Global Warming

must be prepared for. 6% reduction is a very difficult target for Japan.

Moreover, it is

said that the compliance cost of Japan for the Kyoto Protocol is high compared to that of foreign countries including the EU.

In the negotiations for the second commitment

period (which will start in 2005), Japan will demonstrate more of its powers of negotiation.

31

Climate Change Group Coping with the Global Warming

ANNEXⅠ Outline of “Global Warming Prevention Action Plan” This action plan aims to clarify the comprehensive vision of policies and measures, which enable Japan to achieve the Kyoto Target.

6% reduction will be

achieved with measures below. Examples of measures ① Energy origin CO2 (±0.0%)

Residential &

Industry Energysaving Additional measures to reduce 22 Mt-CO2

･ steady

Transportation

Commercial implementation

･ introduction

of

energy

and follow-up of voluntary

management

to

of the vehicles that meet

action plan

large office buildings and so

leading runner standards,

･technological development

on

low-emission vehicles and

and

energy-saving law

so on

efficiently boiler

･expansion of the subjects

･ promotion of intelligent

・promotion for introduction

to energy-saving law

transportation

of

･promotion and diffusion of

(ITS)

efficiently water-heater

･improvement of efficiency

･promotion and diffusion of

of

energy management

including modal shift

system

･promotion of utilizations of

diffusion

highly

furnaces

of

highly

efficiently

by

system

･ accelerative introduction

revision

of

distribution

public

systems

systems

transportation

facilities

Renewable ･adjunction of biomass energy into energy-saving law energy

･aids for introduction of solar energy generation, solar thermal generation, wind-power generation, biomass energy and so on

to reduce 34 Mt-CO2

･technological development of fuel battery, solar energy generation and biomass energy and so on

Fuel switching etc. to reduce 18

･assistance for fuel switching from aging coal-fired energy to LNG ･assistance for fuel switching of industrial boilers ･maintenance of LNG pipelines

Mt-CO2

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Climate Change Group Coping with the Global Warming

Nuclear energy

･promotion of nuclear energy on the assumption of safety

462 Mt-CO2

260 Mt-CO2

250 Mt-CO2

② Non-energy origin CO2, CH4, N2O (-0.5%)

Non-energy origin CO2

･ waste reduction under waste management law and various of recycling law ･promotion of utilizing wood building materials

CH4

･reduction of direct landfill by half ･development of emissions reduction technology in agriculture sector

N 2O

･upgrading of sewage sludge treatment

③ Revolutionary technology improvement and further actions at all levels of civil society (-2.0%)

Revolutionary

･ research and development in new iron making process and

technology improvement energy-saving products Further actions at all ･replacement of incandescent lumps into fluorescent lumps levels of civil society

･efficient use of refrigerators ･reduction of the use of shower one minute a day ･reduction of the use of TV an hour a day

④ HFC, PFC, SF6 (+2.0%) ･follow-up of voluntary action plan in industry sector ･development of new alternative for these gases ･development of low-cost technology to recycle of these gases ･appropriate running of electric appliance recycling law

⑤ Removals by sink (-3.9%) ･promotion of planting, weeding and brushing, tree thinning ･promotion of utilizing wood building materials ･promotion of urban planting

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Climate Change Group Coping with the Global Warming

ANNEXⅡ Baumol/Oats Tax You think of Baumol/Oats Tax, assuming that there are only two firms in the society now.

The marginal abatement costs of these two firms are different.

The

amount of firm1 production is c, and the amount of firm2 production is z (Figure4). It is also assumed that tax is introduced (the tax rate t).

If the cost of reducing pollution

is lower than the cost of paying tax, the firm reduces pollution.

When the cost of

reducing pollution is equal to the cost of paying tax, the firm stops reducing pollution. For example, the cost that firm1 have to pay pollution from c to b is cfb.

Firm1 can

save the cost cgf because the tax of pollution bc is cgfb. As a result, firm1 reduces pollution from c to b, and firm2 reduces pollution from z to x. Then, both firms do not reduce pollution any more because the cost of reducing pollution is higher than the cost of paying tax.

Therefore, the total pollution in this society is ob+ox.

The total cost of

reducing pollution is cfb+zux. If you set the target that the total pollution in this society is ob+ox, the most effective way to achieve this target is to set the tax (the tax rate t).

Assuming that ab

is equal to xy, if firm1 emit oa pollution and firm2 emit oy pollution, the total pollution in this society is oa+oy.

This is equal to ob+ox.

However, at this time, the firm1 cost

of reducing pollution is cda, and the firm2 cost of reducing pollution is zvy.

In

comparison with tax, firm1 has to pay bfda cost excessively, and firm2 can save yvux cost. Now ab is equal to xy, so it is clear that bfda cost is higher than yvux cost. It happens the same even other pairs that are equal to ob+ox pollution. when tax is introduced, the social cost is the lowest.

In other words,

This tax is the Baumol/Oats Tax.

Baumol/Oats Tax makes the marginal abatement cost of each firm become equal and it can achieve the given target with the lowest social cost. Figure4 cost

firm１ ｄ t 0

e

f

firm２

u

g

w

v a

b

0

c

34

x

y

z

production (pollution)

Climate Change Group Coping with the Global Warming

ANNEXⅢ UK Emissions Trading The UK’s commitment under the Kyoto Protocol is to reduce its GHGs emissions by 12.5%below 1990 levels.

The UK Government and the devolved

administrations believe that the UK will benefit from strong action to tackle climate change and have set a separate domestic goal of reducing emissions of CO2, the most significant GHGs, to 20%below 1990 levels by 2010.

The UK Climate Change was

published in November 2000 in order to meet these climate change targets. emissions trading is included in this.

UK

The following describes an outline of this

measure. The UK emissions trading scheme will be voluntary and open to all organizations operating in the UK. There are four routes to entry into the Scheme. Participants holding a target are direct participants and agreement participants.

The

former entry through a financial incentive made available by Government, and can volunteer to taken on an absolute target in return for this financial incentive. An auction is used to allocate both the absolute targets and financial incentive. receive their allowances on what is known as a ‘cap& trade’ basis.

They

The latter entry

through a Climate Change Agreement which contains targets for target units, set in either absolute or relative terms. Target units covered by an Agreement qualify for an 80% Climate Change Levy discount. as a ‘baseline & credit’ basis.

They receive their allowances on what is known

Non-target holders holds target to allocate to allowance.

All participants can trade allowances target any time.

They receive their allowances

on what is known as a ‘baseline & credit’ basis All have to report and compliance. Their performance and allowance holding are assessed against their target.

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Climate Change Group Coping with the Global Warming

ANNEXⅣ Energy-Saving Law Energy-saving Law (Law concerning the rational use of energy) is for promoting rational use of energy, and avoiding waste use of energy. 1979, and revised in 1999.

It was enacted in

The following explains revised Energy-saving Law.

The following explains revised Energy-saving Law. This law is enacted for the purposes of maintaining the system to promote rational use of energy and to setting up standard for efficiency of appliances energy use.

One of the examples of standard for

efficiency of appliance energy use is a leading runner system.

To accomplish the

purpose of ration use of energy, factories are classified into two types and be imposed the following duty.

Factories, which belong to either manufacturing sector or mining

or electric supply sector or gas supply sector or heat supply sector, are objects of this law. Those, which use energy more than 3000kl petroleum equiv and use electric power more than 12 million kWh per one year, are called first energy management factories.

Those,

which use energy more than 1500kl petroleum equiv and use electric power more than 6 million kWh per one year, are called second energy management factory. four duties that imposed on them.

There are

First one is a duty to make efforts to rationalize

energy use according to a standard that is set by a minister of Ministry of Economy,

Trade and Industry.

Second duty is to designate a person who has enough

knowledge, experiences as a specialist for energy management (heat management and electric management). Third duty is to report their progresses periodically. Fourth duty is to submit these reports to the government.

“Top runner system” set standards

of efficient on companies that are including twelve high appliances; home electric appliances, office automation appliances and cars etc which consume relatively large amount of energy.

The unusual way to set a standard of energy efficiency is those

standards are set based on the consumption level of appliance, which has the best energy consumption efficiency among that industry (there are exceptional products). It can be said that this law has contributed to improve Japan’s energy consumption efficiency that is evaluated as highest level in the world today.

36