Playing with goal numbers

by Takamitsu Sawa

Salient points of the government’s 2020 target for reducing greenhouse-gas emissions, announced June 10 by Prime Minister Taro Aso, are as follows:

(1) 2005 is taken as the “base year” from which reductions will be measured.

(2) Heat-trapping emissions in 2020 will be targeted at 15 percent below those of the base year, or 8 percent below 1990 levels.

(3) The target represents a “net” reduction, thus excluding greenhouse gases absorbed by forests or reduced through Kyoto mechanisms such as emissions trading, joint implementation with other developed countries to reduce emissions, and the clean development mechanism (which earns emissions credits through emission-reduction investment in developing countries).

These targets were also announced by the Japanese delegation at a working group meeting of the U.N. Framework Convention on Climate Change held at the same time in Bonn. According to a report appearing in the June 11 issue of Asahi Shimbun, however, delegates from the other countries did not react enthusiastically.

Members of an international nongovernmental organization denounced Japan for following the footsteps of former U.S. President George W. Bush, who they said had obstructed international talks on preventing global warming. The Asahi further reported that the same NGO distributed leaflets depicting a half-Aso, half-Bush face and presented a “special fossil prize” to both the United States and Japan for backpedaling.

There are at least five problems and shortcomings with the medium-term targets announced by Aso:

• First, adopting 2005 as the base year runs counter to international public opinion. Japan chose it because the European Union declared a greenhouse-gas emissions reduction target of more than 20 percent from 1990 levels after it had already attained a 7 percent reduction by 2005. That means EU’s reduction target will be more than 13 percent when gauged against 2005.

The U.S., which abandoned the Kyoto Protocol under Bush, says its reduction target is zero from 1990 levels. Since the U.S. emissions level in 2005 was 14 percent above 1990 levels, however, the U.S. target will represent a reduction of 14 percent when gauged against 2005.

With 2005 as the base year, Japan’s target becomes larger than that of the U.S. or EU. But this seemingly high target is due to Japan’s emitting 7 percent more greenhouse gases in 2005 than in 1990.

• During the first targeted period of 2008 through 2012, Japan is to reduce emissions by 6 percent from 1990 levels. It should be noted, though, that absorption by forests is to account for 3.8 percent and Kyoto mechanisms, 1.6 percent — for a total of 5.4 percent. This means the “net” reduction will be a mere 0.6 percent.

Am I wrong, then, to think the Japanese government was overly optimistic in calling for a “net” reduction of 8 percent from 1990 levels during the second targeted period of 2018 through 2022?

• Japan’s medium-term reduction target of 8 percent from 1990 levels may look much higher compared with America’s zero reduction goal. But if the U.S. population grows, as projected, by 33.4 percent from 1990 to 2020, the U.S. has committed to a per capita reduction of 25 percent compared with Japan’s per capita cut of only 8 percent — or the same rate as the overall reduction target since Japan’s population is forecast to change very little.

• The fourth point of concern is related to the Japanese government’s proposal to increase solar power generation 20-fold over the present level, to make half of all new cars eco-friendly with hybrid or battery-power sources, to increase 40-fold the number of efficient hot-water supply systems, and to have 80 percent of newly built houses meet energy saving standards.

The government announcement is almost devoid of measures to implement these programs. The government remains tight-lipped on whether it will impose an environment tax, offer tax incentives or initiate emissions trading.

• Finally, I feel that excessive emphasis has been placed on the downside of reducing greenhouse-gas emissions, such as slower economic growth and rising unemployment. Specifically, the government asserts that in the short run, an extra annual burden of ¥76,000 will be imposed on an average household, comprising a ¥43,000 drop in disposable income and a ¥33,000 increase in heating and lighting expenses. From a macro-economic standpoint, the government predicts a 0.6 percent fall in gross domestic product and an 0.2 percent increase in unemployment in 2020.

I would like to add a few words about this predicted 0.6 percent drop in GDP. The government assumes that if no such measures are taken, the economy will grow at an annual rate of 1.3 percent, leading to a GDP index in 2020 of 121 against the current base figure of 100. So, if emission control steps do indeed lower GDP by 0.6 percent, the index in 2020 will decrease by a mere 0.73 to about 120.3.

In other words, the macro-economic loss is tiny. In view of this, the government’s prediction that financial burdens caused by emission control measures on a family with a disposable income of ¥3 million will exceed 2.5 percent of income is incoherent.

It must be recognized that reducing greenhouse-gas emissions will serve as a powerful force for bringing about economic growth. This positive was ignored when Aso announced figures derived from an econometric model. I would like to say to the prime minister that nothing is easier for econometric professionals than to build a seemingly plausible model that will produce a desired figure.

I have yet to see a president or prime minister of any other country at a press conference refer to numbers calculated from an econometric model.

As one who has specialized in econometrics for many years, I feel sad to see an econometric model abused the way it was by the Japanese government.

Takamitsu Sawa is a professor at Ritsumeikan University’s Graduate School of Policy Science and an appointed professor at Kyoto University’s Institute of Economic Research.