A carbon tax is vital for curbing emissions of carbon dioxide, a major contributor to global warming, according to the draft of a report being compiled by an Environment Agency panel.

Even a low rate of tax will substantially help reduce carbon dioxide emissions if revenue from it is used to subsidize the cost of buying of energy-saving equipment and facilities by companies, organizations or individuals, says the draft, obtained Sunday by Kyodo News.

Revenue from the tax, which would be imposed on parties according to the amount of carbon they emit when using petroleum or coal, can also be used to purchase quotas from other countries allowed to emit the gas, as stipulated in the Kyoto Protocol adopted at the 1997 U.N. climate conference in Kyoto, it says.

The draft, to be released in mid-May, says efforts to reduce the emissions will not undermine the nation's economic development if the government effectively plows collected tax revenues back into the private sector.

"It is important to conduct specific studies to draw up 'policy-mix' measures to fully utilize a low-rate carbon tax," it says.

Amid strong opposition from the industry sector, the agency, based on the draft report, plans to call for the introduction of a low-rate carbon tax in an effort to meet a requirement by the Kyoto Protocol to reduce carbon dioxide emissions, agency sources said.

The protocol, adopted by some 160 countries, requires that developed countries reduce their emissions of carbon dioxide and other greenhouse gases by an average of 5.2 percent from their 1990 levels between 2008 and 2012.

The reduction target for Japan, one of the world's largest emitters, is 6 percent during the period.

According to panel members, the panel used computer models to analyze how much the emissions would be reduced following the introduction of a carbon tax and how the adoption of such a tax would affect the nation's economic growth rate.

The panel was launched in the fall of 1998.

A study showed that if the government uses tax revenue to subsidize companies, organizations or individuals who purchase energy-saving equipment, Japan can cut its emissions of the gas by 2 percent around 2010 from the 1990 level. The tax rate would be set at 1 yen or 2 yen per liter of gasoline, the study says.

It also found that if the government uses tax revenue to pay down its fiscal deficit, the volume of capital available in the market increases, thereby minimizing the effect of the tax on economic growth, the draft says.

Toru Morotomi, associate professor of economics at Yokohama National University, said, "European states have been gaining their experience with a carbon tax since 1990. Japan has come to a stage where it must seriously discuss the introduction of such a tax."

"Japan needs to expedite efforts to form a social consensus on such topics as the usage of tax revenues and measures for industries expected to suffer from the tax," he said.