Thanks to Russia’s ratification, the Kyoto Protocol on global warming is set to take effect in February. The treaty requires industrially developed nations to cut their emissions of carbon dioxide and other greenhouse gases by specified degrees from 1990 levels in five years from 2008 to 2012. Japan is required to cut its emissions by 6 percent. As a way of meeting the target, the Environment Ministry is calling for the introduction of a “carbon tax.”
According to the ministry plan, the tax would be imposed on all types of fossil fuel, such as petroleum, coal and natural gas. It would be levied on electricity as well. In the case of gasoline, the tax rate would be 1.5 yen per liter, raising annual household energy bills by an estimated 3,000 yen on average.
This and other related plans are to be discussed by the government’s Tax Commission, perhaps beginning later this month. Nippon Keidanren, or the Japan Business Federation, and the Ministry of Economy, Trade and Industry, oppose the carbon tax, also known as the environment tax, on the grounds that it would slow economic growth. They should consider its merits in combination with other practicable measures, such as the trading of emissions rights.
This is crunch time for Japan, one of the largest emitters of carbon dioxide in the world. Now that the government’s review of its policy guidelines on climate change is entering the final stages, Prime Minister Junichiro Koizumi should exercise the kind of leadership that will spur Japan to come up with a realistic program to achieve the 6-percent target.
Japan’s output of greenhouse gases has continued to expand over the years; in fiscal 2003, it increased to a level 8 percent above that of 1990. So, to achieve the target, the nation must cut its emissions as much as 14 percent. Under the circumstances, however, this appears to be extremely difficult. To make matters worse, there is not much time left — a little more than three years — before the five-year reduction period is to begin.
The proposed tax, which would apply to all fossil fuels whose use results in the discharge of CO2 into the air, would be a 2,400 yen levy on every ton of carbon contained in these energy resources. This amount is smaller than that initially considered by the Environment Ministry. At this rate, the impact on economic growth may well be tolerable. The ministry’s attempt to ease concerns in industrial circles can also be seen in its plan to make an exception of coal, an essential raw material for steel.
How much tax should be levied is a crucial question. A lower tax rate means less pressure to increase energy prices. But the purpose of the tax — limiting the use of fossil fuels — may not be achieved if the tax rate is kept too low. One is left to wonder how much a 1 yen.5-per-liter increase in the price of gasoline would help reduce consumption. In the longer run, though, the carbon tax will likely promote environmental awareness on the part of consumers. When buying new water heaters or cars, for example, they may well choose more energy-efficient types.
The ministry estimates that the proposed tax will bring in about 490 billion yen a year in new revenues. The money would be used to finance corporate and household energy-saving measures and related job-training programs. If the revenue were to be used entirely for the prevention of global warming, it would lead to an estimated 4 percent reduction in emissions.
The government at present is spending more than 1.2 trillion yen a year on programs to prevent global warming. It is important to examine how this money is actually helping to cut emissions. The carbon tax will not likely gain support of taxpayers unless they are given a say in how to use the revenue.
It is also important to adjust existing energy taxes, which exceed 5 trillion yen a year. One possible option is to cut these levies by imposing a proportionally higher tax on fossil fuels. That will keep the combined tax revenue unchanged. Such an environment-oriented tax system already exists in European countries.
The carbon tax is a means of changing the modality of an industrial society that depends heavily on nonrenewable energy resources. That is going to be a costly operation. The question is how best to attain the target in ways acceptable to taxpayers. For that, the government must first present more specific cost estimates.
There are other means of reducing emissions, such as trading emissions credits between nations and companies. The question is, what is the best policy mix possible to attain the goal? This should be discussed broadly, including by the industrial community. It would be good if agreement were reached in the coming year so that the carbon tax could be introduced in 2006.
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