Environmental Economics and Policy Studies

, Volume 16, Issue 1, pp 89–110 | Cite as

Output-based allocation of emissions permits for mitigating the leakage and competitiveness issues for the Japanese economy

  • Shiro Takeda
  • Toshi H. ArimuraEmail author
  • Hanae Tamechika
  • Carolyn Fischer
  • Alan K. Fox
Research Article


The adoption of domestic emissions trading schemes (ETS) can impose a heavy burden on energy-intensive industries. Particularly, energy-intensive industries competing with foreign competitors could lose their international edge. Although the abatement of CO2 emissions in industrialized countries entails the reduction of their energy-intensive production, a corresponding increase in the production of energy-intensive goods in countries without CO2 regulations may lead to carbon “leakage.” This paper examines the effects of various allocation methods of emissions permits in the Japanese ETS on the economy and CO2 emissions using a multiregional and multisector computable general equilibrium model. Specifically, we apply the Fischer and Fox (Land Econ 83(4):575–599, 2007) model to the Japanese economy to address carbon leakage and competitiveness issues. We compare auction schemes, grandfathering schemes, and output-based allocation (OBA) schemes. We further extend the model by examining a combination of auctions and OBA. Though the auction scheme is found to be the best in terms of macroeconomic impacts, the leakage rate is high and the harm to energy-intensive sectors can be significant. OBA causes less leakage and damage to energy-intensive sectors, but the macroeconomic impact is undesirable. Considering all three effects—leakage, competitiveness, and macroeconomics—we find that combinations of auctions and OBA are desirable.


Climate change Emissions trading Output-based allocation International competitiveness Carbon leakage 

JEL Classification

C68 D42 



We appreciate the financial support from the Center for Global Partnership, Japan Foundation, Mitsui & Co., Ltd. Environment Fund, the ENTWINED program of the Mistra Foundationm and JSPS KAKENHI Grant Number 22330099. The content herein is the sole responsibility of the authors and does not represent an official position of their organizations.


  1. Armington PS (1969) A theory of demand for products distinguished by place of production. Staff Paper 16. International Monetary FundGoogle Scholar
  2. Böhringer C, Lange A (2005) Economic implications of alternative allocation schemes for emission allowances. Scand J Econ 107(3):563–581CrossRefGoogle Scholar
  3. Bovenberg AL, Goulder LH (2002) Environmental taxation. In: Auerbach AJ, Feldstein M (eds) Handbook of public economics, vol 3. North-Holland, Amsterdam, pp 1471–1545Google Scholar
  4. Burniaux J, Martins JO (2000) Carbon emission leakages: a general equilibrium view. OECD Economics Department working paper 242. OECD Publishing, Paris. doi: 10.1787/410535403555
  5. Dissou Y (2006) Efficiency and sectoral distributional impacts of output-based emissions allowances in Canada. Contrib Econ Anal Policy 5(1):1–33Google Scholar
  6. Economic and Social Research Institute (ESRI) (2007) Annual report on National Accounts: 2007. Government of Japan, Cabinet Office (in Japanese)Google Scholar
  7. Fischer C, Fox AK (2007) Output-based allocation of emission permits for mitigating tax and trade interactions. Land Econ 83(4):575–599Google Scholar
  8. Fischer C, Fox AK (2010) On the scope for output-based rebating in climate policy. RFF Discussion Paper 10-69. Resources for the Future, Washington, DCGoogle Scholar
  9. Goulder LH, Parry IWH, Williams RC, Burtraw D (1999) The cost-effectiveness of alternative instruments for environmental protection in a second-best setting. J Public Econ 72:329–360CrossRefGoogle Scholar
  10. Hatano T, Yamada M (2007) The household behavior and the effects of public policy: investigation and estimation of structural parameters. In: Tachibanaki T(ed) The size of government and social security system. Tokyo University Press, Tokyo, pp 203–222 (in Japanese)Google Scholar
  11. Jensen J, Rasmussen TN (2000) Allocation of CO2 emissions permits: a general equilibrium analysis of policy instruments. J Environ Econ Manag 40:111–136CrossRefGoogle Scholar
  12. Lee H-L (2008) The combustion-based CO2 emissions data for GTAP Version 7 data base.
  13. MFPRI (2008) Fiscal and financial statistical monthly (672). Ministry of Finance, Policy Research Institute (in Japanese)Google Scholar
  14. MHLW (2008) Monthly labor survey. Ministry of Health, Labor and Welfare (in Japanese)Google Scholar
  15. Nansai K, Moriguchi Y (2009) Embodied energy and emission intensity data for Japan using input-output tables (3EID): for 2005 IO table (Beta version).
  16. Parry IWH, Williams RC III, Goulder LH (1999) When can carbon abatement policies increase welfare? The fundamental role of distorted factor markets. J Environ Econ Manag 37:52–84CrossRefGoogle Scholar
  17. Rutherford TF, Paltsev SV (2000) GTAP in GAMS and GTAP-EG: global datasets for economic research and illustrative models. Working paper. Department of Economics, University of ColoradoGoogle Scholar
  18. Sugino M, Arimura TH, Morgenstern R (2013) The effects of alternative carbon mitigation policies on Japanese industries. Energy Policy. (forthcoming).

Copyright information

© Springer Japan 2013

Authors and Affiliations

  • Shiro Takeda
    • 1
  • Toshi H. Arimura
    • 2
    Email author
  • Hanae Tamechika
    • 3
  • Carolyn Fischer
    • 4
  • Alan K. Fox
    • 5
  1. 1.Faculty of EconomicsKyoto Sangyo UniversityKyotoJapan
  2. 2.Faculty of Political Science and EconomicsWaseda UniversityTokyoJapan
  3. 3.Osaka UniversityOsakaJapan
  4. 4.Resources for the FutureWashington, DCUSA
  5. 5.US International Trade CommissionWashington, DCUSA

Personalised recommendations