Environmental and Resource Economics

, Volume 37, Issue 2, pp 377–410 | Cite as

Climate Change Taxes and Energy Efficiency in Japan

  • Satoru Kasahara
  • Sergey Paltsev
  • John Reilly
  • Henry Jacoby
  • A. Denny Ellerman
Article

Abstract

In 2003 Japan proposed a Climate Change Tax to reduce its CO2 emissions to the level required by the Kyoto Protocol. If implemented, the tax would be levied on fossil fuel use and the revenue distributed to encourage the purchase of energy efficient equipment. Analysis using the MIT Emissions Prediction and Policy Analysis (EPPA) model shows that this policy is unlikely to bring Japan into compliance with its Kyoto target unless the subsidy encourages improvement in energy intensity well beyond Japan’s recent historical experience. Similar demand-management programs in the US, where there has been extensive experience, have not been nearly as effective as they would need to be to achieve energy efficiency goals of the proposal. The Tax proposal also calls for limits on international emission trading. We find that this limit substantially affects costs of compliance. The welfare loss with full emissions trading is 1/6 that when Japan meets its target though domestic actions only, the carbon price is lower, and there is a smaller loss of energy-intensive exports. Japan can achieve substantial savings from emissions trading even under cases where, for example, the full amount of the Russian allowance is not available in international markets.

Keywords

climate change policy emission trading energy efficiency subsidy 

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Copyright information

© Springer Science+Business Media, Inc. 2006

Authors and Affiliations

  • Satoru Kasahara
    • 1
    • 2
  • Sergey Paltsev
    • 1
  • John Reilly
    • 1
  • Henry Jacoby
    • 1
  • A. Denny Ellerman
    • 1
  1. 1.Joint Program on the Science and Policy of Global ChangeMassachusetts Institute of TechnologyCambridgeUSA
  2. 2.Climate Change Group, Electric Power Development Co., Ltd. (J-Power)TokyoJapan

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