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Monday, March 7, 2005

Let taxes spur carbon cuts


On Feb. 16, the Kyoto Protocol, aimed at curbing the air pollution blamed for global warming, took effect. To become valid, the accord had to be ratified by at least 55 countries, including developed countries that accounted for at least 55 percent of carbon dioxide (CO2) and other greenhouse gas emissions from "Annex I" countries.

The final requirement was met in November when Russia ratified the agreement. The protocol came into force 90 days later.

The accord requires Japan to cut its greenhouse-gas emissions between 2008 and 2012 by 6 percent from 1990 levels. Japan could try to reduce CO2 emissions -- which accounts for 90 percent of all greenhouse gases -- through voluntary programs, restrictions, economic measures or a combination thereof.

From the market-economy perspective, economic measures such as a carbon tax and an automobile tax based on fuel efficiency should be given priority. After all, Japan is a free-market economy, not a socialist-style planned one. Economic measures supplemented by restrictions are in order as antiglobal warming measures for a free economy.

The government's 2002 antiglobal warming policy outline presents a number of specific measures, including estimates of CO2 reductions. However, it does not give information about how much the measures will cost, how the cost burden should be shared and how to implement the measures. An action program for achieving the targets in the Kyoto Protocol will be announced soon, and is likely to include some cost-effectiveness data.

On a fiscal year-basis, Japan's CO2 emissions increased by an annual average of 2.8 percent from 1986 to 1996 before edging down 0.2 percent and 3.6 percent in 1997 and 1998, respectively. They rose 3.4 percent in 1999, increased 1.1 percent in 2000, fell back 2.4 percent in 2001, then grew 2.2 percent in 2002.

Since 1997, emissions have stayed virtually flat, presumably due in part to the recession. However, significant increases in CO2 emissions during a three-year zero-growth period of the Heisei recession suggest that a structural change has likely occurred in Japan's energy consumption since the mid-1990s.

CO2 emissions stemming from home-use energy posted a marked increase from the late 1980s to the early 1990s, reflecting wider use of power-hungry air conditioners and large home appliances, especially those with power standby functions. Similarly, emissions from transportation rose sharply as large automobiles and sports-utility vehicles became more common, cutting average fuel efficiency.

The popularity of power-guzzling home appliances and automobiles with low fuel efficiency appears to have peaked. The energy-savings law is likely to encourage wider use of energy-efficient appliances and smaller automobiles.

Amid business-as-usual emission forecasts for the home and transportation sectors, it is naive to expect declines in emissions to continue on the basis of past trends. More accurate, structure-based forecasts are necessary. The important question is whether the development of new information technology in coming years will lead to an increase or decrease in energy consumption and, in the event of a decrease, how much savings will be achieved.

Japan's economic history shows that constraints and shortages have often driven economic development and growth. Emission cuts under the Kyoto Protocol could serve as a springboard for new economic development, and in my view the government should push efforts to take advantage of this springboard.

It is by no means impossible to achieve a 6 percent reduction in greenhouse gas emissions by 2012. Quick implementation of adequate domestic measures will make it possible.

By effectively using the clean-development mechanism under the accord, Japan could buy CO2 emission rights at reasonable costs.

My advice is to combine domestic measures with the clean-development mechanism to achieve the target without paying an unnecessarily high cost for emission cuts.

If Japan, as a market economy, fails to achieve its target, it will have to buy "hot air" emission credits -- equivalent to unintended emission reductions -- from Russia. Russia so far has cut emissions by 30 percent from 1990 levels against its target of a zero increase. Japan should do everything possible to avoid having to buy these credits.

Takamitsu Sawa, professor of economics at Kyoto University, is also the director of the university's Institute of Economic Research.


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