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Monday, Aug. 16, 2010

Anti-global warming push also best for the economy


Until just recently the view prevailed that there was a tradeoff relationship between achieving respectable economic growth and reducing the emission of greenhouse gases, most of which consist of carbon dioxide. This led to a wide debate on how to achieve both goals.

A major change has occurred, however, since U.S. President Barack Obama initiated his Green New Deal, which has led me to believe that attaining CO2 reduction targets requires the promotion of environment-friendly products and renewable energy, and that therein lies the driving force for economic growth among industrialized nations.

Take, for example, solar cells, which are, at present, installed on the rooftops of only 2 percent of residential houses in Japan. The current cost of installing solar cells is about ¥600,000 per kilowatt of electricity. So, about ¥1.8 million — about the price of an automobile — is needed to equip a house with cells generating 3 kw.

The government has set a target of increasing solar cell output 35-fold by 2020. Even if half of the houses in Japan have roofs facing south, the target cannot be achieved by installing more cells on those rooftops alone.

Under the new system instituted in November 2009, power companies are obliged to purchase excess power generated by households at twice the normal electricity rate for 10 years after the installation of power generation devices on houses. This is not enough to attain the 35-fold increase unless these purchases are extended to cover all power generated by solar cells installed on the roofs of garages, hospitals and schools.

Economic pluses and minuses are the incentive that motivate every individual. Steven Landsburg, professor of economics at the University of Rochester, New York, says incentives are the essence of economics. It is desirable, therefore, to provide individuals as well as corporations with incentives to move toward achieving targets.

The government would be providing sufficient incentives if, like Germany, it required utilities to purchase all the power generated by households at three times the normal electricity rate for 20 years after the installation of power generation devices on houses.

The government is offering substantial amounts of subsidies to promote electric vehicles introduced to the market last year, and stationary fuel cells. But paying out these subsidies incurs the costs of operating incorporated bodies that distribute the subsidies.

Electric cars cost so much more than gasoline engine vehicles of similar size during the early stages of development that there is no choice but to offer subsidies to those who buy electric cars. Once the costs have been reduced with mass-production of battery cars, it would become more desirable to shift to far-reaching tax breaks such as eliminating the car acquisition tax or greatly reducing the car ownership tax. Such tax reform would be an effective and desirable means to eliminate unnecessary administrative expenses.

When the Japanese economy was growing so rapidly between 1958 and 1973, home electric appliances played the principal role as the locomotive. In the years following 1975, a steep rise in the price of oil nearly halved the nation's annual economic growth rate, but it nevertheless remained between 4 percent and 5 percent due mainly to the rise in automobile sales.

Producing an automobile takes more than 1 ton of materials, benefiting manufacturers of steel, nonferrous metals, glass, petrochemicals like plastics and synthetic rubber as well as electronic components. Also benefiting are a variety of other industrial segments such as construction companies that build highways, oil refiners that produce gasoline, insurance companies and large shopping centers. Automobiles' economic ripple effects are enormous.

By 1991, 80 percent of Japanese households possessed cars, but the figure has since showed little increase. It is unlikely to go over 85 percent because of the high costs of purchasing and owning automobiles in Japan — ownership tax, insurance premiums, garage rents, vehicle inspection fees, etc.

Since the economic bubble burst in 1991 until 2009, the Japanese economy grew at a dismal real rate of 0.8 percent per year on average. Virtually all of the new products introduced into the market during the past two decades have been digital goods. There is a world of difference between the impact that a digital camera has on other industries and the impact of an automobile. In other words, no matter how fast cell phones and digital cameras sell, they will not extend benefits to other industrial segments to the degree that automobiles have done.

In Japan and other industrialized nations that have been saturated with durable consumer goods, only environment-friendly products can lead the economy to real growth. Personal consumption, personal investment in housing and corporate capital spending will be boosted only if money is spent on energy-saving measures for buildings and houses, solar cells, power-saving home electric appliances, electric and hybrid automobiles, and the conversion of the power transmission network to a "smart grid."

"No economic growth without measures to fight global warming": This should be the axiom for the future of the industrialized countries.

Takamitsu Sawa is president of Shiga University, Japan.


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