The Japanese government has been discussing the introduction of economic instruments such as carbon taxes and cap and trade systems for 20 years; however, none have been introduced yet, except the Tokyo Metropolitan government’s regional cap and trade system in 2010.

Japanese climate change policy: Working?

Neither the voluntary measures imposed on industry nor the information campaigns developed in an attempt to reduce household emissions are significant enough to make a serious impression on GHG emissions. The instruments that environmental economists have expected to be the most effective emission-reduction tools have not been introduced due to strong opposition from Japanese industry. Hence, the market exerts virtually no pressure on Japanese companies to reduce CO2 emissions. In addition to this, emissions from electric power stations have been steadily increasing, based on demand increases and increases in the use of coal-burning stations. These trends are largely the result of there being a relatively cheap energy source nearby (i.e. Australia) and the lack of an effective carbon tax.

Kyoto University research indicates that the average marginal cost of CO2 cost reduction is still negative, meaning most Japanese companies still have some room to reduce CO2 without incurring additional costs. This finding runs counter to the common belief that Japan has already incurred very high CO2 reduction costs. However, this is not an entirely surprising result because, in that time period and for the companies studied, there were no stringent reduction targets imposed by the government and the market did not impose great pressure to reduce CO2 emissions. Therefore, most companies had invested mainly in energy-saving facilities that promised a relatively short payback period (i.e., three to five years).

Research further indicates that reduction activities are strongly related to three motivations: (1) existing regulations, such as the Energy Saving Law, (2) existing voluntary reduction targets of industrial organisations, and (3) environmental regulations expect from the government in the future. Based on this analysis, it is difficult to expect further substantial CO2 reductions from Japanese companies, because (1) existing regulations are not strong enough to control total emissions, (2) existing voluntary targets by Japanese companies were also not stringent enough to reduce CO2 emissions, and (3) at the time when research was conducted, there were no concrete plans by the central government to introduce economic measures such as carbon taxes, cap and trade.

The DPJ: A way forward for emissions reduction?

For Japan to move toward a low-carbon society, it will be essential to develop a comprehensive policy framework for controlling corporate investment and individual activity on emissions. This may involve the introduction of market-based reduction schemes, such as carbon taxes and cap-and-trade systems. The Japanese experience has shown us that, in the absence of market signals, purely voluntary systems will not work. The realisation of multiple targets will also be important —not only for the sake of climate change, but also to enhance Japan’s employment ratings, international competitiveness, and energy security, among other things.

The introduction of caps on carbon emissions will be essential for improving emissions levels. ‘Natural’ caps were imposed on energy consumption during the 1997-1990 period, when Japan suffered from two ‘oil shocks.’ At those times, Japanese industries made great efforts to improve their energy-efficiency, but after the 1990s — when the price of oil became relatively low and stable — the energy-efficiency trend ceased.

In 2009, after the general election, the newly-elected Democratic Party of Japan prepared a bill of Basic Law to mitigate global warming and submitted it to the Japanese Diet. The Bill included a 25 per cent GHG reduction target by 2020 (with the condition that all major GHG-emitting countries, including developing countries, agree to establish an international mitigation framework with ambitious targets), an 80 per cent GHG reduction target by 2050 (without any conditions), the introduction of a carbon tax, the introduction of a cap-and-trade scheme within a year, and the introduction of a feed-in tariff on all renewable energy.

To see real achievements in Japanese climate policy the establishment of market mechanisms, including caps on emissions, and collaboration among stakeholders will be essential. Caps could also lead to the production of innovative technologies and business models. Stringent caps could create sustainable production and consumption systems and, in turn, a noticeable improvements in the quality of life.

Seijji Ikkatai is professor of environmental policy at the Kyoto Institute of Economic Research, Kyoto University.

This is an extract from a paper delivered at the Asia Climate Change Policy Forum in October.