Carbon Leakage or Bridging the Energy Efficiency Gap?
: A case of Japanese emission Trading Scheme
Taisuke SADAYUKI, Toshi.H. ARIMURA

１ ． Introduction

The purpose of this research is to examine the carbon leakage due to theintroduction of regional ETSs in Tokyo (since 2010) and Saitama (since 2011). If
the carbon leakage is a severe issue, we may find an increase of GHG emissions
outside of Tokyo or Saitama. Another reason to examine the regional ETSs in
Japan is to investigate the impact of ETS on the energy efficiency gap. Oncethey face the regulation on CO 2 emissions due to ETS, energy efficiency may
become a higher priority at the targeted facilities. In this case, theintroduction of ETS may promote energy efficiency by bridging the energy
efficiency gap. If these firms facing ETS have facilities outside Tokyo orSaitama, they may also promote energy efficiency in those facilities now thatthe firms have better information.

２ ． Methods

We make use of facility level annual panel data of Greenhouse Gas (GHG)
emission between 2009 and 2014 collected under the “Act on Promotion of Global
Warming Countermeasures” where institutes in all sectors must submit annual
reports on CO 2 emission produced in every “large-scale facility (hereinafter,LF)” who consumes 1,500 kilolitres or more of oil equivalents energy per year.
We apply difference-in-difference approach and estimate the following emission
equation to examine the impact of ETS:
ln#𝐸%& ' =)𝜏+ 𝑅𝑒𝑔𝑖𝑜𝑛%+ × 𝐸𝑇𝑆<& + 𝜓& + 𝜆% + 𝐆𝐄𝐉𝐄%& 𝛃 + 𝐗%& 𝛄 + 𝜀%&+∈{.,0,1}

where 𝑖 and 𝑓 denote institute and large-scale facility (LF) respectively. The
variable 𝑡 and 𝑟 denote year and region in Tokyo (T), Saitama (S) or otherprefectures (O). The dependent variable 𝑬𝒇𝒕 captures energy-originated CO 2emission from facilities 𝑓 at year 𝑡. Year-fixed effect and facility-fixed
effect are captured by 𝝍𝒕 and 𝝀𝒇 respectively. Further, 𝑹𝒆𝒈𝒊𝒐𝒏𝒇𝒓 takes one if LF
𝑓 is located in region 𝑟 and zero otherwise. The dummy 𝑬𝑻𝑺𝒊𝒕 takes one ifinstitute 𝑖 has a LF facing Tokyo and/or Saitama ETS at year 𝑡. Thus, theparameter 𝝉𝒓 captures the impact of ETS on energy-originated CO 2 emission fromfacility 𝑓 located in region 𝑟. If the effect of carbon leakage from facilities
in Tokyo/Saitama to facilities in non-regulated regions is greater than theeffect of bridging the energy efficiency gap, we expect to have a negative signfor 𝝉𝒓 for other prefectures (O). We control the impacts of the Great-EastJapan-Earthquake by 𝐆𝐄𝐉𝐄%& and other factors such as electricity price, emission
factor, heating-degree days, or cooling-degree days are included in 𝐗%& .
３ ． Estimation result

The table shows the estimation results regarding the estimates of 𝝉𝒓 . The
estimates of 𝝉𝑶 show negative and significant signs. This implies that theeffect of bridging the energy efficiency gap is greater than the negative impactof carbon leakage. Interestingly, the impact is greater for service sector(3.7%) than the manufacturing sector (1.7%).

４ ． Conclusion

By conducting a facility level econometric analysis, we found that, once
facilities in Tokyo or Saitama faces ETS, not only these facilities but also
those outside Tokyo and Saitama of the same institutes reduced CO 2 emission eventhough they are not under ETS. This implies that the impact of ETS in bridging
the energy efficiency gap overweighs the impact of carbon leakage.