A Carbon Tax or an Environmental Tax Reform: Difficult Dicision for Japan
Park Seung-Joon (Associate Professor, Kyoto Sangyo University).
The Eighth Global Conference on Environmental Taxation
Munich, 18-20 October 2007

Summary
For a world citizen familiar with efficient Japanese high-tech products, it may be a bit of asurprise that Japan emits yearly 8% more greenhouse gases than the base year of the
Kyoto Protocol. In fact, the ability of its government to realize an effective climate policy islimited, unlike the innovative performance of its business.
The Ministry of Environment Japan has presented its own Carbon Tax proposals three times
since 2004 in vain, because of lacking civic support, a resistant business lobby and the Finance Ministry’s indifference. Proposed is a low-rate carbon tax earmarked foranti-global-warming measures. Actually, this proposal is the fruit of the internal discussionsof several working groups in the Environment Ministry, which have studied theoretical andpractical aspects broadly, including the research of foreign examples and several simulation
studies, since the late ’80s. Interestingly, any environmental tax reform (ETR) scenario
which can result in a “positive double dividend” has never been tested in these experiments.
The Carbon Tax of Japan is now in a political stalemate. But, in view of our aging society,the shift of taxation from labor to environment is very important. The resistance of industrial
lobbies, such as Keidanren, is the most crucial factor which has blocked the implementationof the carbon tax, but interestingly, the Japan Association of Business Executives basicallyapproves the idea of ETR. Although some NGO members presented their proposals on ETR,
most of the other groups are not much interested in economic solutions to environmental
problems. According to the newest government’s own opinion poll, the proponents for the
carbon tax have increased to 40.1%, while 32.0% of the population is against. However,more than 70% of the proponents prefer the total revenue earmarking foranti-global-warming. These facts show the necessity of better public understanding on
ecological tax reform.

1

Introduction
In spite of the glorious appearance as a leading country for sustainable technology,
symbolized especially by the hybrid automobiles, Japan lacks political will and leadership to reduce the emission of greenhouse gases (GHGs). In 2005, Japan has emitted
7.8% more GHGs than 1990 level, although it has to cut the amount by 6% from 1990
level. While many European countries are on the track to meet the Kyoto-Target of 2008
to 2012, especially by adopting several market instruments such as the environmental
tax reform, CO2 emissions trading system or feed-in tariff system for renewable energies, Japan relies still now on the politically easy measures such as the industrial voluntary action or civic action, and sometimes some types of command and control. This
paper discuss about the characteristics and history of the recent carbon tax proposals by
the Ministry of Environment Japan (MoEJ) and try to make clear the problems ofJapanese climate policy.
Japan’s Review of the “Kyoto Achievement Plan”
On Aug. 10th 2007, the Joint Committee of Central Environmental Council and Industrial Structure Council has published the Intermediate Report for Review of the Kyoto
Achievement Plan. According to this report, it is not possible to meet the target unless
Japan adopts more effective political instruments. But, in the committee’s proposal,
instead of the effective market instruments such as carbon tax, the Appeal for the Civic
Action (“Team Minus 6 Percent”, “let’s cut 1kg CO2 per person per day”) is one of thecore of Japan’s GHG reduction policy. It is actually the symbol of Japan’s poor environmental policy1. Other main measure is the wider and stronger “Voluntary Action” ofindustry and service, but there is no official penalty for nonperformance. And, for the

public building, the support for greening or solar power is proposed. But under the Japan’s support scheme based on very weak RPS system2, Japan’s renewable market has
almost no prospect. On the other hand, government is willing to tighten the Energy
Saving Law for building, which may be one of the effective command and control
measure. Above all, the government wants to reduce GHG by higher use of nuclear
power, on the very unrealistic utilization rate of 88%, but average utilization rate in last
three years was only 70%. And after the severe earthquake attack on Nuclear Plant
Kashiwazaki Kariwa, the contribution of atomic energy as a measure to reduce GHG
The MoEJ pays 2.7 billion yen (ca. 17million Euro) annually to a single major advertisement company Hakuhodo for total planning and management of this campaign.
2 Japan’s renewable portfolio standard (RPS) system is a variation of the quota & tradable
green certificate (Quota/TGC) system, which is less successful than Feed-in tariff (Commission 2005). Japan’s target is the renewable electricity share of only 1.6% until 2014.
1

2

became more and more uncertain. But, in today’s political situation in Japan, it is very
unlikely that an emissions trading scheme or carbon tax will be introduced. Ultimately,
there may no option for politically impotent Japan other than to purchase reduction
credits abroad by dipping into the debt-ridden public coffers.
What is wrong? Although strong protest of industrial lobby (especially the Keidanren)
is very hard, but greater problem is that, people, both policy makers and ordinary people, don’t understand the very basic law of environmental economics.
Fiscal Instruments as means to reach the goal
We all know, in order to prevent the climate change, we mainly have to reduce theemission of greenhouse gases (GHGs) such as carbon dioxides by reducing the consumption of fossil energies. Many people think that the solutions to do it is for example
to apply cleaner production process to the industry, to introduce more renewable resources for energy supply, to buy low emission vehicles, or to change our house andbuilding more efficient by heat insulation or with more efficient appliances. Yes, daily
action to save the consumption of energy by switching off the idle equipments or setting
the temperature of the air conditioner higher (lower) in summer (winter) is also indispensable. But, is it really appropriate to treat these as solutions, or the “first means” toreach the goal? We cannot change the mind and lifestyle of people only by persuasion or
sermon. Very small part of the population may be willing to do good for the earth attheir own expense. And, a manager of a company can hardly persuade the stakeholderof “excessive” voluntary pollution abatement which makes no (or negative) profit or
which does not appeal to the customers.
Apparently, we indeed need means to realize these solutions. We need effective instruments which can change the incentive structure of individuals and firms, that is,which can reward any environmentally positive initiatives of any member of our society.
These means must be policy-instruments such as command and control (with penalty),
subsidy, eco-tax or emissions trading etc. to promote the diffusion of existing technologies, rather than (often unprofitable) new technologies or moral suasions. In this paper,
we focus on the fiscal instruments such as environmental taxation.
The Key is “Price”
As we know, in the market economy, the demand and supply of any good are adjusted
by the price mechanism. According to the law of demand, one of the most basic theses of
economics, consumers reduce the amount of goods of which price increased. Energy,
which is strongly related to the several environmental damages such as the climate3

change or air pollution, is no exception. Although energy demand is fairly inelastic, inother words, is not flexibly react to the price change at least in the short run, economy
with high price consumes less energy. Here you can see an example.
Figure 1 shows thedevelopment of Japa-

Figure 1: GDP Growth and Energy Demand of Japan600

nese economy and energy demand. At thefirst glance it seems
that the Real GDP and
Energy Demand havegrown in parallel. But
the circle shows that

500

Real GDP (Tril. Yen)

400

Primary Energy
Supply (Mill. TOE)

300
200

Final Energy
Demand (Mill. TOE)

100

after the 1st and 2nd oil
crisis when the price of01965 1970 1975 1980 1985 1990 1995 2000

crude oil skyrocketed,the consumption of en-

Source: EDMC (2006)

ergy in Japan has stagnated although the economy has continuously grown. It makes us
clear that development without energy consumption growth is possible, conditioned by
the high price of energy.
According to the book “Factor Four” published in 1995 by E. U. von Weizsäcker, Amory
B. Lovins, L. Hunter Lovins, we can improve the resource efficiency of our society atleast as high as four times. They have shown persuasive 50 examples of Factor 4 technologies which already exist. And they emphasized the importance of increasing resource/energy price to promote the penetration of these technologies. As we know, only atiny part of these technologies which have existed ten years ago have penetrated into
our market. Clearly there exists a barrier for it.
The price has to show the environmental reality, otherwise cheaper but environmentally harmful goods and production processes remain beneficial. Greater problem is theinvestment on energy-inefficient houses or infrastructures which cannot easily bescrapped in the future. Therefore, the ecologically true price signal should orientate thetechnical development, society’s structure and people’s behavior into the right direction.
In addition, the price should increase strongly, steadily but slowly so that people canhave stable vision of the future and time to adjust themselves. This can be realized by
the environmental tax (or the “eco-tax”).

4

On the “Instrumental Illusion”
As we see, eco-tax has been not popular. It seems that most people in the world believethat eco-tax is a burden and it hinders the economic development. On the other hand, it
seems most people believe that the emissions trading is a chance and it brings themprofit. But, I believe, it is just an illusion, which I call “instrumental illusion”. Under theassumption of the rationality and market efficiency, the GHG reduction cost for thesociety (or “deadweight-loss”) is the same (Figure 2). It is determined not by the policy
method but by the amount of reduction. In this meaning, tax and emissions trading are

equivalent. Different is only the result of redistribution. By tax, tax revenue can, differently from the case of high crude oil price, be recycled into the economy in several
ways. That is, the taxpayers receive the revenue back. By emissions trading, polluters
don’t have to pay tax, but there
Figure 2: Reduction and Econom ic Cost

will be financial give and takebetween them. In both policies,

M arginal Cost, Tax Rate,
Carbon P rice [$/t]M arginal
Reduction
Cost Curve

deadweightloss

somebody wins, somebody loses,
because the redistribution is azero-sum game.

τRedistribution
0

Em iss ion
Am ount
[t]

COST

X1

X0

Then, are these two methods inpractice equivalent? No, tax is inseveral respects far better. Firstly,
the Emissions Trading is applica-

ble only for large polluters, because it requires the strict monitoring of emission. Secondly, by emissions trading, fair allocation is almost impossible and there will be many

innocent losers. Thirdly, uncertain carbon price makes people myopic and discourages
many reduction activities, while fixed tax rate would encourage them. In fact, Emissions Trading have dilemma, if many firms reduce their emission in order to makemoney by selling reduction credits, the carbon price will go down and they will be penalized by doing a good thing. Finally, by tax it is easier to take measures to reduce thenumber of losers, by reduction of other taxes, by lower tax rate or exemption for energy
intensive businesses etc. Recently, some major economists argue that the international
carbon tax is systematically better and easier to arrive at an agreement than global cap
and trade as a Post-Kyoto Scheme (Nordhaus 2005, Stiglitz 2006, Mankiw 2007).
In short, the carbon tax is more effective and fair than Emissions Trading. On theother hand, one of the greatest disadvantages of the carbon tax is that it is not (yet)popular, again because of the instrumental illusion.

5

The Environmental Tax Reform with the “Double Dividend”
As mentioned, the energy price should increase strongly, steadily but slowly in the longrun. Therefore the energy (or carbon) tax rate must be fairly high in the future. It will
generate the tax revenue as much as value added tax or income tax. Although desire of
an Environmental Ministry for its own financial resource is understandable, it is not agood idea to make it legally binding to use whole carbon tax revenue to subsidize theindividual action for environmental protection. The revenue should flow into generalbudget to build the welfare system which will be necessary for Japan in the future, or to
reduce other financial burdens of firms and households.
The Environmental Tax Reform introduced in some major European countries is agood alternative. In this concept, the higher carbon/energy tax leads to no increase in
overall tax burden, because the tax revenue is used to reduce other tax (revenue neutrality). In other words, it is only a shift of tax base from goods (labor income or corporate profit etc.) to bads (damage to environment or use of precious resources).

F igure 3: T he T heory of “D ouble D ividend”“B etter Environm ent” and “B etter E conom y”
F ossil F uel M arket
P rice(Yen/Ｌ )S upply C urveincl. Tax

P2t

S upply C urve
w ithout Tax

P1

w age rate(yen/person hour)Labor
D em andC urve U

X1FossilFuel (L)

U2

W D2
WS

X2

Labor
S upply
C urve1

W D1

D em andC urve0Labor M arket

0

A fter-Tax
w age rate

L D1 L D2

LS

Labor
(person hour)

Source: Park (2004b)
One of the very important theoretical basis which supports this policy is the so called“double dividend hypothesis”. It says, higher eco-tax brings better environment (thefirst dividend) and lower conventional tax brings higher economic welfare by removing
the tax distortion (the second dividend). Figure 3 shows how the carbon tax revenue canbe spent to cut the labor tax (or social security contribution) so that the employment
increases (LD1=>LD2).

6

Until the beginning of 1990s, double dividend was taken for granted (technically, Pig-

ouvian Effect [PE] and Revenue Recycling Effect [RE] are both positive; in detail, see
Goodstein 2003). In the middle of 1990s, another effect is focused on by skeptical
economist (Bovenberg, Parry or Goulder etc.). According to their theory, the inflationinduced by higher energy price lowers the real wage, so that the labor supply reduces(so-called Tax Interaction Effect [IE], IE<0) and economic welfare diminishes(RE+IE<0). Although there is a consensus on weak double dividend among economists(to reduce other tax by the carbon tax revenue economically more efficient than to spend
in another way; RE >0), but strong double dividend (positive economic effect, RE+IE>0)
is controversial. Since late 1990s, some cases are discovered where the strong double

dividend occurs even if IE is negative, especially the case of the labor market disequilibrium (involuntary unemployment). In 2003, Goodstein (2003) gave a strong counterargument against the “tax-interaction theory”. 2005, it is discovered by Kobayashi(2005) that strong double dividend is possible if the earning of households comes not
only from the labor income.
Note that, although environmental tax reform is believed to be harmful for international competitiveness of the domestic heavy industries, it is usual in precedent practices to give a special treatment for them, easing the potentially negative impact of thereform for them.
Table 1: European Examples of the Environmental Tax Reform
Land (year)
Use of Revenue
Land (year)
Use of Revenue
FinlandGeneral Budget
Netherland
General Budget(1990)(reduce Income Tax)
(1990)(partly subsidy )SwedenGeneral Budget
Germany
Reduce SSC (90%)(1991)(reduce Income Tax etc.)(1999)(partly subsidy)
Norway(1991)

General Budget

Italy(1999)

Denmark(1992)

General Budget(reduce SSC etc.)UK(2001)

Reduce SSC (60%)
Compensation 30%
subsidy 10%
Reduce SSC

In fact, in spite of controversial theoretical discussion, many European countries havealready adopted the environmental tax reform pursuing the double dividend since early
1990’s (Table 1). And several empirical or numerical study show results with strong
double dividend. Ex-post studies of German and British Environmental Tax Reform
have shown that the double dividend was realized (Bach et al. 2002, Ekins & Etheridge2006). According to the estimation by German Institute for Economic Research (DIW),
employment has increased as much as 250,000. The COMETR Study supported by the7EU has shown based on real historical data of seven European countries (including thespecial treatments forenergyintensive

Figure 4: Double Dividend (GDP) shown by the COMETR

industries) and on the
E3ME model of Cambridge

Econometrics

that “double dividend
theory can no longerberejectedpractice”
2007).

(Andersen

Besides,

Japaneseinfor

economy,Park (2004a) showsthepossibilityofstrong double dividend using the computable general equilibrium model.

The Carbon Tax Proposals of Japan’s Environmental Ministry
Environmental Ministry of Japan (MoEJ) has made it’s concrete proposal three times(in vain) since 2004 (Table 2); “A Concrete Proposal for the Environmental Tax” of Nov.
5th 2004, “A Concrete Proposal for the Environmental Tax” of Oct. 25th 2005, and“Greening the Budget for Anti Global Warming” of Nov. 22nd 2006.
As you see, these proposals are the combination of very low carbon tax rate (with almost no incentive to reduce the use of fossil energy) and subsidies on climate protection(such as renewable energy or isolation of building) and on measures for forestry3. The
MoEJ claims that, in comparison to the high carbon tax which is enough to induce all
economic actors to cut the CO2 significantly, its plan will achieve equivalent reduction
with lower economic costs. But we should doubt it, because the government cannot allocate the financial resource as efficient as the market (Figure 5 and 6).

Japan will be certified up to 3.9% reduction if it properly manages (or spends money to)their forest (carbon sink activity).
3

8

Table 3: Japan’s Carbon Tax Proposal
Proposal
2004
Tax Rate
Revenue(Industry: Service:
Household)Use of Revenue

SpecialTreatment

Proposal
2005

2400 Yen/t-C (c. a. 20$/t-C)(654 Yen/t-CO2, 5.45$/t-CO2)
490 Bill. Yen
150: 200: 140

2400 Yen/t-C(654 Yen/t-CO2)
370 Bill. Yen
160: 110: 100

Subsidy for Climate Protection and Forestry (340)
Reduction of Social Security
Contribution (150)

General Budget
But: Subsidy for Climate
Protection and Forestry

General Budget
But: Subsidy for Climate
Protection and Forestry

Steel; Agriculture, Forestry,
Fishery (Exemption);
Heavy Industry; Diesel; Small
Firms and Household (Reduction etc.)

Steel (Exemption);
Large emitter which performed reduction activity(50% Reduction)
Kerosen (50% Reduction)
Motor Fuel (put-off)Steel; Fishery (Exemption);
Large emitter which performed reduction activity(80% Reduction)
Kerosen (50% Reduction)
Motor Fuel (put-off)Figure 5: Market can AUTOMATICALLY achieve the efficient reduction

7
6
5
4.5
4
3.5
3

PV
Lowfuel Car
Wind
Power

Low- NRG
Appliance
Fuel
Switch

1

10
0

1

400
40

30

20
2

3

80
Efficiency 70=
60 Cost &Lowest50
Highest Reduction Reduction
Reduction: 4 mill. t-C [Million t-C]
Cost: 100 billion yen

Cleaner
Production

4

8

Marginal Reduction
Cost [1000 Yen/t-C]

7

Problem of Subsidy

6- Imperfect Information

5

Isolation

2

Figure 6: Government cannot be as efficient as the market.

Forestation

Marginal Reduction Cost
[1000 Yen/t-C]
Firms and People
react to the Pricevoluntarily andefficiently
House

8

Proposal 2006 with
LDP’s environmental
committee.
2400 Yen/t-C(654 Yen/t-CO2)
360 Bill. Yen

5

6

7

8

31

4

1

House
Isolation- Administrative cost80
70

Cleaner
Production

60

Low- NRG
Appliance
Fuel
Switch

1

2

50

40

30

20

10
0

Lowfuel Car
Wind
Power

- Excess grant3
2

Forestration
PV

3

Reduction[Million t-C]
4

5

6

7

8

32

In the market, firms and people react to the price voluntarily and efficiently, achieving
highest reduction by lowest cost. However, as the government cannot have the perfect
information of where and how much is the potential reduction possibility, it can excessively subsidize remarkable but expensive reduction plans (such as the “Team Minus
6 %” by Hakuhodo, see footnote 1). In addition, merely to give grant to a firm requires
fairly high administrative costs. Therefore, to give subsidies in this way is perhaps
worse than to buy foreign reduction credits of which reduction is verified. Besides, this
proposal is just a tax hike unlike the environmental tax reform, and we should contemplate whether we permanently earmark the revenue even if the carbon tax rateshall be higher and higher, bringing more and more revenue.
The carbon tax proposal of Japan has a long history. It was discussed since early 1990’s
in consecutive working groups of MoEJ. They have narrowed the policy options to9mainly two different concepts; high tax rate (about 30000 yen/t-C), or low tax rate(about 3000 yen/t-C) combined with subsidies (originally about 1 trillion yen) (Figure 7).
Some of the members have performed several simulation studies (especially with famous AIM end-use model), showing the advantage of the low-rate option with subsidy
under the assumption that the carbon tax revenue will be granted efficiently (Central
Environment Council 2003). But it is a sweet illusion as explained above. Although they
have reviewed precedent European cases, they have never seriously calculated the possibility of “double dividend” scenario. As a result, very few policy makers and almost no
people know what an environmental tax reform is like. I suspect it is because the Environmental Ministry cannot have a special budget at its own disposal if the double
dividend theory is proved. If this suspect is true, this proposal is not “fiscally pure”.

Figure 7: High Ecotax vs. Low Ecotax with Subvention;
Idea of MoEJ based on „AIM model“
Marginal Cost
carbon tax rate [yen/t-C]
HIGH
30000

Marginal Abatement
Cost Curve

9000 billion yen
General Budget(can be recycled, but not
for Labor Tax reduction)

LOW
3000
0

Based on the
AIM bottom up
model.
Assumption:

Impossible! But this is theBasis of the MoEJ Proposal

optimalallocation
900
bill.
Subvention

Emission[mill. t-C]

900 Billion yen Earmarking

300
Goal

370
35
35

In addition, they preferred lower tax because it may ease the resistance against carbon tax. That is partly true (as we see later), but in the real political process, the low tax
rate and additional special treatments couldn’t ease the resistance of the industry so far.
They set their heart not only against environmental tax but also emissions trading (insome ways, can it be said that Japan’s industrial lobbies do not embrace the instrumental illusion?). Anyway, lack of understanding on effective policy measures among
policy makers and general public hindered the breakthrough of market instruments,
even though it is clear that Japan cannot meet its Kyoto-target without them.
Revenue sources in the Aged Society Japan
Japan is the top aged society in the world in 2007. According to the UN’s World Popu-

10

lation Aging 2007, the percentage of population aged 60 or over is 27.9% (rank 1), followed by Italy (26.4%, rank 2) or Germany (25.3%, rank 3). The USA is far below (17.2%,
rank 43). For the sake of well-being of the elderly, Japan has to prepare a variety of hardand soft social infrastructures, such as sound pension scheme, nursing-care system oruser-friendly public transportation system. The government of Japan cannot avoid toraise the revenue per tax, although it is needless to say there is a huge amount ofwasted public resources to be saved. The level of general budget’s dependence on publicbonds was 44.6% in 2004, which is declined to still high level of 30.6% in 2007. The accumulated amount of public bonds (central and regional) is 148% of the GDP, which ismarkedly higher than Italy.
In this context we have to contemplate on the structure of the public revenue. Developed countries such as Japan or Germany today rely heavily on “goods”-taxation, that is,
on tax on labor, capital or consumption goods (Table 4). Especially, the tax on labor has
negative incentive both for firms to employ less labor and for workers to work less,which is counterproductive for constructing a sound welfare society. In the future, thepublic finance of our society should rely on “environmental” tax bases (or “bads”), inother words, should shift the tax burden from goods to bads, in order to bring out thecreative human power and to ease the environmental problem at the same time. This iswhat the idea of the environmental tax reform aims in the long run.
Germany has finally begun to change the trend with the Ecological Tax Reform in 1999,
increasing the share of environmental taxation by 2005.
Table 4: Revenue share of Tax/SSC on each production factors in Japan and Germany
Japan (1970)
Japan (2000)
Germany (1998) Germany (2005)
Factor Neutral
16.4%
19.1%
16.4%
16.6%
Environment
7.8%
6.2%
7.0%
8.5%
Capital
39.1%
27.1%
11.3%
11.1%
Labor
33.9%
47.6%
65.3%
63.8%
Source: Park (2003) and newest calculation by B. Meyer (BMU). Factor neutral: tax on ordinary products; Environment: tax on energy or environmentally harmful products; Capital: tax on corporate
profit and individual income from capital; Labor: labor income tax and social security contributions

Power Balance of the Environmental Tax Reform
1) Ministries
In the political decision making system, the role of ministerial bureaucrats are crucial.
About 85% of the recently enacted bills are cabinet laws most of which are practicallydesigned by government officials in different ministries4. Policies are discussed in sevSource: a record of submitted and enacted bills by Cabinet Legislation Bureau(http://www.clb.go.jp/contents/all.html).
411eral committees, councils or working groups inside of the competent ministry, andmembers of them are usually selected not by parliament members but by ministerial
officials. This selection process factually determines the direction of the discussion.
Because of the well-known vertically divided administrative functions (“tatewari”), it isfairly hard to harmonize the interests of ministries. For highly multifaceted politicalissue such as the environmental tax reform, it requires inter-ministerial cooperation
between competent ministries such as MoF (Ministry of Finance), METI (Ministry of
Economy, Trade and Industry; competent for energy policy), MLIT (Ministry of Land,
Infrastructure and Transportation; competent for spending of gasoline tax revenue),
MAFF (Ministry of Agriculture, Forestry and Fisheries of Japan) or MoEJ (Ministry ofEnvironment). But it is very hard to harmonize their interests. As mentioned, the carbon tax proposal was made by MoEJ. While MoEJ and MAFF made coalition for the
carbon tax proposal of MoEJ, the METI is strongly against eco-tax reflecting the interest of its patron (“industry”), and the MoF seems not very active for the implementationof the carbon tax recently. Although the Government Tax Commission (in the Cabinet
Office, virtually managed by the MoF) has been fairly pro-eco-tax under the former
chairperson Hiromitsu Ishi (a fiscal scientist known by his book on eco-tax), today thecommission can only mention the necessity of the further discussion on carbon tax.
Table 5: Budget of Ministries related to the Environmental Tax Reform* (F. Y. 2007)
Special Budget under Control
one-tenth billion yen; Name of the Account)
44130; items... 32943 (food stabilization) + 1252 (agricul2.42
tural mutual aid) + 128 (forestry insurance) + 4591 (naMAFF(6.4)
tional forest) + 179 (fishery ship reassurance) + 5037 (national land improvement)
1.03
27992; items... 22404 (energy) + 2267 (power resources) +METI(38.5)
2131 (trade reassurance) + 1190 (patent)
56627; items... 430 (urban fund) + 9452 (flood control) +6.16
36178 (road) + 3223 (harbor) +5660 (airport) + 819 (autoMLIT(15.1)
mobile liability insurance) + 539 (automobile inspection) +326 (special government property)
MoEJ
0.22 (1.4)
337; items... 337 (energy)*Except for the Ministry of Finance. Some amount of the resource from general budget and special
budget can be overlapped. 1 EURO=ca. 160 yen.
Source: Ministry of Finance, author’s own calculation.
Ministry

from General Budget
tril. yen (bill. EURO)

Table 5 shows the relative financial power of ministries and why MoEJ longed the
support of the MAFF which is interested in the carbon sink policy. In fact, the revenueof the above-mentioned carbon tax proposal (360 or 490 billion yen, ca. 2.2 billon Euro)is very small compared to the Special Account for the Road Improvement (3.6 trillionyen). In Japan, the revenue from tax on automobile fuel (gasoline etc.) is bound to thisaccount and can never be spent on other public purpose than to pave the road (some-12

times futilely) in spite of the deficit of the general budget. The MoEJ shall demand only
about one tenth of this special budget to do what they allege to be effective for the climate protection even if the carbon tax is impossible5.
2) Political Parties
In the post-WWII Japanese political system, the LDPJ (Liberal Democratic Party Japan) has always been dominant (except for very short period in the 1990s), and havemade symbiotic relationship between the bureaucracy and business (the so called irontriangle). LDPJ has even its own Tax Committee which is as powerful as Government
Tax Committee. However, LDPJ is not monolithic but has some “Habatsu” (factions)and many “Zoku-Giins”, that is, diet members who act in the interest of certain government ministries and industries they regulate and benefit from their efforts. Therefore there is pros and cons of the carbon tax in the LDPJ reflecting the interest of ministries (MoEJ-MAFF axis or METI-MLIT ally) or business concerned, so that it can not(yet) express the common position.
Opposition parties express favorable opinion to the market-based environmental policy
measures. Especially the Democratic Party, which has won the position of the top party
in the House of Councilors at the election of July 2007, expresses support for the idea ofEmissions Trading, and began to discuss about an automobile carbon tax in exchange
for the earmarked automobile fuel taxes in the DP Tax Committee. But the Democratsand other opposition parties alike do not have their concrete proposal, and in today’s
situation it is not likely that the eventual victory of them in the next election of thelower house leads to the implementation of the Carbon Tax, not to mention the Environmental Tax Reform.
Table 6: The Position of Parties and Their Seats in two Parliaments
Environmental Position
LDPJ
Komeito
Democratic Party (DP)Communist Party
SDPJ
People’s New Party
independent

ambiguous
ambiguousfor ETS and Carbon Tax
for Carbon Tax
for Carbon Tax
ambiguousNA

Seats in the House ofRepresentatives
305*
31*
113
9
7
6
9

Seats in the Houseof Councilors
84
20
112*
7
5
4
10

*The ruling party in the respective House.
Source: Surveys by several civic groups such as JACSES, ECOLO-Japan or the Promise-of-KYOTO.

The newest Environmental Minister, Ichiro Kamoshita, has demanded a part of theSpecial Budget for Road Construction (Mainichi Shinbun 2007/9/27).
5133) Business
The most influential Japanese business organization is the Nippon Keidanren which
consists of 1,662 members such as 1,343 companies, 130 industrial associations, and 47
regional economic organizations (as of June 22, 2007). Although members are not only
the energy intensive businesses (such as cement, steel, paper or chemical), Keidanren(over-)represent the interest of the industries supplying and demanding great amountof energy when it comes to the issue eco-tax. This federation is dead set against any“dirigiste approach” such as environmental tax or emissions trading (in a sence, they
don’t embrace the instrumental illusion). The history of Keidanren’s protest against
eco-tax dates back more than ten years. In Nov. 1996, Keidanren and the Federation ofGerman Industry (BDI) announced the Joint statement on Global Warming Prevention
which criticize the carbon tax and, as a familiar story, advocated for voluntary actions.
As mentioned above, the voluntary actions of Keidanren has become one of the pillars ofJapan’s official non-market-based policy to achieve the Kyoto target, while in Germany
the EU-ETS has been established as the main environmental policy instrument for theindustrial sector.
The Japan Chamber of Commerce and Industry (ICCJ) has taken also similar position.
60 groups including ICCJ, Keidanren and National Federation of Small Business Associations held the “Indignation Meeting against New Tax arrogating the Eco-Tax” on Dec.
9th 2004, in which also about 100 parliament members took part. In short, low-ratecarbon tax with special treatment for industry couldn’t ease their protest.
Rather exceptional is the position of the Keizai Doyukai (Japan Associaion of Corporate Executives) which consists of 1400 corporate executives who take part in this groupas an individual. Although the political power is not as strong as Keidanren, its opinion
is not negligible because many members are representatives of famous major companies.
It has expressed a favorable opinion on a revenue neutral carbon tax in the position
paper in Jan. 2006 under the former chairman Kakutaro Kitashiro. In fact, he wasskeptical about the earmarked carbon tax a la MoEJ. The present chairman Masamitsu
Sakurai has also advocated personally in favor of the carbon tax (Voice 2007).
4) Civil Society
Although most people in Japan tend to believe that moralistic individual effort (such as
the Civic Action “Team Minus 6%”) will “save the earth”, some civic groups realized thenecessity of effective (market-based) regulatory system. Above all, the Carbon Tax
Study Group (consists of members from NGOs such as the JACSES, Kiko-Network,
Study Group for the Sustainable Society, Green Forward and WWF Japan) has played

14the leading role in preparing for the arena of discussion between policy makers, citizens
and business leaders. It has been studied the theory and practice of the Environmental
Tax Reform and been making its own proposal similar to the European practice(high-tax-rate and revenue neutrality) since 2001. Some other climate protection groups
are also interested in the market based policies. While WWF Japan has made its proposal for the Domestic Emissions Trading in March 2007, Kiko-Network, ECOLO-Japanor the Promise-of-KYOTO have conducted several electoral surveys on the candidates orpolitical parties and gave information to the voters on who and what party are for the
implementation of the effective regulatory instruments such as the carbon tax. However,their activity is known to few people. Other environmental NGOs seem not interested ineconomic solution to the environmental problem, and the implementation of environmental-economic instruments has never been the focal issue of the newest election of
the Upper House in July 2007.
On the other hand, public support for the Carbon Tax is strengthened (may be becauseof the increasing temperature and recent weather anomalies). According to the newest
public-opinion pole by the Cabinet Office in August 2007, the proponents (40.1%) finally6 exceeded the opponents (32.0%), and yet strong majority (70.9%) of the proponents would like the whole amount of the revenue to be spent on theanti-global-warming measures (Cabinet Office of Japan 2007). The concept “revenue
neutrality” or “the double dividend” is (naturally) outside the scope of the survey. For
your information, only 24.8% of the respondents were for while 32.4% were against in
the same survey in 2005.
Conclusion
The implementation of an environmental tax reform faces very high hurdle to jump in
Japan. People believe that non-economic approach such as moralistic civic action, industrial voluntary action or subsidy managed by the Ministry of Environment is effective method available without burden. It is not surprising because the economic theory
behind the environmental-economic measures is fairly hard to convey and to be understood. But as the weather shows anomaly seemingly caused by anthropogenic global
warming, it will be inevitable to implement some truly effective regulative or economic
instruments. What we need now is, rather than just to give people a sermon to save theclimate, to give better understanding of the policy measures, first of all the tax shift

Although there have been majority support for the carbon tax according to the questionnaires conducted by the MoEJ, they have been somewhat biased in terms of sampling of respondents.

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approach which is proved to be effective and beneficial for the economy. Although industry’s protest is very strong, majority of Japanese people (including businessmen)
want to contribute to climate protection, and want to know how to do it. The result ofrecent public pole indicating 40% of support for carbon tax is a good sign.
Literalure
Andersen, Mikael Skou (2007) “Carbon-energy taxation contributed to economic
growth” http://www.dmu.dk/International/News/CO2tax.htm
Bach, Kohlhaas, Meyer, Praetorius and Welsch (2002) “The Effects of environmental
fiscal reform in Germany, a simulation study”, Energy Policy, Vol. 30, pp. 803-811.
Central Environment Council (2003) Concrete Plan for the Anti Global Warming Taxes(in Japanese; 中央環境審議会ほか(2003)『温暖化対策税制の具体的な制度の案～国民による検討・議論のための提案～(報告)』中央環境審議会，総合政策・地球環境合同部
会，地球温暖化対策税制専門委員会．)
Cabinet Office of Japan (2007) Public Opinion on Anti Global Worming (in Japanese: 内
閣府(2007)『地球温暖化対策に関する世論調査』
http://www8.cao.go.jp/survey/h19/h19-globalwarming/index.html)
Ekins and Etheridge (2006) “The Environmental and Economic Impacts of the UK
Climate Change Policy” Energy Policy, Vol. 34, pp. 2071-2086
Goodstein (2003) “The Death of the Pigouvian Tax? Policy Implications from the Double-Dividend Debate”, Land Economics, Vol. 79, No. 3, pp. 402-414.
Joint Committee of Central Environmental Council and Industrial Structure Council(2007) the Intermediate Report for Review of the Kyoto Achievement Plan (inJapanese: 中央環境審議会地球環境部会・産業構造審議会環境部会地球環境小委員会(2007)『京都議定書目標達成計画の評価・見直しに関する中間報告(案)』)Keidanren (1996) Joint statement on Global Warming Prevention
http://www.keidanren.or.jp/english/policy/pol049.html
Keizai Doyukai (2006) Pondering an Environmentally Friendly Tax System (in Japanese: 環境配慮型の税体系を考える－地球環境を保持する国民的ビジョンの構築に向けて－) http://www.doyukai.or.jp/policyproposals/articles/2005/060111a.html
Kobayashi, Wataru (2005) “The Double Dividend Hypothesis of the Environmental Tax
Reform and the Non-Labor Income” (in Japanese: 「環境税の二重配当仮説と非労働所得」『経済政策ジャーナル』第3巻第1号, 2005)
Mankiw, Gregory (2007) One Answer to a Global Warming: A New Tax, New YorkTIMES, Sep. 16, 2007
http://www.nytimes.com/2007/09/16/business/16view.html?n=Top/News/Science/Topics/Global%20Warming

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Nordhaus, William (2005) Life After Kyoto: Alternative Approaches to Global Warming
Policies, Yale University, Dec. 9, 2005
http://www.econ.yale.edu/~nordhaus/kyoto_long_2005.pdf
Park (2003) “Revenue Structure of Japan viewed from the Perspective of Sustainability”,(in Japanese: 朴勝俊(2003)「持続可能性の視点から見た日本の税負担構造」『財政学研究』2003 年10 月号)
Park (2004a) “The Double Dividend of an Environmental Tax Reform in Japan – a CGE
Analysis based on the 1995 Input-Output Table –”, Acta Humanistica et Scien-tifica Universitatis Sangio Kyotiensis (京都産業大学論集), Social Science Series No.
21, Kyoto Sangyo University, pp.137-159
Park (2004b) On Double Dividend Hypothesis (in Japanese: 朴勝俊(2004)「環境税制改革の「二重の配当」の可能性をめぐって」、所収：環境経済・政策学会編『環境税』東洋経済新報社)
Stiglitz, Joseph E. (2005) Making Globalization Work, Norton
United Nations (2007) World Population Ageng 2007, United Nations
http://www.un.org/esa/population/publications/WPA2007/wpp2007.htm
Voice (2007) Interview on Masahiro Sakurai by Motoshige Ito, VOICE Aug. 2007
(downloadable, http://www.nira.go.jp/introj/10/rijityo/taidan/pdf/vol23.pdf)
Weizsäcker, Lovins and Lovins (1997) Factor Four – Doubling Wealth, Halving Resource

Use –, Earthscan (originally published in German 1995)
Data and Statistics
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Conservation Center Japan
MoFJ (2007) Summary of Budget 2007 , (in Japanese: 『平成 19 年度予算のポイント』財務省、平成 18 年 12 月 24 日), http://www.mof.go.jp/seifuan19/yosan001.pdf

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