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2In Japan, debate still continues…
•We have been debating this for almost two decades.
✓MOE’s tax reform request （環境税）since the early 2000s✓Introduction of “tax for measures tackling climate change”（地球温暖化対策税） in 2012：now ￥289/tCO2 (but ￥4057/tCO2 if energy
taxes included, ￥6301/tCO2 if FIT payment also included)•Green Growth Strategy with 2050 Carbon Neutral (Dec.
2020)✓Now different stage with 2050 CN announcement as a game changer✓“carbon pricing that contributes to growth strategy”✓“technical discussions are needed”•Two Study Groups at MOE and METI kicked off in Feb. 2021
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3MOE Study Group•Interim Repot (July 2021)✓ carbon tax, ETS, credit mechanism, CBAM, internal carbon price, etc.

•“Carbon pricing within policy mix” (Dec. 2021) : Further
deliberation is needed for:✓ Voluntary credit trading✓ Carbon tax (including reform of tax for measures tackling climatechange)✓ ETS (including future introduction)•In the meantime, MOE submitted FY2022 tax reform request
mentioning carbon pricing (Sept. 2021)
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4METI Study Group•Interim Repot (July 2021)✓ carbon tax, ETS, credit mechanism, CBAM, internal carbon price, etc.
✓ Proposed vitalization of credit trading market and “CN Top League”
as a voluntary ETS, with a caveat that if it does not work, pricing by
the government could be considered.

•Basic concept of “GX League” (Dec. 2021) as a forum to:✓ Discuss and create sustainable future of 2050 CN,✓ Discuss market creation and rule-making in CN era, and✓ Implement voluntary ETS to achieve ambitious voluntary targets•Details of “GX League” will be announced in Feb. 2022 to be
fully implemented in FY2023.
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5Kishida Administration•FY2022 Tax Reform Principles （税制改革大綱）(Dec. 2022)✓ Neither “carbon tax” nor “carbon pricing” was mentioned•“Growth and Distribution”（成長と分配）: PM Kishida’s
core creed✓ Does this fit carbon tax, which disproportionally affects low-income
families?
✓ MOF’s influence in the administration/Timing of national election•Policy Speech （施政方針演説）(Jan. 2022):✓ “We will find future directions for many points at issue: ……, carbon
pricing.” (about ten issues were mentioned)•“Clean Energy Strategy”✓ Deliberation is under way at PM Office and METI since Dec. 2021
✓ Transformation of demand sideIEEJ © 2022年1月 禁無断転載

6EU•Fit for 55 (July 2021) : “Pricing” as one of the four pillars✓ Extended coverage of ETS (maritime, building & road transport)✓ CBAM（炭素国境調整メカニズム）✓ Energy tax reform, etc.

•EC’s CBAM proposal:✓ Coverage: steel, cement, aluminum, fertilizer, electricity✓ Levy: EU-ETS auction price X embedded emissions (scope 1 only) ofimported goods✓ Deduction of explicit carbon price paid in exporting country✓ Timeline: until 2025 reporting only, after 2026 implemented with 10year phase-out of free allocation in EU-ETS✓ Revenue: (€21 million) accrues to EU budget
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A myriad of issues on EC’s CBAM proposal•Accounting methods of embedded emissions•WTO compatibility (GATT Art. 20): use of revenues, etc.
•Possibility of trade war through retaliation, and negative
impact on climate talks•Explicit vs. implicit carbon price: will Japan be targeted?
•Counter-proposal from the Parliament:✓Wider product coverage: chemicals, hydrogen✓Wider emissions coverage: scope 1 & 2✓Earlier implementation✓More focused revenue-use (LDC support)

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GOJ’s basic position on CBAM
“Green Growth Strategy” (Jun. 2021)

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CBAM objective shouldn’t be its introduction. CBAM should
incentivize countries around the world to take effective
measures while avoiding adverse effect on international
trade.
① Ensure WTO compatibility② Take the lead in developing international rules ofmeasurement of embedded emissions③ Investigate carbon costs of targeted products in Japanand countries with CBAM
④ Coordinate with like-minded countries

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9US and the rest of the world
US•Seemingly quiet recently•Initially Kelly was cautious about EU CBAM proposal, butthereafter mentioned the President Biden’s instruction tostudy CBAM (with no follow-up?)•Yellen favored for implicit carbon price in CBAM•The $1.75 trillion package now under Senate debate does
not include CBAM-like measure•Depending on the outcome of the mid-term election,
carbon price could be a non-starter in US
China, Indonesia, ROK, Russia, and Vietnam have
implemented or are considering carbon tax and/or ETS.
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10International•Climate Club : German proposal for G7 (Aug. 2021)✓Agree on 1) the same product standards for carbon intensities ofsteel, chemicals and cement, and 2) definitions of “green” hydrogen✓A path to minimum carbon price (both explicit & implicit)✓Protect against carbon leakage such as through joint CBAM

•Steel & Aluminum EU-US Joint Statement (Oct. 2021)✓Confer on methodologies for calculating steel and aluminum carbonintensity✓Restrict market access if standards for low-carbon intensity are notmet•IMF, OECDIEEJ © 2022年1月 禁無断転載