Provisional translation

シンポジウム「2035年日本の電力脱炭素化に向けた戦略」／
Symposium “2035 Decarbonization of Japan’s power system”

Comments
March 1, 2023
Akasaka Intercity Conference 4F Amphitheater／online
Toru Morotomi, Graduate School of Economics, Faculty ofEconomics, Kyoto University

Significance of the 2035 Report• Presented new finding (past studies on next page) inquantitative study on energy shift in Japan• Presented clean energy can supply to 90% of Japan’s total
power consumption in 2035
• Solar will be dominant for the time being, but wind will
expand massively in late 2020’s and early 2030’s• Benefits not just environmental but also economical
1)Decreasing energy cost (wholesale price)2)Net increase in exports thanks to reduced reliance on
fossil fuels3)Contributions to economic growth and security• Policy proposals

Quantitative studies on energy shift inJapan•••李秀澈・何彦旻・昔宣希・諸富徹・平田仁子・Chewpreecha, U. (2021)「日本の2050 年カーボンニュートラルの実現がエネルギー構成及びマクロ経済へ与える影響分析- E3MEマクロ計量経済モデルを用いた分析-」京都大学大学院経済学研究科再生可能エネルギー経済学講座ディスカッションペーパーNo.32(http://www.econ.kyotou.ac.jp/renewable_energy/stage2/contents/dp032.html)．
Lee, S., He, Y. Suk, S. Morotomi, T. and U. Chewpreecha (2022), “Impact on
the power mix and economy of Japan under a 2050 carbon-neutral
scenario: Analysis using the E3ME macro-econometric model”, Climate
Policy, 22(7), pp.823833(https://www.tandfonline.com/doi/abs/10.1080/14693062.2022.2061
406?journalCode=tcpo20).
Renewable Energy Institute, Agora Energiewende, and LUT University(2021), Renewable pathways to climate-neutral Japan: Study on behalf ofRenewable Energy Institute and Agora Energiewende(https://www.renewable-ei.org/en/activities/reports/20210309.php).

Factors for further research• Power demand will further decline considerably？
➤ Subject to population decline, production base, electrification➤ Possibility of the government’s push to increase supply producing
adverse effects• Nuclear power plants may not operate as much asassumption in this study?
• Potential for grid expansion and rule changes• Aside from supply side study, research needed toincorporate potential of demand responseUniquedecarbonization scenario by GOJ/Industry ～ extensionof coal- and gas-fired power + Ammonia・Hydrogen cofiring + CCS• Whether what kind of role hydrogen will or will notplay in future is also key point【Reference】
Proposals for Carbon Pricing at GX
Meeting

Instuction from PM Kishida fordesigning detailed CP schemes• On Oct. 26, PM Kishida instructed compiling detailed
schemes for CP at GX meeting• From discussions on whether or not CP should beintroduced to discussions on detailed schemes• Conditions for ”carbon pricing for growth” presented
1) Hybrid between surcharges and emissions trading
2) CP should be implemented in ways so that total public burden related to energy
should not increase in mid- to long-term
3) Support for investment should be provided using GX transition bonds
4) Pursue “growth” and “environment” by accelerating domestic decarbonization
investment and meeting robust decarbonization demand in Asia

What is”Growth-oriented” Carbon Pricing？
図 「成長志向型カーボンプライシング」のイメージ［出所］経済産業省産業構造審議会資料「GX を実現するための政策イニシアティブの具体化について」(事務局提出資料)，スライド 12 枚目．
(https://www.meti.go.jp/shingikai/sankoshin/sangyo_gijutsu/green_transformation/pdf/010_01_00.pdf)．

What “growth-oriented” CP means【１】 April 2023: Start of voluntary emissions trading trial (GXETS)【２】 Govt to support corporate decarbonization efforts withfunding from GX transition bonds【３】 Carbon emission surcharges to be introduced years latertargeting all emitters, with plans to use revenues for GX
transition bonds【４】 Carbon surcharges will be increased in stages to the extent
it will not boost the total public burdens on energy【５】 Japan’s economic growth by exporting decarbonization
technologies, products ・services to countries in Asia

Emissions trading• 1st phase: 3 yrs (April 2023 〜）, voluntary
participation and targets (no penalty for notachieving targets)• 2nd phase (April 2025)
Under consideration: Higher participation rates,
mandatory targets (penalties)• 3rd phase (April 2031) Under consideration: auctions
targeting electricity producers• Above measures appeared to be modeled after EU tostep up efforts in stages

図 GX-ETS の段階的発展のイメージ［出所］同上，スライド 19 枚目．

Differences with EU ETS【１】EU ETS: mandatory participation by companies, Japan voluntary【２】EU ETS: Total volume of emissions set for each industry and allocations
are made accordingly. Japan: companies set their own reduction targets, thisdoes not guarantee reductions will reach necessary level【３】EU ETS: High penalties for failing to reach target, Japan: no targets, noguarantee for compliance➤ If results of 1st phase are not promising, measures such as introduction of scheme to control
total emissions and framework to penalize companies not meeting targets would be needed
during the 2nd phase➤ Participation by all companies meeting a certain criteria should be mandatory so that thosetaking part in the ETS will not be disadvantaged vs. those not taking part.

Carbon emission surcharges•

Why is is called surcharges, not carbon tax?

➤ “Tax” goes to coffer managed by MOF, while surcharges will be used for support of corporate
decarbonization efforts as source of GX transition bonds (managed by MOF)➤ ”Tax” is subject to discussions at Govt Tax Research Commission and ruling parties’ tax researchcommission, plans need to be agreed and require amendment to law. “Surcharges” could avoid theusual tax reform process, do not require amendment to law, allowing for speedy and flexible
implementation••••①Emissions trading, ②Support for corporate decarbonization efforts ③
Issuance of GX transition bonds as a source ( for ②) and surcharges. These are
all part of a package
Surcharges may be implemented on the same point as petroleum and coal tax(levied on domestic producers and importers of fossil fuels)
Japan relies nearly 100% on imported fossil fuels, so if surcharge isimplemented targeting here, it is possible to impose burden comprehensively
Conflict with Japan’s global warming tax?

Increase in surcharges in stages［出所］同上，スライド 24 枚目．

Assessment• Designed by METI in such a way that implementing CP will not hitindustries• Overall scheme is acceptable by industries: surcharges at levels tocontain energy related public burdens, corporate support proceedswith issuance of GX transition bonds• “Realistic” proposal with voluntary system for emissions trading andvoluntary goal (respectful of Keidanren’s voluntary action plan)• On the other hand, for emission trading, voluntary framework willcontinue thru 2026, auctions for power sector not introduced until
2031, surcharges to begin in 2028. This may not contribute toachieving Japan’s 2030 GHG reduction goal• Level of surcharges is not set from the perspective of climatechange, but set rather as a financial source, and is capped