Principal Research Results

The Impacts of Decreasing CO2 Emission by Changing Tax System in Japan

Background
The introduction of environment tax is considered in the government as economic countermeasures to global warming during the discussion of global warming problem. On this account it becomes an urgent subject to measure the influence of environment
tax to the Japanese economy and energy demand quantitatively.

Objectives
This study provides a quantitative analysis of the impacts of environment tax on domestic energy prices, energy demands,
macro economy, and industrial structure by the Long-term Economic Forecasting System in CRIEPI and evaluates the economic impacts and the effectiveness of environment tax. The baseline economy/energy scenario is the result of long-term outlook by CRIEPI
that was revised in 2003.

Principal Results
Four cases are set according to the differences in imposing method of environment tax and returning method of tax revenue,
and the impacts of environment tax in each case are analyzed.
(1) In the Basic Carbon Tax Case where the reduction of income tax is assumed, the tax rate is 8,400 yen per t-C in 2010 (Table 1).
Necessary carbon tax levels become higher if the rates of existing energy taxes are exempted or abolished. On the other hand, thetotal revenue of energy taxes and a carbon tax is smaller than that of the Basic Carbon Tax Case where the rates of existing energy
taxes are not changed. It can be said that exempting or abolishing the existing energy taxes and unifying them to the carbon tax is
efficient from the viewpoint of tax revenue.
(2) As for the final energy consumption, a difference between cases is small so that reduction targets of CO2 emission are same for allcases. On the other hand, grid electricity demand increases a little in 2010 in the cases except where existing gasoline and diesel
fuel taxes are exempted compared with the Reference Case where carbon tax is not imposed because fuel substitution arises fromother kinds of energy by the differences of price rise rates.
(3) The decrease in Real GDP from the Reference Case is the smallest in the case where the carbon tax revenue is returned mainly
through lowering the rate of consumption tax. They are -0.09% and -0.66% in 2010 and 2025, respectively. This is because private
final consumption expenditure increases than the Reference Case. On the other hand, real GDP is the smallest in the case where thepublic investment in roads is decreased as shown before (Fig.1).

Future Developments
The other tax returning method, such as the manner of preventing the bad influence on employment will be analyzed and theresults will be updated according to the changes in the situations.
Main Researcher: Yutaka Nagata, Ph. D,Senior Research Scientist, Energy Management and Business Strategy Sector, Socio-economic Research Center
Reference“The Impacts of Decreasing CO2 Emission by Changing Tax System in Japan,” CRIEPI Report, Y03020 (March, 2004).

26C. Harmonization of energy and environment

Table1 The Impacts of Environment Tax
Reference Case

Basic Carbon
Tax Case

No Change

No Change

Tax Returning Method-

Income Tax
Reduction

Income Tax
Reduction

Tax Rate (Yen/t-C)
Tax Revenue (Trillion Yen)
Existing Energy Taxes
Carbon Tax
Final Energy Consumption(PJ)
Grid Electricity Demand(TWh)Real GDP (Trillion Yen)
Real Private FinalConsumption
Real Output (Trillion Yen)
Material Industry
Machinery Industry
ConstructionService Industry
National Debt (Trillion Yen)
Ratio to Nominal GDP

4.69
4.69
08,400
7.04
4.62
2.41

9,700
6.49
3.71
2.79

Exempting
Gasoline andDiesel Fuel
Taxes Case
Exempting
Gasoline andDiesel Fuel
Taxes
Income Tax
Reduction +Decrease in
PublicInvestment
10,000
5.90
3.03
2.87

15,164

-2.5%

-2.4%

-2.2%

-2.5%

957.4

+0.0%

+0.4%

-0.3%

+0.1%

525.7

-0.3%

-0.4%

-0.6%

-0.1%

304.9

-0.2%

-0.4%

-0.2%

+0.2%

1,023.3
91.7
200.6
72.0
551.4
707.6
128.0%

-0.5%
-1.3%
-0.6%
-0.6%
-0.3%
707.4
128.1%

-0.6%
-1.3%
-0.6%
-0.7%
-0.4%
707.6
128.4%

-0.8%
-1.5%
-1.0%
-2.3%
-0.5%
705.4
128.5%

-0.2%
-1.1%
-0.4%
-0.2%
-0.0%
705.6
127.6%

Existing Energy Taxes

Abolishing
Energy ProjectSpecial
Accounts Case
Abolishing
Energy ProjectSpecial
Accounts

Compressed
Rise inConsumption
Tax Case
No Change
Consumption
Tax Reduction(Mostly) +Income Tax
Reduction
8,600
7.10
4.63
2.47

Note: % values except for the ratio of national debt to nominal GDP show the deviation rates from the Reference Case.

Fig.1 The Decrease in Real GDP per Reduced CO2 Emission

300(Thousand Yen / t-C)
Basic Carbon Tax Case
Abolishing Energy Project Special Accounts Case
Exempting Gasoline and Diesel Fuel Taxes Case
Compressed Rise in Consumption Tax Case

250200150

100

5002010

2015

2020

272025Year