The Impact on Japanese Industry of Alternative Carbon Mitigation Policies

Resources for the Future Discussion Paper No. 12-17

37 Pages Posted: 19 Jul 2012

See all articles by Makoto Sugino

Makoto Sugino

Sophia University - Faculty of Economics

Toshi H. Arimura

Waseda University - School of Political Science and Economics

Richard D. Morgenstern

Resources for the Future

Date Written: July 13, 2012

Abstract

To address the climate change issue, developed nations have considered introducing carbon pricing mechanisms in the form of a carbon tax or an emissions trading scheme (ETS). Despite the small number of programs actually in operation, these mechanisms remain under active discussion in a number of countries, including Japan. Using an input–output model of the Japanese economy, this paper analyzes the effects of carbon pricing on Japan’s industrial sector. We also examine the impact of a rebate program of the type proposed for energy intensive trade exposed (EITE) industries in U.S. legislation, the Waxman-Markey bill (H.R. 2454), and in the European Union’s ETS. We find that a carbon pricing scheme would impose a disproportionate burden on a limited number of sectors — namely, pig iron, crude steel (converters), cement, and other EITE industries. We also find that the determinant of the increase in total cost differs among industries, depending on the relative inputs of directly combusted fossil fuel, electricity, or steam, as well as intermediate goods.

Out of 401 industries, 23 would be eligible for rebates if a Waxman-Markey type of program were adopted in Japan. Specifically, the 85 percent rebate provided to eligible industries under H.R. 2454 would significantly reduce the cost of direct and indirect fossil fuel usage. The E.U. criteria identify 120 industries eligible for rebates. However, the E.U. program only covers direct emissions while the U.S. program includes indirect emissions as well. Overall, despite the differences in coverage, we find that the Waxman-Markey and E.U. rebate programs have roughly similar impacts in reducing the average burdens on EITE industries.

Keywords: carbon price, competitiveness, input-output analysis, output-based allocations, carbon leakage

JEL Classification: F14, D21, D57, D58, H23

Suggested Citation

Sugino, Makoto and Arimura, Toshihide H. and Morgenstern, Richard D., The Impact on Japanese Industry of Alternative Carbon Mitigation Policies (July 13, 2012). Resources for the Future Discussion Paper No. 12-17. Available at SSRN: https://ssrn.com/abstract=2113596 or http://dx.doi.org/10.2139/ssrn.2113596

Makoto Sugino

Sophia University - Faculty of Economics ( email )

Tokyo, 102
Japan

Toshihide H. Arimura

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

Richard D. Morgenstern (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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