The government is considering introducing full-fledged carbon pricing programs, a grossly belated move that nonetheless represents a step in the right direction after years of foot dragging.

It is vital for the government to develop truly effective pricing systems.

Carbon pricing is an approach for efficiently reducing carbon emissions by using market mechanisms to pass on the cost of emitting greenhouse gases to polluters.

The two most common carbon pricing forms are a carbon tax, which is imposed on businesses based on the amounts they emit, and an emissions trading system, which establishes a market that allows companies to trade the rights to emit.

Carbon pricing systems, which also provide incentives for the development and introduction of technologies that reduce the carbon footprint, are gaining currency, especially in Europe.

Japan has a tax on fossil fuel consumption as a measure to curb greenhouse gas emissions. But it is small in scale.

The government has been reluctant to expand or upgrade this tax in the face of opposition from industries that don’t want to shoulder a heavier financial burden.

However, Japan urgently needs to introduce a full-scale carbon taxation program to achieve its target of becoming a completely carbon neutral economy in 2050.

The government is finally starting to take serious action toward this goal.

At an October meeting of an expert panel discussing measures to achieve carbon neutrality, Prime Minister Fumio Kishida instructed Yasutoshi Nishimura, the minister for economy, trade and industry, to propose at the next meeting a new system that imposes charges on carbon emissions.

The idea is to use revenue from the new tax to finance policy support for the estimated 20 trillion yen ($135 billion) that companies need to invest to sufficiently prune their carbon footprints.

The industry ministry, which leads the debate at the panel’s meetings, has announced a disheartening policy of ensuring that much time will pass before the new tax is introduced. In addition, the levy will start at a low level and be raised only gradually.

This policy, clearly aimed at easing concerns within the business community, raises doubt about the effectiveness of the system.

Kishida’s instructions to the industry minister also raised many questions. He proposed a “hybrid” approach that will combine a levy on carbon emissions with an emissions trading system.

The government seems intent on building the new emissions trading system on a voluntary framework that major Japanese companies plan to establish next spring.

As for the “levy” envisioned under the hybrid approach, the definition of the term remains unclear.

It is crucial to ensure a new carbon pricing system will be consistent and in harmony with the existing taxation regime. From this point of view, the government should not avoid debate on a pure and simple carbon tax.

Kishida also said the total financial burden on businesses under the new carbon pricing systems and the existing energy taxation programs should not increase over the long term.

There is good reason for the government to pursue efficiency in taxation for curbing climate change. But it is questionable whether the new climate taxation regime based on this principle will be sufficient in reducing emissions and raising necessary funds.

The carbon tax and emissions trading approaches both have advantages and disadvantages in terms of effectiveness, burdens imposed, government revenue, and technical challenges for designing systems.

It is also necessary to consider steps to support industries that will have difficulty reducing emissions, such as transitional measures and a review of existing related taxes.

These policy challenges require the government to seek ideas and knowledge from a wide range of sectors and start working as soon as possible.
The Environment Ministry has been discussing the introduction of a carbon tax for years with experts.

The knowledge and experience gained through such undertakings should be incorporated into an all-out effort to enhance Japan’s green credentials.

--The Asahi Shimbun, Nov. 4