Photo/Illutration Nozzles for gasoline and diesel fuel at a gas station (Asahi Shimbun file photo)

Plans to abolish additional taxes on gasoline and diesel fuel would cause Japan’s carbon dioxide emissions to be 6.1 million tons higher in 2030 than if the taxes were maintained, a research institute found. 

The National Institute for Environmental Studies said that abolishing the add-on tax rates could significantly undermine Japan’s international commitments to reduce CO₂ emissions, and that countermeasures must be considered if the rates are repealed.

The “provisional tax rate” adds an extra 25.1 yen (17 cents) per liter of gasoline on top of the base gasoline tax rate of 28.7 yen. It was introduced in 1974 as a temporary measure to generate road maintenance funding, but has remained in effect since.

The ruling and opposition parties have agreed to abolish this tax rate by the end of the year. A proposal has also emerged to eliminate the provisional tax rate for diesel fuel.

Japan’s greenhouse gas emissions in fiscal 2023 totaled the equivalent of 1.071 billion tons in CO₂, according to the Environment Ministry.

The government has pledged to achieve net-zero emissions by 2050.

At the request of the Environment Ministry, the National Institute for Environmental Studies calculated the impact on CO₂ emissions of scrapping the provisional tax rates for gasoline and diesel fuel in 2026.

The study assumed that lower fuel prices will stimulate demand for gasoline, increase household consumption of goods and services and expand corporate production.

The results showed that even if Japan implements all the steps in its global warming countermeasure plan, approved by the Cabinet in February, CO₂ emissions in 2030 will still be 6.1 million tons higher than if the provisional tax rates are maintained.

The amount is equivalent to the annual emissions of about 2.47 million average households.

Japan has submitted a target to the United Nations to reduce energy-related CO₂ emissions from sources such as automobiles and power generation to 677 million tons by fiscal 2030.

The increase of 6.1 million tons represents about 1 percent of the targeted energy-related CO2 emissions.

“If the provisional tax rates are abolished, we will need to discuss with other ministries and agencies how to ensure consistency with Japan’s international commitments,” an Environment Ministry official said.

The ruling and opposition parties are considering alternative revenue sources to offset the anticipated loss from the elimination of the provisional tax rate for gasoline.

During discussions on Aug. 28, opposition parties proposed abolishing the provisional tax rate for diesel fuel as well.

The base rate of the gas oil delivery tax, which is levied on diesel fuel, is 15 yen per liter, but the provisional tax rate adds another 17.1 yen on top of that.

While the gasoline tax is primarily a source of central government revenue, revenue from the gas oil delivery tax goes to local governments.

Previously, opposition parties excluded the latter tax from their abolition proposals out of concern for its impact on local government finances.

However, there are concerns that diesel fuel could become more expensive than gasoline, potentially causing market confusion, if only the provisional tax rate for gasoline is repealed.

If the provisional tax rates for both gasoline and diesel fuel are abolished, the combined revenue loss for the central and local governments will total about 1.5 trillion yen.

The ruling parties maintain that a permanent alternative source of revenue is necessary if the alternative tax rate for diesel fuel is eliminated.

(This article was written by Keitaro Fukuchi and Kanako Tanaka.)

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