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Green Tax Reform

Major Players in the Debate on Carbon Taxes

Political Parties
Implications for future development

Ministry of Environment (MOE)
Back in the early 1990s, the Ministry of Environment has established a research group on utilizing economic instrument (taxes and charges) in environmental policies, and started examining the feasibility of a carbon tax in Japan. However, the official carbon tax proposal wasn’t put forward until well after the Kyoto Protocol was adopted.
The carbon taxes proposed by the MOE are characterized by low tax rates, and, unlike revenue-neutral carbon taxes introduced in Europe, the carbon taxes proposed by the MOE are expected to increase government revenues.

Table: The 2008 environmental tax (carbon tax) proposal of the MOE
Characteristics Low tax rates, increase revenues to combat climate change
Tax rates 2,400 yen/carbon ton
Tax revenues 360 billion yen
Use of tax revenues General fund;Environmental tax breaks for energy efficient buildings, low fuel consumption automobiles, forest absorption sources, etc
Relation to the existing energy taxes Replace some of the existing energy taxes (e.g. Gasoline tax, light oil delivery tax) with environmental taxes

Ministry of Economy, Trade and Industry (METI)
Although according to some media, the METI is wary of introducing carbon taxes in Japan, it is not entirely impossible for METI to reconstruct the existing energy taxes and replace some of them (such as petroleum and coal taxes) with carbon taxes.

Ministry of Land Infrastructure, Transport, Tourism (MLIT)
Besides petroleum and coal taxes, automobile and aviation taxes can also be reconstructed and replaced by carbon taxes or environmental taxes.
As the road-related tax revenues get diverted, one option is to maintain the automobile tax rates, and use part of the revenues to combat climate change. But the MLIT argues that it is unfair for automobile users to bear more tax burdens than users of other kinds of petroleum products.

Ministry of Agriculture, Forestry and Fisheries (MAFF)
The MAFF is pushing for carbon taxes together with the Ministry of Environment. The 2004 carbon tax proposal was collaboration between the two ministries. In the 2006 carbon tax proposal, the Ministry of Environment also specified that of the 360 billion tax revenues, 200 billion would be used for forestry protection and maintenance.

Ministry of Finance
The Ministry of Finance has the final say in the introduction of carbon taxes. So far, the ministry hasn’t made clear what its position is on the issue yet. Nonetheless, as the fiscal deficit increases, it is very likely that the Ministry of Finance would agree on introducing a new tax.

Other ministries
In many European countries that have already adopted carbon taxes, tax revenues are also used to support social welfare. In this view, the Ministry of Health, Labor and Welfare should also join the discussion about the introduction of carbon taxes. To achieve better coordination among ministries, the cabinet office is also expected to play a part.


Japan Business Federation (Japan Keidanren)
The Japan Business Federation (Keidanren) has opposed the introduction of carbon taxes and questioned its price incentive effect, announcement effect and its effects of increasing tax revenues. It claimed that the carbon taxes would harm industries and weaken the economy.

Japan Association of Corporate Executives (Keizai Doyukai)
Unlike Keidanren, the Japan Association of Corporate Executives acknowledged the announcement effect and the incentive effect of carbon taxes. However, the Association insists that a change in the existing tax system, including the existing energy taxes, is necessary to implement any new taxes.

Table: positions of Japan Keidanren and Keizai Doyukai on carbon taxes

  Japan Business Federation Japan Association of Corporate Executives
Emission reduction policies Voluntary Action Plan (VAP) and public campaigns VAP and public campaigns are effective, but whether the effectiveness can be sustained and enhanced is not clear
Carbon taxes Oppose Environmentally effective, but a reform of the existing tax system should come first; Oppose the proposal of the Ministry of Environment
Price incentive effect Hard to pass on price burdens to consumers; the increased cost due to carbon taxes would discourage development of additional technologies Possible to encourage consumers to buy eco products, companies to switch to energy-efficient production; incentives for technology development
Announcement effect People already have environmental awareness. Understanding and cooperation of citizens are not gained through increasing tax burdens but burden of taxes, but through effective public campaigns It provides the incentive to act more environmental friendly, such as consuming less fossil fuels and electricity.
Effects on revenue increase Doubts on the use of tax revenues. Should first consider how to spend the existing revenues more efficiently Should first spend more efficiently the current budget for fighting global warming. Not simply adding new taxes; should reduce annual spending and improve efficiency

Political Parties

Democratic Party of Japan (DPJ)
According to its manifesto, DPJ will consider introducing a global warming tax in Japan, but it hasn’t unveiled any details on how the tax would be implemented.

DPJ also pledged to abolish both the provisional tax rates of automobile-related taxes (i.e. gasoline taxes, light oil delivery taxes, automobile weight taxes and automobile acquisition taxes) and highway tolls to reduce living costs and activate local economies.

Although the abolishment of provisional tax rates and highway tolls provides a good opportunity to introduce a global warming tax, in the face of the financial crisis, it is important to reduce the burdens of people while addressing climate change. In recent years, in order to achieve the emissions reduction targets under the Kyoto protocol, tax revenues have been spent on purchasing overseas emissions credits. The abolishment of highway tolls and provisional tax rates, together with the increased spending on purchasing credits from overseas, would further increase the burdens of taxpayers in Japan.

To successfully implement a global warming tax in Japan, it is important to consider the tax system as a whole and take a comprehensive approach to tax reforms.One solution is to introduce a revenue-neutral global warming tax, whose revenues can be used to reduce social welfare premium and other taxes, so that the global warming tax doesn’t cause additional tax burdens.


Implications for future development
1. Weakness of policymaking system
If each ministry is confined in their own interests and responsibilities, it is hard for them to cross the boundaries and cooperate. This is one of the reasons why the progression toward the introduction of carbon taxes has been slow. Carbon taxes are an interdisciplinary policy, and so far the government has relied too much on ministries. To cross the boundaries and realize inter-ministerial cooperation is exactly the responsibility of political parties. The process of introducing carbon taxes has indicated the weakness of Japan’s political system.

2. Future development
To realize a low-carbon society, it is necessary to introduce carbon taxes in Japan as early as possible.

The current debate has been focused on the effectiveness of the carbon taxes proposed by the Ministry of Environment. More discussion on the setting of tax rates and revenue-neutrality is necessary.

It is also necessary for political parties to take on their responsibilities.

Carbon taxes are important for environmental technology development, employment expansion and the strengthening of economic power. Learning from the experience of the current policy debate, it is urgent for ministries, political parties, industries, and NGOs to start cooperating and accelerate the progress of introducing carbon taxes in Japan.


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