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The Scientific World Journal
Volume 2012, Article ID 835917, 9 pages
http://dx.doi.org/10.1100/2012/835917
Research Article

An Assessment of Japanese Carbon Tax Reform Using the E3MG Econometric Model

1Faculty of Economics, Meijo University, 1-501 Shiogamaguchi Tenpak-ku, Nagoya 468-8502, Japan
2International Modelling, Cambridge Econometrics, Covent Garden, Cambridge CB1 2HT, UK
3Graduate School of Economics, Kyoto University, Yoshida-Honmachi Sakyo-ku, Kyoto 606-8501, Japan

Received 24 September 2012; Accepted 10 October 2012

Academic Editors: B. Chen, Z.-M. Chen, and H.-S. Tang

Copyright © 2012 Soocheol Lee et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper analyses the potential economic and environmental effects of carbon taxation in Japan using the E3MG model, a global macroeconometric model constructed by the University of Cambridge and Cambridge Econometrics. The paper approaches the issues by considering first the impacts of the carbon tax in Japan introduced in 2012 and then the measures necessary to reduce Japan’s emissions in line with its Copenhagen pledge of −25% compared to 1990 levels. The results from the model suggest that FY2012 Tax Reform has only a small impact on emission levels and no significant impact on GDP and employment. The potential costs of reducing emissions to meet the 25% reduction target for 2020 are quite modest, but noticeable. GDP falls by around 1.2% compared to the baseline and employment by 0.4% compared to the baseline. But this could be offset, with some potential economic benefits, if revenues are recycled efficiently. This paper considers two revenue recycling scenarios. The most positive outcome is if revenues are used both to reduce income tax rates and to increase investment in energy efficiency. This paper shows there could be double dividend effects, if Carbon Tax Reform is properly designed.