The effects of alternative carbon mitigation policies on Japanese industries

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 programmes 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 article analyses the effects of carbon pricing on Japan's industrial sector. We also examine the impact of a rebate programme 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. Out of 401 industries, 23 would be eligible for rebates according to the Waxman-Markey-type programme, whereas 122 industries would be eligible for rebates according to the E.U.-type programme, if adopted in Japan. Overall, despite the differences in coverage, we find that the Waxman-Markey and E.U. rebate programmes have roughly similar impacts in reducing the average burden on EITE industries.