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With the Kyoto Protocol Entering into Force in Early 2005, Argument over the Introduction of an Environment Tax Is Reignited; While Industrial Circles Remain Opposed, the Introduction of this New Tax Seems More Likely

2, 01. 2005

   Up to now, the industrial circle has been adamantly opposed to the introduction of an environment tax in Japan. However, now that it has been decided that the Kyoto Protocol will be entering into force, the establishment of this new tax in Japan seems more likely.
   The Kyoto Protocol is an international treaty that saddles developed countries with targets for the reduction of the emission of greenhouse gasses, such as carbon dioxide, in order to decrease the amount of greenhouse gasses emitted on a global scale. The Kyoto Protocol was adopted in 1997. Prior to this, the United Nations Framework Convention on Climate Change (UNFCCC) was adopted in 1992 through which countries around the globe decided to cooperate in order to reduce global warming. This treaty, however, did not specify any concrete targets, and the Kyoto Protocol was adopted to establish quantitative targets by listing which countries would reduce greenhouse gas emissions, by when and by how much.

Main Points of the Kyoto Protocol

   With the United States pulling out of the Kyoto Protocol, it was in danger of not entering into force. However, Russia's State Duma (upper and lower house of parliament) passed a bill in October 2004 to ratify the Kyoto Protocol, and the Kyoto Protocol will be entering into force on February 16, 2005. Once this happens, Japan will be obligated to reduce its greenhouse gas emissions in the 2008 to 2012 period by 6 percent, as compared to a baseline year of 1990. Because the amount of greenhouse gas emissions in Japan is now already 5 percent greater than in 1990, the actual amount that will need to be reduced from the 1990 level will be 11 percent. The increase in the amount of emissions is attributable to such causes as the rise in the amount emitted through industrial activities resulting from a growth in the amount of production, as well as greater emissions by households and distribution industries as a whole.
   The amount of greenhouse gasses emitted by developed nations is increasing across the board. However, with coal the primary energy source in many European nations, the EU will be able to reduce a great amount of their greenhouse gas emissions (without decreasing the amount of energy consumed) by shifting their energy source to natural gas. Japan, however, has already implemented measures to shift the types of fuel used and will have no choice but to substantially decrease the amount of energy consumed. Among those countries that ratified the Kyoto Protocol, Japan is in under the most difficult of circumstances in terms of achieving its quantitative target.
   That is why the environment tax emerged as one of the measures to promote the reduction of greenhouse gas emissions. Under this taxation system, a tax would be levied on oil and other sources of greenhouse gasses in a move to curb the amount consumed. The amount of the tax would be decided according to the carbon content of the fuel.

The Adoption of an Environment Tax Estimated to Result in a 4 Percent Reduction of Greenhouse Gas Emissions

   Although the introduction of an environment tax was raised when the Kyoto Protocol was first adopted, there was strong opposition to this tax by the industrial circle on top of which there was uncertainty as to whether the protocol would ever come into force. Thus, it did not lead to the adoption of the tax at the time.
   The situation, however, has changed. With the entry into force of the Kyoto Protocol imminent, Japan must make full use of various methods to reduce the nationwide emission of greenhouse gasses. The Japanese Ministry of the Environment (MOE), which is advocating the adoption of the environment tax, is now displaying a lot of confidence.
   MOE announced its final plan for the environment tax in early November 2004. According to this plan, a tax on the consumption of electricity as well as fossil fuels, such as oil, would be levied at a rate of 0.25 yen per 1 kilowatt of electricity and 1.5 yen per 1 liter of gasoline consumed. This is forecast to result in tax revenues of about 490 billion yen, but it remains unclear exactly when this would be implemented.
   According to estimates by MOE, the adoption of this new tax would promote energy conservation and result in a 4 percent reduction of greenhouse gas emissions as compared to 1990. The ministry forecasts that the negative effect on the economy would only be about a 0.01% decline of actual GDP.

Industrial Circles Say an Energy Tax Would Make Japanese Firms Less Competitive

   Japan's industrial circles have stuck to opposing the adoption of the environment tax on the grounds that industries have already made great efforts towards energy saving and that it is quite difficult to conserve any more energy. They want the government to leave it up to industry to make autonomous efforts to reduce the emission of greenhouse gasses.
   Although the reduction in the amount of greenhouse gasses emitted could be beneficial to companies since it could lead to a reduction of energy-related costs, industries say that they have already done all they can in terms of making energy-conservation investments in areas that lead to such benefits. Any further investment made towards energy conservation would place a burden on operations. The argument of the industrial circles in Japan is that if even energy-related costs rise in Japan - where labor costs are already high - it would lead to a decline in Japan's international competitiveness.
   However, there are more than a few specialists and environmental NGOs which take the view that there still remain room to implement energy-saving measures that will lead to cost reduction. Although industrial circles continue to be opposed to the adoption of the environment tax even today, when the Ministry of the Environment has begun working towards the establishment of this new tax, the demand of industries that emission reduction measures be left up to voluntary efforts may no longer be valid if Japan is to fulfill its international obligation as set by the Kyoto Protocol.

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