Editorial: Carbon should be priced by balancing economic with environmental needs
March 3 , 2021The Ministry of the Environment and Ministry of Economy, Trade and Industry have entered full-fledged discussions on carbon pricing, which aims to pare carbon pollution by putting a price on emissions and spur investment in renewable energy sources.
The Japanese government has recommitted itself to achieving a carbon-neutral society by 2050, but the hurdles remain high, and a thorough national discourse is needed.
There are two main types of carbon pricing: emissions trading systems (ETS) and carbon taxes.
ETS caps the total amount of greenhouse gas emissions and facilitates low-emission industries to sell their extra allowance to high-emission industries. The carbon tax establishes a tax rate on emitting enterprises. Japan has already adopted a tax rate in response to global warming, but the carbon tax exacts a higher levy while expanding the scope of taxable firms. Both types of carbon pricing penalize volume emitters and promotes the adoption of cleaner solutions.
In Japan, roughly 50% of CO2 emissions are the result of corporate activity and putting a price on carbon is seen as being a major driver in reducing greenhouse emissions.
The issue is the impact carbon pricing will place on companies. While firms are allocating significant resources and time into developing technologies to reduce emissions, a carbon tax could serve to de-incentivize the private sector from pursuing such solutions, for instance. A high tax rate, moreover, could push domestic industries to flee to countries with lower rates, hollowing out Japan’s industrial base just as the high yen and cheap labor had in the past.
Still, carbon pricing has emerged abroad as a major policy initiative. The EU adopted an ETS scheme in 2005, with 31 governments signing on; in Asia, meanwhile, Korea established its own scheme six years ago. Finland was the first in the world to implement a carbon tax in 1990, with other governments following its lead thereafter.
The Japanese government plans to come up with a carbon pricing scheme by the end of 2021. Our country would do well to study and learn from the initiatives adopted elsewhere in the world to achieve an optimal balance between the needs of our economy and the needs of our environment.