Economic policies to foster green growth

Economic Survey of Japan 2009: Improving the policy framework in Japan to address climate change


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The following OECD assessment and recommendations summarise chapter 5 of the Economic Survey of Japan published on 30 September 2009.




Addressing the challenge of climate change…  

Japan has been active in the global effort to limit climate change and increase energy efficiency. Under the Kyoto Protocol, it committed to reducing greenhouse gas emissions by 6% relative to 1990 over the period 2008-12 from an already relatively low level among advanced economies. However, emissions were up by 9% by 2007 and its emissions per capita have risen faster than the OECD average since 1990. Japan has relied primarily on voluntary measures, largely in the manufacturing sector, without binding commitments and price signals. In June 2009, Japan established a medium-term target of reducing emissions by 15% from the 2005 level by 2020 (through domestic reductions alone) as a step to its long-term objective of cutting emissions by 60% to 80% by 2050.

Overview of the Kyoto and mid-term emission targets in Japan
Emissions in million tonnes of CO2

1. Percentage change relative to the 1990 base year.

2. The mid term target of a 15% decline by 2020, through domestic reductions alone, from the 2005 level of emissions, implies a fall in emissions to 1 154 Mn tonnes.

3. Japan is committed to reducing GHG emissions by 6% relative to the 1990 base year under the Kyoto Protocol. The 15% decline is calculated as the 9% increase between 1990 and 2007 and the 6% decline.

Source: Ministry of the Environment.

The commercial and residential sectors account for most of the increase in CO2 emissions from energy use in Japan since 1990


Source: Institute for Environmental Studies and GHG Inventory Office of Japan.


…requires market instruments that set a price on carbon…

Achieving these targets requires changing the policy framework by introducing market-based instruments to reduce emissions in a cost-effective manner. Market instruments are efficient insofar as they equalise abatement costs across all emitters and, over the long run, provide incentives to develop new technologies that lower abatement costs. Japan should shift from its voluntary emissions trading system (ETS) to a mandatory, system based on cap-and-trade that covers the entire economy, including transport, drawing lessons from the experience of other countries and Japan’s voluntary system. Ideally, the initial permits should be allocated by auctioning, which would help generate much needed revenue. The scheme should include banking of permits, and possibly borrowing as well, to limit volatility, risk and uncertainty. Additionally, consideration should be given to applying a carbon tax to sectors not covered by the ETS. As Japan is already relatively energy-efficient, meeting the long-run target requires linking its ETS to those in other countries, which should substantially reduce the cost of emission abatement in Japan. Another option to reduce the cost is greater use of the Clean Development Mechanism (CDM), which allows countries to meet their emission targets through credits earned from projects that reduce emissions in developing countries. Greater use of a well-functioning CDM to utilise the vast low-cost abatement potential in developing countries is thus a cost-effective option for Japan. Financing CDM projects, though, should not lead to a decrease in Official Development Assistance (ODA) funds.   

…and other instruments, while ensuring adequate R&D  

Price-based measures should be accompanied by other policy instruments in markets that are less responsive to price signals. Ideally, these should take the form of performance-based regulations that allow the choice of the most efficient technology. Moreover, price signals alone do not ensure adequate R&D and innovation, especially in the area of climate change. Public investment in R&D, particularly basic research, is important. Finally, transparent and effective instruments are necessary to accelerate the development of renewable energy in the short run while relying on market instruments in the longer run, which will minimise the cost of meeting emission reduction targets.

The use of renewable energy in Japan is relatively low


1. Geothermal, wind, solar and tide.

2. As a share of total primary energy supply.

3. Excludes Iceland, Mexico and Portugal.

Source: OECD (2008e), Renewables Information, OECD, Paris and IEA/OECD (2008), Energy Balances of OECD Countries, Paris.



How to obtain this publication


The complete edition of the Economic Survey of Japan is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. For the Japanese version please click here.


Additional information

For further information please contact the Japan Desk at the OECD Economics Department at

The OECD Secretariat's report was prepared by Randall Jones, Byungseo Yoo and Masahiko Tsutsumi under the supervision of Vincent Koen. Research assistance was provided by Lutécia Daniel.


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