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Japan’s pledge to cut greenhouse gas emissions will have mixed effects on the economy

Japan’s target to cut greenhouse gases by 25.0% by 2020 from 1990 levels will have mixed economic impacts. Japanese businesses argue that the global competitiveness of their products will decline and that job losses will result. However, the Japanese government believes that opportunities in the renewable energy and energy-efficient sectors will create new jobs.

  • Globally Japan is the second largest economy (in US$ terms, after the USA) and is also the fifth largest emitter of greenhouse gases, which drive climate change;
  • Global pressure on Japan to strengthen and enforce its climate change policies increased after the country’s carbon dioxide emissions in 2007 was 14.0% above the Kyoto Protocol’s 1990 benchmark levels. Carbon dioxide emissions were 11.0% above benchmark levels in 2006;
  • Latest figures show that Japan’s total greenhouse gas emissions, including carbon dioxide, sank 6.6% year-on-year in 2008 from a record 1.4 billion tonnes in 2007. However, 2008 emissions were still 1.9% above the Kyoto Protocol’s 1990 base year levels.
Japan’s greenhouse gas emissions growth compared to the 1990 base year: 1995-2008
% growth over 1990

Source: National statisticsNote: 1990 is the Kyoto Protocol base year; Total greenhouse gas emissions data for Japan were not available until 1995.

Of the official country pledges submitted in January 2010 to the United Nations Framework Convention on Climate Change (UNFCCC) after the 2009 Copenhagen Accord, Japan’s emission-cutting pledge is second only to Norway’s pledge, which offers to cut emissions from 30.0 to 40.0% below 1990 levels by 2020.

Other countries pledged lower percentage reductions or a higher base year, so that the pledge has less impact. For instance, China pledged a 40.0 to 45.0% reduction by 2020, but only with 2005 as the base year.

Implications

There are contradictory arguments about the impacts of Japan’s emission-cutting target:

  • Japanese businesses, especially those in the automotive industry, are lobbying against Japan’s emission-cutting target, as they fear loss of jobs from declined business competitiveness. The number of unemployed persons in January 2010 was 3.2 million, a year-on-year increase of 16.6%;
  • The government argues that cutting emissions would instead create new jobs and business opportunities from rising demand for solar energy, home renovations and energy-efficient car and consumer electronics. Government tax breaks and subsidies for environmentally friendly vehicles helped to buoy new car sales, which rose 35.1% year-on-year in February 2010. Sales of solar panels also increased 82.5% year-on-year in the Q1 of fiscal year 2009;
  • Japan’s consumers may see an initial fall in their household savings as green energy is costly to implement. Installing a 3.5-kilowatt solar energy system in a new house costs ¥1.5 million (US$17,440) to ¥2.0 million (US$23,260). The savings ratio, which is the percentage of disposable income saved, already fell to 8.1% in 2009 from 10.0% in 2008.

The economic recovery in Japan and globally will make it difficult to maintain Japan’s pledge:

  • The year-on-year drop in emissions in 2008 can in large part be attributed to the fall in energy demand across all sectors of Japan during the height of the global financial crisis. Real GDP growth year-on-year was –1.1% in 2008 and –5.0% in 2009;
  • Exports rose 40.9% in January 2010 from a year earlier, the biggest annual increase in three decades. Rising demand for Japanese exports will push up industrial production and help Japan’s economic recovery, but it will also lead to higher energy use and higher greenhouse gas emissions. In January 2010, industrial production in Japan rose 18.2% year-on-year.

 

Japan’s industrial production: February 2009 – January 2010
Annual % change

Source: National statistics .Note: January 2010 figure is preliminary.

Prospects

  • Pledges to cut emissions at the 2009 Copenhagen Accord are contingent on a binding legal agreement amongst major economies to meet specific emission-reduction targets. However, no such agreement has yet been made. The next round of UNFCCC negotiations will take place in May 2010;
  • Despite lack of global cooperation on emission reduction, Japan maintains committed to global warming prevention. In addition to subsidising households to install solar panels, in 2009 the government unveiled a plan to have the solar energy system prices cut into half in three to five years by promoting research and development of new materials and technology;
  • Overall, it is expected that Japan’s emission-cutting targets for the period after 2012 will be achieved through a combination of emissions trading, housing renovation, solar panel subsidising and the introduction of low-energy technologies in cars.
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