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. •Energy-intensive trade-exposed (EITE) industries suffer the most due to carbon pricing policies.•Twenty-three industries will be eligible under a Waxman–Markey (WM)-type rebate programme.•The E.U. emissions trading scheme (ETS)-type programme identifies 122 industries.•Both WM- and E.U.-type programmes will lower the cost of production to similar levels.•Industries eligible for rebates must be determined carefully.