Achieving Environmental Sustainability through Fiscal Policy
Edited by Larry Kreiser, Julsuchada Sirisom, Hope Ashiabor and Janet E. Milne
Chapter 14: CGE Analysis of Border Tax Adjustments
Masato Yamazaki INTRODUCTION At the UN summit in 2009 the Japanese government pledged to reduce domestic CO2 emissions by 25 per cent by 2020, relative to the 1990 levels. To achieve this target it plans to introduce a nationwide emissions trading scheme for CO2 in the near future. However, implementing a unilateral or sub-global emissions trading scheme in Japan could cause a drastic increase in the production costs of Japan’s carbon-intensive sectors, and on the domestic and foreign markets, these sectors could suffer from reduced competitiveness relative to companies in countries without comparable emissions reduction policies. Therefore this is a debatable issue. First, it would be unfair that the competitiveness of carbon-intensive sectors of countries with less or no CO2 emissions regulation would be increased by Japanese regulations on CO2 emissions. This unfairness, in turn, could lead to strong domestic opposition that could undermine support for the implementation of emissions trading. Second, so-called ‘carbon leakage’ might occur. In other words an increase in the competitiveness of carbon-intensive sectors in countries with less or no regulation could lead to an increase in CO2 emissions in those countries because of increased production.1 To avoid the problems associated with unilateral or sub-global emissions trading, border tax adjustments (BTAs) to complement emissions trading schemes are currently being discussed in developed countries. BTAs impose taxes on imports on top of ordinary tariffs. In principle the tax rate is decided on the basis of the amount of CO2 emitted by the production of imports in the...
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