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Carbon Reduction Potential and Economic Impacts in Japan: Application of AIM Toshihiko Masui National Institute for Environmental Studies

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Presentation on theme: "Carbon Reduction Potential and Economic Impacts in Japan: Application of AIM Toshihiko Masui National Institute for Environmental Studies"— Presentation transcript:

1 Carbon Reduction Potential and Economic Impacts in Japan: Application of AIM Toshihiko Masui National Institute for Environmental Studies Workshop on Climate Policy and Energy Modeling International Trade Center, Taipei, Taiwan October 11-12, 2004 Contents: What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

2 AIM, NIES2 Outline of AIM What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

3 AIM, NIES3 CO2 reduction target in Japan  After Russia announced ratification of Kyoto Protocol, GHGs emissions reduction target becomes a reality! What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

4 AIM, NIES4 CO2 reduction target in Japan  Kyoto Protocol In Japan, GHG emissions in the 1st commitment period ( ) should be reduced by 6% of those in  New Climate Change Policy Programme (2002, Gov. of Japan) CO2 emissions from energy use: ± 0% Reduction by innovative technologies and change of lifestyle: -2% Others –CO2 emissions from non-energy use, methane emissions, and nitrous oxide emissions: -0.5% –Emissions of HFCs, PFCs and SF6: +2.0% –The use of Sinks: -3.9% What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion Total 2% of CO2 reduction is assumed to be target.

5 AIM, NIES5 Model analysis on CO2 reduction policy  Model approaches –Bottom-up approach: represent reality –Top-down approach: represent consistency  Mixture of these 2 approaches; –Bottom-up (technology) AIM/Enduse model: Potential CO2 reduction and carbon tax & subsidy to technologies –Top-down (economic theory) AIM/Top-down model: International competitiveness of energy intensive industries AIM/Material model: Detailed economic impact in Japan What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

6 AIM, NIES6 AIM/Enduse AIM/Top-down Fossil fuelElectricity Non-energy goods CO 2 Production sector Government Household Investment Production factor Rent CO 2 Consumption AIM/Material Prod. sector Household Pollution Man. sector market Government Capital Labor Pollution Energy Final cons. Energy Intermediate Recycle Produced commodities Energy Intermediate CO2 Env. capital Labor Env. Industry Env. investment Foreign Trade International price and trade EnergyEnergy technologyEnergy service Oil Coal Gas Solar Electricity etc. Blast furnace Power generation Air conditioner Boiler Automobile etc. Crude steel products Sectoral GDP Cooling demand Lighting Transportation etc. Energy consumption CO2 emissions Technology selection Energy service demands Energy database Energy type Energy price Energy constraints CO2 emission factor Technology database Technology price Energy consumption Supplied service amounts Technology share Lifetime Socioeconomic scenario Population growth Economic growth Industrial structure Employment Lifestyle Energy efficiency improvement Additional investment for energy saving Model analysis on CO2 reduction policy What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

7 AIM, NIES7 AIM/Enduse AIM/Top-down Fossil fuelElectricity Non-energy goods CO 2 Production sector Government Household Investment Production factor Rent CO 2 Consumption AIM/Material Prod. sector Household Pollution Man. sector market Government Capital Labor Pollution Energy Final cons. Energy Intermediate Recycle Produced commodities Energy Intermediate CO2 Env. capital Labor Env. Industry Env. investment Foreign Trade International price and trade EnergyEnergy technologyEnergy service Oil Coal Gas Solar Electricity etc. Blast furnace Power generation Air conditioner Boiler Automobile etc. Crude steel products Sectoral GDP Cooling demand Lighting Transportation etc. Energy consumption CO2 emissions Technology selection Energy service demands Energy database Energy type Energy price Energy constraints CO2 emission factor Technology database Technology price Energy consumption Supplied service amounts Technology share Lifetime Socioeconomic scenario Population growth Economic growth Industrial structure Employment Lifestyle Model analysis on CO2 reduction policy -Bottom-up model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion Energy efficiency improvement Additional investment for energy saving

8 AIM, NIES8  AIM/Enduse model –Based on socioeconomic scenario, energy devices and energy types are selected to minimize total cost.  Messages from AIM/Enduse model –CO2 reduction potential –Necessary carbon tax rate to achieve Kyoto Protocol –Effective policy mix to lower carbon tax rate Model analysis on CO2 reduction policy -Bottom-up model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

9 AIM, NIES9 EnergyEnergy technologyEnergy service Oil Coal Gas Solar Electricity etc. Blast furnace Power generation Air conditioner Boiler Automobile etc. Crude steel products Sectoral GDP Cooling demand Lighting Transportation etc. Energy consumption CO2 emissions Technology selection Energy service demands Energy database Energy type Energy price Energy constraints CO2 emission factor Technology database Technology price Energy consumption Supplied service amounts Technology share Lifetime Socioeconomic scenario Population growth Economic growth Industrial structure Employment Lifestyle Model analysis on CO2 reduction policy -Bottom-up model approach- Structure of AIM/Enduse model What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

10 AIM, NIES10 Model analysis on CO2 reduction policy -Bottom-up model approach- Examples of socioeconomic scenarios Real GDP growth rate%/year Raw material production Crude steelmil. ton Cementmil. ton Ethylenemil. ton Paper & boardmil. ton Number of householdsmil Floor space in com. sectormil. m 2 1,6551,7931,844 Passenger transportationtri.*person*km Freight transportationtri.*ton*km Nuclear power generation (new construction after 2002) Plants - 88 What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

11 AIM, NIES11 Tech. fix Cheapest choice C-tax: 3,000 JPY/tC C-tax: 30,000 JPY/tC C-tax: 45,000 JPY/tC Model analysis on CO2 reduction policy -Bottom-up model approach- CO2 emissions trajectories by scenarios What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

12 AIM, NIES12 Marginal cost [\/tC] PresentTarget Emissions Model analysis on CO2 reduction policy -Bottom-up model approach- Marginal cost [\/tC] Tax rate Subsidy PresentTarget Emissions Marginal cost [\/tC] Tax rate PresentTarget Emissions Expenditure for countermeasures Amount of tax payment 45,000 JPY/tC 3,400 JPY/tC What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

13 AIM, NIES13 Carbon tax rate and required additional investments for reducing CO2 emissions in Japan sectorSubsidized measures and devices Add. investm ent Industrial sector Boiler conversion control, High performance motor, High performance industrial furnace, Waste plastic injection blast furnace, LDF with closed LDG recovery, High efficiency continuous annealing, Diffuser bleaching device, High efficiency clinker cooler, Biomass power generation Residential sector High efficiency air conditioner, High efficiency gas stove, Solar water heater, High efficiency gas cooking device, High efficiency television, High efficiency VTR, Latent heat recovery type water heater, High efficiency illuminator, High efficiency refrigerator, Standby electricity saving, Insulation Commercial sector High efficiency electric refrigerator, High efficiency air conditioner, High efficiency gas absorption heat pump, High efficiency gas boiler, Latent heat recovery type boiler, Solar water heater, High efficiency gas cooking device, High frequency inverter lighting with timer, High efficiency vending machine, Amorphous transformer, Standby electricity saving, Heat pump, Insulation bil. JPY / year Model analysis on CO2 reduction policy -Bottom-up model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

14 AIM, NIES14 Carbon tax rate and required additional investments for reducing CO2 emissions in Japan (continued) sectorSubsidized measures and devices Add. investment Transportation sector High efficiency gasoline private car, High efficiency diesel car, Hybrid commercial car, High efficiency diesel bus, High efficiency small-sized truck, High efficiency standard-sized track Forest management Plantation, Weeding, Tree thinning, Multilayered thinning, Improvement of natural forest Total bil. JPY / year Tax rate to appropriate required subsidiary payments (JPY/tC) 3,433 Model analysis on CO2 reduction policy -Bottom-up model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

15 AIM, NIES15 AIM/Enduse AIM/Top-down Fossil fuelElectricity Non-energy goods CO 2 Production sector Government Household Investment Production factor Rent CO 2 Consumption AIM/Material Prod. sector Household Pollution Man. sector market Government Capital Labor Pollution Energy Final cons. Energy Intermediate Recycle Produced commodities Energy Intermediate CO2 Env. capital Labor Env. Industry Env. investment Foreign Trade International price and trade EnergyEnergy technologyEnergy service Oil Coal Gas Solar Electricity etc. Blast furnace Power generation Air conditioner Boiler Automobile etc. Crude steel products Sectoral GDP Cooling demand Lighting Transportation etc. Energy consumption CO2 emissions Technology selection Energy service demands Energy database Energy type Energy price Energy constraints CO2 emission factor Technology database Technology price Energy consumption Supplied service amounts Technology share Lifetime Socioeconomic scenario Population growth Economic growth Industrial structure Employment Lifestyle Model analysis on CO2 reduction policy -Global top-down model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion Energy efficiency improvement Additional investment for energy saving

16 AIM, NIES16  AIM/Top-down model Global general equilibrium model with multi regions and multi sectors  Messages from AIM/Top-down model –International competitiveness –Effectiveness of emission trading –Impact of US climate policy keep original policy or ratify Kyoto Protocol Model analysis on CO2 reduction policy -Global top-down model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

17 AIM, NIES17  Overview of AIM/Top-down model –Data from GTAP (ver.3) and energy balance table (IEA) –Computable general equilibrium model with recursive dynamics –CO2 emissions from fossil fuels –Time period: –Region: 21 –Sector: 8 Model analysis on CO2 reduction policy -Global top-down model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

18 AIM, NIES18 Model analysis on CO2 reduction policy -Global top-down model approach- Model structure What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

19 AIM, NIES19 Model analysis on CO2 reduction policy -Global top-down model approach- Production structure What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

20 AIM, NIES20 YAgricultures, other manufactures and services COLCoal CRUCrude CRU GASNatural gas EGWElectricity OILPetroleum and coal products (refined) EISEnergy intensive products TRNTransport industries CGDSavings good Model analysis on CO2 reduction policy -Global top-down model approach- Classification of sector What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

21 AIM, NIES21 JPNJapanCHNChina AUSAustraliaIDIIndia NZLNew ZealandIDNIndonesia USAUnited States of AmericaMYSMalaysia CANCanadaPHLPhilippines EURWestern EuropeTHAThailand TWNTaiwanLAMLatin America KORRepublic of KoreaMEAMiddle East and North Africa HKGHong KongSSASub Saharan Africa SGPSingaporeROWRest of World EEU+ CISEastern Europe + Commonwealth of Independent States Model analysis on CO2 reduction policy -Global top-down model approach- Definition of region What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

22 AIM, NIES22 Climate policy in US and Australia Emission trade JapanOthers BaUNo CO2 reduction Scenarios reducing CO2 emissions Scenario 1Keep original policyNo trade Scenario 2Keep original policy 1.6% of emissions in 1990 Half of reduction Scenario 3Ratify Kyoto in % of emissions in 1990 Half of reduction Scenario 4Keep original policyHalf of reduction Model analysis on CO2 reduction policy -Global top-down model approach- Scenarios for analysis What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

23 AIM, NIES23 Model analysis on CO2 reduction policy -Global top-down model approach- Price of carbon tax in 2010 What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

24 AIM, NIES24 Model analysis on CO2 reduction policy -Global top-down model approach- GDP change in 2010 compared to BaU What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

25 AIM, NIES25 Model analysis on CO2 reduction policy -Global top-down model approach- Change of production in each sector and GDP in Japan (2010) What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

26 AIM, NIES26 Model analysis on CO2 reduction policy -Global top-down model approach- Change of energy intensive industry production in 2010 compared to BaU What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

27 AIM, NIES27 AIM/Enduse AIM/Top-down Fossil fuelElectricity Non-energy goods CO 2 Production sector Government Household Investment Production factor Rent CO 2 Consumption AIM/Material Prod. sector Household Pollution Man. sector market Government Capital Labor Pollution Energy Final cons. Energy Intermediate Recycle Produced commodities Energy Intermediate CO2 Env. capital Labor Env. Industry Env. investment Foreign Trade International price and trade EnergyEnergy technologyEnergy service Oil Coal Gas Solar Electricity etc. Blast furnace Power generation Air conditioner Boiler Automobile etc. Crude steel products Sectoral GDP Cooling demand Lighting Transportation etc. Energy consumption CO2 emissions Technology selection Energy service demands Energy database Energy type Energy price Energy constraints CO2 emission factor Technology database Technology price Energy consumption Supplied service amounts Technology share Lifetime Socioeconomic scenario Population growth Economic growth Industrial structure Employment Lifestyle Model analysis on CO2 reduction policy -Country top-down model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion Energy efficiency improvement Additional investment for energy saving

28 AIM, NIES28  AIM/Material model –Based on technology and international trade assumption, economic impacts by carbon reduction in Japan can be simulated.  Messages from AIM/Material model –Impact on economy in Japan Production, employment,... –Economic impact on specific sectors Model analysis on CO2 reduction policy -Country top-down model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

29 AIM, NIES29  Features of AIM/Material model –Model: Computable general equilibrium model –Country: Japan –Time period: 1995 to 2012 (recursive dynamic) –Activity: 41 sectors and 49 commodities –Solid waste: 18 waste types of industrial waste and 8 types of municipal waste. In this analysis, the constraint on solid waste is not taken into account. –Other features Both economic balance and material balance are kept. Energy efficiency improvement is given from solution of AIM/End-use model –Scenarios: Reference Case: Without CO2 constraints. Tax case: CO2 reduction by only introducing carbon tax. Tax + subsidy case: CO2 reduction by introducing carbon tax with subsidy for energy saving equipment. Model analysis on CO2 reduction policy -Country top-down model approach- What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

30 AIM, NIES30 Model analysis on CO2 reduction policy -Country top-down model approach- production sector household capital labor government abroad market import export produced commodity energy intermediate CO2 energy final demand CO2 pollution management energy intermediate CO2 env. capital labor environmental industry/ investment recycle What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion Structure of AIM/Material

31 AIM, NIES31 Model analysis on CO2 reduction policy -Country top-down model approach- Sectors and commodities What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

32 AIM, NIES32 Model analysis on CO2 reduction policy -Country top-down model approach- Future GDP estimated from AIM/Material model What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

33 AIM, NIES33 Model analysis on CO2 reduction policy -Country top-down model approach- Carbon emissions in Japan What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

34 AIM, NIES34 Model analysis on CO2 reduction policy -Country top-down model approach- GDP change compared to the reference case What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

35 AIM, NIES35 Model analysis on CO2 reduction policy -Country top-down model approach- Activity Change of each sector in the first commitment period (compared to reference case) What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

36 AIM, NIES36 Model analysis on CO2 reduction policy -Country top-down model approach- Number of employment in the first commitment period What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

37 AIM, NIES37 Conclusion  In Japan, even existing or practical technologies can reduce the CO2 emissions to the Kyoto Target. The necessary carbon tax rate will be 45,000 yen/tC.  When the tax revenue is utilized for subsidy, the carbon tax rate will be 3,400 yen/tC. In this case, the GDP loss will be 0.061% comparing to reference case.  Although activities of thermal power generation and fossil fuel production sectors will decrease severely by introducing carbon tax, energy intensive industries such as steel, paper etc. will not be damaged so much.  Because of the subsidy for energy saving devices, production and employment in the manufacture of the energy saving devices will increase. What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

38 AIM, NIES38 Criticism against simulation results from Industries  Japanese economy will suffer the severe damage from the carbon tax?  Validity of assumptions: if the carbon tax is introduced in Japan, many manufacturing factories will move out of Japan to avoid the carbon tax payment.  Activities of Japanese industries, especially energy intensive industries, in the international market will degrade when the carbon tax is introduced?  Subsidy is not a good policy option.  How to select the appropriate countermeasures?  Transaction cost of carbon tax and subsidy policy will become very high.  Subsidy to countermeasures to reduce the CO2 emissions can be compensated for other tax such as the consumption tax?  When subsidy is introduced, the more large scale devices will be consumed (rebound effect)? Some criticisms are for policy making itself, and some are qualitative. What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion

39 AIM, NIES39 For more practical simulation  Relationship between existing energy tax and proposed carbon tax  Tax cut for the sectors suffering from carbon tax (steel etc.)  Policy mix -Combination of carbon tax, regulation, voluntary plan,...  Kyoto Mechanism  Revision of assumptions: –Economy in Japan will recover rapidly. –Time until 1st commitment period becomes shorter. What’s AIM? CO2 reduction in Japan Model analysis AIM/Enduse AIM/Top-down AIM/Material Conclusion


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