Japan’s Carbon Tax

The concept of a tax on carbon is curious in its facility for rallying “environmentalists” on both sides of the equation.

Tomorrow morning I depart for a spring break travel study program in Japan, a country that has employed a national carbon tax for over two years, since October 2012. A scan of late-2012 news articles on the topic quickly presents a picture of a dissatisfied general public and business sector.

A Bloomberg article published days before the tax was implemented quotes the Japan Chamber of Commerce and Industry, which stated its concern regarding “the carbon tax’s impact on small and mid-sized businesses.”

This quandary brings to mind the 2007 OECD article in the course packet that discusses “the political economy of environmentally related taxes.” The so-named article identifies the general public’s perception of the “fairness” of an environmentally related tax as a signal of the tax’s acceptance. Apparently a sum of Japan’s business sector found (and perhaps still finds) its carbon tax to be unfair.

General consideration of fairness, of course, is one of the factors that can “override rational economic motivation” (22) that Akerlof and Shiller identify in their Animal Spirits.

The OECD article recommends a “gradual phasing-in of taxes” (5) to reduce the initial blow to companies most obstructed by the tax. Apparently Japan has done just that. The Bloomberg article explains that the Japan carbon tax will be elevated in phases, culminating in April 2016. To complicate things, in the wake of the Fukushima disaster, Japan was more dependent on fossil fuels in the absence of nuclear power.

The money precipitated by the tax will apparently be spent on efforts to mitigate global warming such as projects promoting clean energy. Perhaps if the Japanese government were to initially confer a portion of the tax revenues back to those sectors most affected by the tax, it would be better received as a “fairer” tax. As the OECD article points out, this action would indeed reduce the environmental success of the tax while perhaps surmounting the biased reputation associated with it.

Of course, the carbon tax in Japan would have a magnified impact if other countries were to implement similar taxes on carbon. An united effort is essential for a substantial impact on carbon emissions. Do we need a global carbon tax? That would certainly be fair.

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