Carbon Reduction Potential and Economic Impacts in Japan: Application of AIM

Carbon Reduction Potential and Carbon Reduction Potential and Economic Impacts in Japan: Economic Impacts in Japan: Application of AIMApplication of AIM

Toshihiko Masui Toshihiko Masui National Institute for Environmental StudiesNational Institute for Environmental Studies

http://www-iam.nies.go.jp/aim/index.htmhttp://www-iam.nies.go.jp/aim/index.htm

Workshop on Climate Policy and Energy ModelingWorkshop on Climate Policy and Energy ModelingInternational Trade Center, Taipei, TaiwanInternational Trade Center, Taipei, Taiwan

October 11-12, 2004October 11-12, 2004

Contents:

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 2

Outline of AIMOutline of AIM

I PCCUNEPOECD

ECO- AsiaAPEISIEA

UNU/I ASAPNEMFWWF

Govern-ments

Compa-nies

J apan team

China Team

India Team

Korea Team

Thailand Team

Malaysia Team

Population

Lifestyle

GHG Emission Modules

Climate ChangeModules

Supporting Policy

process

Mod

elD

evelopment

Land use Energy

TechnologyEconomics

Atmospheric Chemistry

Climate Change

OceanDynamics

Carbon Cycle

Vegetation

Sea LevelRise Human

Health

Agriculture

Water Resources

Vegetation

Sea LevelRise Human

Health

Agriculture

Water Resources

Impacts and Adaptation Modules

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 3

CO2 reduction target in JapanCO2 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

AIM, NIES 4

CO2 reduction target in JapanCO2 reduction target in Japan

Kyoto Protocol• In Japan, GHG emissions in the 1st commitment

period (2008-2012) should be reduced by 6% of those in 1990.

New Climate Change Policy Programme (2002, Gov. of Japan)

• CO2 emissions from energy use: ±0%• Reduction by innovative technologies and chang

e 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% ofCO2 reductionis assumed tobe target.

AIM, NIES 5

Model analysis on CO2 reduction policyModel 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

AIM, NIES 6

AIM/Enduse

　　　

AIM/Top-down

Fossil fuel Electricity

Non-energy goods

CO2

CO2

Production sector

Government

Household

Investment

Production factor

Rent

CO2

CO2

Consumption

Consumption

AIM/Material

Prod. sector

Household

Pollution Man.sector

market

Government

CapitalLabor

Pollution

EnergyFinal cons.

EnergyIntermediate

Recycle

Produced commodities

EnergyIntermediate

CO2

CO2

CO2

Env. capitalLabor

Env. IndustryEnv. investmen

t

Foreign

Trade

Internationalprice and trade

Energy Energy technology Energy 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 consumptionCO2 emissions

Technologyselection

Energy servicedemands

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

En

erg

y ef

fici

ency

im

pro

vem

ent

Ad

dit

ion

al i

nve

stm

ent

for

ener

gy

savi

ng

Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 7

AIM/Enduse

　　　

AIM/Top-down


Non-energy goods

CO2

CO2

Production sector

Government

Household

Investment

Production factor

Rent

CO2

CO2

Consumption

Consumption

AIM/Material

Prod. sector

Household


market

Government

CapitalLabor

Pollution

EnergyFinal cons.

EnergyIntermediate

Recycle


EnergyIntermediate

CO2

CO2

CO2

Env. capitalLabor


t

Foreign

Trade







Technologyselection





Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Bottom-up model approach--Bottom-up model approach-

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

En

erg

y ef

fici

ency

im

pro

vem

ent

Ad

dit

ion

al i

nve

stm

ent

for

ener

gy

savi

ng

AIM, NIES 9






Technologyselection






Structure of AIM/Enduse model

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 10


Examples of socioeconomic scenariosExamples of socioeconomic scenarios

2000 2010 2012

Real GDP growth rate %/year 0.9 1.9 1.9

Raw material production

Crude steel mil. ton 106.9 95.9 94.8

Cement mil. ton 79.3 70.3 69.8

Ethylene mil. ton 7.6 6.7 6.7

Paper & board mil. ton 31.8 36.0 36.7

Number of households mil. 46.8 49.1 49.2

Floor space in com. sector mil. m2 1,655 1,793 1,844

Passenger transportation tri.*person*km 1.42 1.51 1.53

Freight transportation tri.*ton*km 0.56 0.57 0.57

Nuclear power generation(new construction after 2002)

Plants － 8 8

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 11

900

950

1000

1050

1100

1150

1200

1250

2000 2002 2004 2006 2008 2010 2012

Year

A

B

C

D

E

CO

2 e

mis

sio

ns

fro

m f

os

sil

fue

ls [

MtC

O2

]

↑ 2% reduction of CO2 emissions from fossil fuels in 1990

Tech. fix

Cheapest choiceC-tax: 3,000 JPY/tCC-tax: 30,000 JPY/tCC-tax: 45,000 JPY/tC


CO2 emissions trajectories by scenarios

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 12

Marginal cost[\/tC]

PresentTarget

Emissions


Marginal cost[\/tC]

Tax rate

Subsidy

PresentTarget

Emissions

Marginal cost[\/tC]

Tax rate

PresentTarget

Emissions

Expenditure forcountermeasures

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

AIM, NIES 13

Carbon tax rate and required additional investmentsCarbon tax rate and required additional investmentsfor reducing CO2 emissions in Japanfor reducing CO2 emissions in Japan

sector Subsidized measures and devicesAdd.

investment

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

101.3

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

353.9

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

194.5

bil. JPY / year


What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 14

Carbon tax rate and required additional investmentsfor reducing CO2 emissions in Japan (continued)

sector Subsidized measures and devicesAdd.

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

106.6

Forest management

Plantation, Weeding, Tree thinning, Multilayered thinning, Improvement of natural forest

195.7

Total 952.0

bil. JPY / year

Tax rate to appropriate required subsidiary payments (JPY/tC) 3,433


What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 27

AIM/Enduse

　　　

AIM/Top-down


Non-energy goods

CO2

CO2

Production sector

Government

Household

Investment

Production factor

Rent

CO2

CO2

Consumption

Consumption

AIM/Material

Prod. sector

Household


market

Government

CapitalLabor

Pollution

EnergyFinal cons.

EnergyIntermediate

Recycle


EnergyIntermediate

CO2

CO2

CO2

Env. capitalLabor


t

Foreign

Trade







Technologyselection





Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Country top-down model approach--Country top-down model approach-

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

En

erg

y ef

fici

ency

im

pro

vem

ent

Ad

dit

ion

al i

nve

stm

ent

for

ener

gy

savi

ng

AIM, NIES 29

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.


What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 30


productionsector

household

capitallabor

government

abroad

market

importexport

produced commodity

energyintermediate

CO2

energyfinal demand

CO2

pollutionpollution

management

energyintermediate

CO2

env. capitallabor

environmentalindustry/

investment

recycleWhat’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

Structure of AIM/Material

AIM, NIES 31


Sectors and commoditiessector commodity sector commodity

Coking coalCoal for general use, lignite, anthracite

CokeOther coal productsPaving materialsGasolineJet fuel oilKeroseneLight oilHeavy oilNaphthaLPGOther petroleum products

Manufacture of gas Town gasCoal power generationOil power generationGas power generationHydro power generationNuclear power generation

Electricity

Manufacture of coalproducts

Manufacture of petroleum

FoodTextile mill productsLumber, wood products, pulp, paper & paper productsChemical & allied productsPlasticCeramic, stone, & clay products

Precision instruments & machinery

Agriculture, forestry & fisheriesMining except energy

Crude oil miningNatural gas mining

Coal mining

Miscellaneous manufacturing industries

Iron, steel, non-ferrous metals & productsNon-ferrous metals & productsFabricated metal productsGeneral machinery

Finance & insuranceReal estateTransportation & communications

Education, research, medical service, health & hygiene, &social welfare

ConstructionSteam & hot water supplyWater supplyWholesale & retail trade

Electrical machinery, equipment & suppliesTransportation equipment

Goods renting & leasingCar & machine repairingOther serviceGovernment servicePollution management devicesSewage serviceMunicipal solid waste treatment serviceIndustrial solid waste treatment service

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 34

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

1995 2000 2005 20102012Year

GD

P C

ha

ng

e[tr

i. ye

n a

t 19

95

pri

ce]

Tax case Tax + Subsidy case


GDP change compared to the reference case

What’s AIM?

CO2 reduction

in Japan

Model analysis

AIM/Enduse

AIM/Top-down

AIM/Material

Conclusion

AIM, NIES 35

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

AG

RM

INM

_C

M_

OM

_G

FO

DT

EX

PL

PC

HM

PL

SN

MM

ST

LN

SM

FM

TM

CH

EL

MT

RE

PR

IO

TH

CN

SH

ET

WT

RS

AL

FIN

ES

TT

RS

PU

BR

NT

RE

PP

RS

GO

VE

MC

CO

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AS

T_

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_O

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GH

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sector

Act

ivity

in th

e r

efe

ren

ce c

ase

in th

e fi

rst c

om

mitm

en

t pe

rio

d =

1.0

Tax Tax+Subsidy


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

AIM, NIES 37

ConclusionConclusion

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

AIM, NIES 38

Criticism against simulation results Criticism against simulation results from Industriesfrom 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

AIM, NIES 39

For more practical simulationFor 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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Carbon Reduction Potential and Economic Impacts in Japan: Application of AIM

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