This study uses the E3ME macro-econometric model to simulate what Japan’s macroeconomy would look like and how Japan's energy composition would change if the country were to achieve carbon neutrality by 2050. The results indicate that renewable energy will account for about 90% of the power supply configuration in 2050, assuming nuclear power plants are phased out by 2040. It is also predicted that GDP will increase by 4.0%–4.5% compared with the baseline scenario and that employment will improve by 1.5%–2.0%, resulting in simultaneous achievement of carbon neutrality and economic growth. The main reasons for these projected outcomes are that increased investment in renewable generation capacity in the power sector would be accompanied by increased investment in decarbonization technologies across individual economic sectors, increased private consumption resulting from increased employment and energy efficiency savings, and an improvement in the trade balance due to a substantial reduction in fossil fuel imports. In addition, the costs of energy due to policies to reduce or eliminate carbon would rise by 45%–55% point at most above the baseline scenario even in 2050; however, this would be of little burden on the economy, considering the substantial reduction in fossil fuel energy demand. Overall, it is estimated that energy bills would be 45% lower for consumers and 11% lower for industry in 2050 compared with the baseline. Key policy insights

This paper analyses the potential economic and environmental effects of carbon taxation in Japan using the E3MG model, a global macroeconometric model constructed by the University of Cambridge and Cambridge Econometrics. The paper approaches the issues by considering first the impacts of the carbon tax in Japan introduced in 2012 and then the measures necessary to reduce Japan’s emissions in line with its Copenhagen pledge of −25% compared to 1990 levels. The results from the model suggest that FY2012 Tax Reform has only a small impact on emission levels and no significant impact on GDP and employment. The potential costs of reducing emissions to meet the 25% reduction target for 2020 are quite modest, but noticeable. GDP falls by around 1.2% compared to the baseline and employment by 0.4% compared to the baseline. But this could be offset, with some potential economic benefits, if revenues are recycled efficiently. This paper considers two revenue recycling scenarios. The most positive outcome is if revenues are used both to reduce income tax rates and to increase investment in energy efficiency. This paper shows there could be double dividend effects, if Carbon Tax Reform is properly designed.

In this paper we apply a model of technological diffusion, Future Technology Transformations in the Transport Sector (FTT: Transport), linked to the E3ME macroeconomic model, to study possible future technological transitions in personal passenger transport in four East Asian countries. We assess how targeted policies could impact on these transitions by defining four scenarios based on policies that aim to reduce emissions from transport. For each country we find that an integrated approach of tax incentives, subsidies, regulations (fuel economy efficiency), kick-start programs and biofuel programs yield the most significant emission reductions because, when combined, they accelerate effectively the diffusion of electric vehicles in the region.

The iron and steel industry is a large emitter of CO₂ globally. This is especially true for the iron and steel industries in China, Japan, and Korea due to their production volumes and the prevalence of carbon-based steel production. With few low-carbon and commercially available alternatives, the iron and steel industry is truly a hard-to-abate sector. Each of the countries of interest have committed to a net-zero future involving the mitigation of emissions from steel production. However, few studies have investigated the means by which to achieve decarbonization beyond the inclusion of price signalling policies (e.g., carbon tax or emission trading schemes). Here, we use E3ME-FTT:Steel to simulate technology diffusion in the ISI under several policy environments and we investigate the likely impacts on the wider economy. The results show that penalizing carbon intensive processes can incentivize a transition towards scrap recycling, but it is relatively unsuccessful in aiding the uptake of low carbon primary steelmaking. A combination of support and penalizing policies can achieve deep decarbonisation (>80% emission reduction compared with the baseline). Mitigating the emissions in the iron and steel industry can lead to economic benefits in terms of GDP (China: +0.8%; Japan: +1.3%; Korea: +0.1%), and employment (Japan: +0.7%; Korea: +0.3%) with China, where job losses in the coal sector would negate job gains elsewhere, as the exception.

Japan faces the challenge of reducing its greenhouse gas emissions while maintaining economic growth and energy security. This study aims to analyze the potential impact on Japan’s economy and industries if the country achieves its 2030 greenhouse gas reduction target, implements a power mix plan to meet that target, and simultaneously pursues the Growth Strategy Council’s proposal for a power mix plan to achieve carbon neutrality by 2050. The study also investigates an alternative carbon neutrality pathway without nuclear power. The research question is whether these low-carbon policies can lead to both economic growth and decarbonization in Japan. To address this question, the study uses the E3ME-FTT macroeconomic model with endogenous technology diffusion to simulate different policy scenarios and assess their economic and environmental impacts. The results indicate that by 2050, Japan could meet its carbon neutrality target, and at the same time, the GDP could increase by approximately 3% compared with the baseline scenario, with or without nuclear power. This growth is expected to occur in several sectors due to increased demand for decarbonization-related investments and strong private consumption. Additionally, the overall economy is expected to benefit from the increased demand for low-carbon and decarbonization-related investments, reduced costs associated with renewable energy generation, and an improved trade balance resulting from a significant decrease in fossil fuel imports.