Carbon Reduction Potential and Economic Impacts in Japan: Application of AIM
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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
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
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
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
Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Bottom-up model approach--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
AIM, NIES 10
Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Bottom-up model approach--Bottom-up model approach-
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
Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Bottom-up model approach--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
AIM, NIES 12
Marginal cost[\/tC]
PresentTarget
Emissions
Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Bottom-up model approach--Bottom-up model approach-
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
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
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
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
AIM, NIES 27
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
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.
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
AIM, NIES 30
Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Country top-down model approach--Country top-down model approach-
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
Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Country top-down model approach--Country top-down model approach-
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
Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Country top-down model approach--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
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
LO
ILG
AS
T_
CT
_O
T_
GH
YD
NU
C
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
Model analysis on CO2 reduction policyModel analysis on CO2 reduction policy-Country top-down model approach--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
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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