Economic Analysis Series No.206THE ECONOMIC ANALYSIS
The full text is written in Japanese.
(Abstract)
Innovation Policies for Green Innovation in Japan
By Hiroshi OHASHI
This paper discusses the innovation required for GX and the policy approach required to encourage innovation, with a focus on mitigation measures in global warming. First, the nature of innovation that GX possesses will be examined and the necessity of policy will be discussed. At the same time, the perspective required in R&D will be explained based on the economic literature. We then provide four perspectives necessary to promote innovation, and touch on the policy considerations necessary from a GX perspective for each of them. In particular, from the perspective of market competition, we will point out the importance of GHG (Greenhouse emission) visualization, the need to measure GHG emissions on a consumption basis, and the importance of engagement.
JEL Classification Codes: D85, H23, H32, L52, O33
Keywords: Greenhouse Gas Emission, Innovation, Science, Market Size, Technological Opportunity, Appropriability, Market Competition
Energy Input and Economic Growth: What Can We Learn from the Japanese Economic Experiences?
By Koji NOMURA
What can we learn from the experiences of sustained energy productivity improvement (EPI) in the economic growth and structural change of the postwar Japanese economy to guide appropriate energy and environmental policies? This paper aims to derive implications for policy by discussing the structural factors contained within the macro-observed EPI gross indicators, especially the factors behind the acceleration of the EPI since the late 2000s. The measurements in this paper show that there has been no policy-driven acceleration in the sustained realization of the EPI in the postwar Japanese economy, but rather a significant diminution in the speed of improvement over the past half-century until the late 2000s. The acceleration of the EPI in recent years has been accompanied by a shift of energy-intensive goods to overseas production, and domestic industries that are required to curb consumption have been forced to lower their capital and labor productivity. The evaluation, including price changes, shows that the real unit energy cost facing the Japanese economy rose sharply in 2021-22, increasing its vulnerability to energy price hikes. In an energy transition that will take decades, it is necessary to ensure economic efficiency during the transition period without obsessing over poor domestic emission reductions.
JEL Classification Codes: D24, L60, O44, P18, Q43
Keywords: Energy productivity, Total factor productivity (TFP), Real unit energy cost (RUEC), Effective import dependency (EID)
Analyses on Economic Impacts of the Nationally Determined Contributions and Carbon Border Adjustment Mechanisms for 2030
By Keigo AKIMOTO and Takashi HOMMA
The Government of Japan states 46% reductions of the Japan’s 2030 greenhouse gas emissions relative to 2013, and will achieve the target with a “virtuous circle for environment and economy.” However, the pathways are unclear. This study estimates the marginal abatement costs for the emissions reduction targets not only for Japan but also for those of other major countries, and compare with the costs across countries. The marginal abatement costs for Japan and other major developed countries are high, while those for many developing countries are low. The large differences in the marginal cost across countries will increase the risks of carbon leakage. In addition, the economic impacts in Japan are also estimated by using an energy-economic model of computable general equilibrium type. While the investments for emissions reduction measures increase, GDP will decrease due to the decreases in final consumption and net exports. The introduction of carbon border adjustment mechanisms will reduce the negative impacts, but large effects are not expected. This paper pointed out that it is very challenging to achieve “virtuous circle for environment and economy,” and the necessity to make clear the conditions for achieving the “virtuous circle” for effective climate policies.
JEL Classification Codes: D58, Q43, Q54
Keywords: energy-economic model, greenhouse gas emissions reduction, carbon border adjustment
Green Value in Real Estate Market: Estimating of Green Premium for Office Market Considering the Renovation
By Chihiro SHIMIZU and Junichiro ONISHI
More than a decade has passed since studies on green buildings gained attention in the academic and industrial literature. Many studies report the economic value of green buildings, mainly in the U.S. and European markets. This study constructed a dataset of Tokyo office rents from 2011 to 2022. We estimated the green office rental premium using a hedonic approach. Our results show that, on average, an office property with a green label gains a premium of approximately 1.5% on contract rents. However, the office market in Tokyo is heterogeneous and there are endogeneity issues when identifying the green premium. In this study, the endogeneity problem was addressed by propensity score clustering in conjunction with the effect of renovation. After controlling the market based on the probability of renewal investment and estimating a segment-specific hedonic model, the green premium in the sample population estimated to have a low probability of renewal is negative and significant at -0.022 (0.007), while the positive and significant at 0.029 (0.014) in the sample population estimated to have a high probability of renewal.
JEL Classification Codes: C21, D10, R21, R31
Keywords: green building, hedonic model, green label, renewal, propensity score matching
The Japanese Business Community’s Efforts toward Carbon Neutrality
By Masami HASEGAWA and Masahiro HAYASHIZAKI
The purpose of this paper is to give an overview and explain the follow-up results of the Keidanren (Japan Business Federation) Carbon Neutrality Action Plan, a proactive initiative by the Japanese business community to tackle climate change.
A total of 62 industries currently participate in the Keidanren Carbon Neutrality Action Plan, and are engaged in efforts to formulate a vision toward carbon neutrality by 2050, reduce emissions from domestic business operations (Pillar 1), strengthen cooperation with other interested groups (Pillar 2), promote contribution at the international level (Pillar 3), and develop innovative technologies toward carbon neutrality by 2050 (Pillar 4).
The latest report of the Keidanren Carbon Neutrality Action Plan revealed that these proactive approaches have steadily achieved results. The number of industries that have formulated a vision increased from 27 to 36 and the industries that reviewed their 2030 targets also increased from 13 to 19 (Keidanren 2022a).
The total CO2 emissions from participating industries decreased by 17.7% from fiscal 2013 to 2021. While the effects of the COVID-19 pandemic need to be observed, Keidanren’s efforts toward climate change are achieving steady results.
Achieving carbon neutrality by 2050 and reducing greenhouse gas emissions by 46% by fiscal 2030 requires green transformation (GX), a fundamental transformation of the entire society and economy.
With its Carbon Neutrality Action Plan playing a central role, Keidanren will accelerate its proactive initiatives to reduce emissions not only from domestic business operations but also through global value chains. The Japanese business community is determined to contribute to the realization of global carbon neutrality (Keidanren 2022b).
JEL Classification Codes: Q01, Q55, Q57
Keywords: Carbon Neutrality Action Plan, The Japanese business community’s efforts, Green transformation
Geopolitical Confusion and Prospects of Global Energy Market
By Yukari YAMASHITA
The world has been tackling with climate change challenges as one of its priorities ever since the Paris Agreement. The Russian invasion of Ukraine served as a reminder of the importance of energy security. While increasing renewable energy cannot fully replace the loss of natural gas nor the shortage of power supply, adjusting energy and environment policies and measures is becoming an urgent requirement. For example, it is important to revisit the role of nuclear and LNG in Europe and review the issue of power supply shortages in liberalized markets around the world. In order to reach the carbon neutral target by 2050, addressing non-power sector is indispensable. Hydrogen and ammonia are considered promising for this purpose. Moreover, new technologies including carbon capture and storage technologies will carry more importance. Two potential new security threats are mentioned, first, possible oligopoly of fossil fuel resources which are still required in a transitional period and second, critical minerals which are unevenly distributed.
To reach carbon neutrality by 2050, addressing non-power sectors is indispensable. For this purpose, hydrogen and ammonia are both considered promising. Moreover, new technologies in-cluding carbon capture and storage technologies will carry more importance. Two potential new security threats are mentioned, first, possible oligopoly of fossil fuel resources which are still re-quired in a transitional period and, second, critical minerals which are unevenly distributed around the world.
JEL Classification Codes: Q34, Q47, Q58
Keywords: Energy Security, Power Supply Shortage, Critical Mineral
The Role of the Financial Sector in Addressing Climate Change: Review on Quantitative Analysis Regarding ESG Investing and Green Bonds
By Miyuki NAGASHIMA
Recently, the crucial role of the financial sector in addressing climate change has been widely acknowledged and global efforts in the financial sector have been expanding. This paper conducted a comprehensive overview of the performance of ESG (Environmental, Social, Governance) in-vesting and the existence of greenium (a phenomenon in which yields are lower than those of ordinary bonds) in green bonds. There are a number of quantitative studies on overall ESG investment performance, and in particular, there is a statistically significant positive correlation between ESG (or CSP (corporate social and environmental performance)) and corporate financial performance (CFP). While some literature argues that a robust relationship exists, other studies argue that the relationship between the two variables cannot be generalized, as non-correlation and negative relationships are also seen in addition to positive relationships. The reasons for the lack of generalizing results are the differences in theories underlying quantitative analysis, the target regions and periods, the definition of ESG investment performance, and methodologies. There are also various empirical results regarding the existence of green bond greeniums in the bond market. Similarly, no unified view has been presented due to differences in market type (primary or secondary market), the bond issuer (supranational entity or financial institution), and methodologies. Further research is expected to be conducted in the future as more data is accumulated.
JEL Classification Codes: G12, H87, Q54
Keywords: Climate change mitigation, Climate finance, ESG investing, Equity market, Bond market
Economic Statistics and Indicators Considering Environmental Factors: Preliminary Estimation of Japan's Pollution-adjusted GDP Growth Rate and Air Emission Accounts
By Tetsuro SAKAMAKI and Naofumi YOSHIMOTO
While responding to climate change has become an urgent issue, it is important to develop statistics and indicators that capture the impact of economic activities on the environment to visualize the efforts needed to acnieve carbon neutrality. The Economic and Social Research Institute of the Cabinet Office have started research on indicators that reflect the environmental impacts of economic activities on GDP growth from the perspective of decarbonization. The preliminary estimations of the “pollution-adjusted GDP growth rate” based on the OECD analytical framework which evaluates efforts to reduce emissions of greenhouse gases, etc. as a positive factor in the economic growth rate were published in August 2022. And the provisional air emissions accounts that are conform to the international standard SEEA and that are consistent with the industry classifications of Japan's national accounts were also published.
Looking at trends in Japan's greenhouse gas emissions since the 1990s, carbon dioxide has repeatedly fluctuated in response to economic trends. However, in recent years, it has been declining, reflecting the introduction of renewable energy and progress in energy conservation. Methane and non-methane volatile organic compounds are declining in the long run.
The pollution-adjusted GDP growth rate, calculated by combining the parameters obtained from the OECD analysis and data from Japan was 1.04% on average for the period from 1995 to 2020. This is the result of a 0.47 percentage point increase in the pollution reduction adjustment term, which indicates the effect of reducing greenhouse gases, etc., against the real GDP growth rate of 0.57%. By type of emissions, the contribution of carbon dioxide reduction is small, and the contribution of methane and non-methane volatile organic compounds (NMVOC) reduction is high.
JEL Classification Codes: E1, O4, Q5
Keywords: economic growth, SEEA, Air Emissions Accounts
Overview of the System of Environmental-Economic Accounting (SEEA) and the International Implementation and Application for Policymaking
By Keiji UJIKAWA
This paper attempts to clarify the contents related to the development of statistics for the impact of carbon neutral policy in the Japanese economy and visualization of the policy effects. Specifically, we will first provide an overview of the international standards, the System of Environmental-Economic Accounting: Central Framework and the System of Environmental-Economic Ac-counting: Ecosystem Accounting. And the System of Environmental-Economic Accounting: Application and Extension, which is not an international standard but complements the Environmental-Economic Accounting and has strong relevance to international policy initiatives such as the SDGs, is also outlined. After an overview of the international implementation of the Environmental-Economic Accounting, especially the European Community Environmental and Economic Ac-count, a framework for the policymaking of the Environmental-Economic Accounting in relation to climate change and some international examples will be clarified.
JEL Classification Codes: C82, E01, Q56
Keywords: System of Environmental-Economic Accounting (SEEA), System of National Ac-counts (SNA), Natural Capital
Model Analysis for Economic Effects of Carbon Neutral Policy
By Shiro TAKEDA
Climate change policies have become an important policy issue for the world, and many coun-tries will likely adopt more stringent climate change policies in the near future. Information on the quantitative effects of various policies is essential in planning such policies, and computable general equilibrium (CGE) analysis is widely used for deriving such information. However, in Japan, there are few users of CGE analysis, and CGE analysis of climate change is not well understood.
In order to deepen the understanding of CGE analysis for climate change, this paper explains the method of CGE analysis and summarizes recent trends in CGE analysis related to climate change. First, Section 2 explains the main characteristics of CGE analysis and its advantages and disad-vantages. Then, Section 3 explains how CGE models are used for climate policy analysis by providing two examples of CGE analyses and a brief explanation of the well-known MIT EPPA model. Finally, Section 4 explains Energy Modeling Forum (EMF), which is a platform for com-paring various models.
JEL Classification Codes: D58, Q40, Q54
Keywords: computable general equilibrium analysis, CGE analysis, climate change policy
(Document)
ESRI International Conference 2022 “Post-Covid Economy and Society”
Economic and Social Research Institute