Japan Introducing Carbon Tax Prompts Backlash From Businesses

Japan’s biggest business lobbyist attacked plans by the government to introduce a tax on carbon emissions next week, saying it will add billions of yen to industry’s energy costs and slow economic growth.

The tax, aimed at helping reduce greenhouse gas emissions, will start Oct. 1 at 289 yen ($3.7) a metric ton of carbon emissions. The levy is about one-sixth the A$23 a ton Australia set for 300 of its largest polluters in the year started July 1.

Japan may be forced to spend 22.6 trillion yen ($289 billion) on fossil fuels, such as natural gas, crude oil and coal, to replace nuclear power plants shut for safety checks after the Fukushima disaster, the Institute of Energy Economics said in a July 2 report. These rising costs may cause a trade deficit for the second straight year through March 2013, the institute said.

“We urge the government to reconsider the carbon tax, including the possibility of killing it,” Masami Hasegawa, senior manager of environmental policy at the Japan Business Federation known as Keidanren, said by phone on Sept. 26. “Higher power prices would push Japanese companies offshore and lead to job losses,” he said.

Keidanren is headed by Sumitomo Chemical Co. Chairman Hiromasa Yonekura and counts executives from Toyota Motor Corp., Bank of Tokyo-Mitsubishi UFJ Ltd. and Nippon Steel Corp. among its leaders.

The Japan Chamber of Commerce and Industry said in a statement in July it’s “concerned about the carbon tax’s impact on small and mid-sized businesses.”

Limited Impact

The tax will be raised in stages until April 2016 to 780 yen ($10) per ton for liquefied petroleum and natural gases, 760 yen per kiloliter for crude oil and oil products, and 670 yen per ton for coal, according to the environment ministry.

Japan’s measure will have a limited impact on efforts to cut emissions, said Yugo Nakamura, a Tokyo-based analyst for Bloomberg New Energy Finance.

“The tax translates to a gasoline price hike of less than 1 yen per liter,” he said. “There is little effect on suppressing demand,” he said on Sept. 26.

The revenue from the tax on fossil fuels is estimated to be 39.1 billion yen for the year ending in March and 262.3 billion yen once the tax is raised to the full amount.

The government plans to spend the revenue on clean energy and energy saving projects, according to the environment ministry.

An average household is expected to pay an additional 1,200 yen per year by 2016 if all added energy costs are passed on to consumers, according to an estimate posted on the ministry’s website.

The carbon tax was approved by Japan’s cabinet in December as part of a broader tax package and won parliamentary approval in March. In July, Japan began an incentive program requiring utilities to pay above-market rates to companies producing power from renewable energy, with the added cost passed on to consumers as surcharges.

-- With assistance from Yuji Okada in Tokyo. Editor: Peter Langan

Before it's here, it's on the Bloomberg Terminal. LEARN MORE