The Faculty of Economics, Toyouniversity

A Comparative Study on Policy Instruments for Achieving the Kyoto Target in the US,Europe and Japan

Yoshiki Ogawa, Professor,

the Faculty of Economics, ToyoUniversity

1. Introduction

The first commitment period of Kyoto Protocol are scheduled to start in the next year, 2008. I would like to compare measures against global warming issues between Europe (EU-15) and Japan. Then I would like to discuss specific characters of these area and differences among them. Finally, I would like to make concluding remarks for future options for mitigating global warming issues.

Using 1) historical time-series data analysis, 2) analysis on affecting factors using differential calculus and 3) comparison analysis, I analyzed the following issues; a) analysis on factors affecting energy- and industry-related CO2 emissions, b) changes in GHG emissions by sector since 1990 (base year) based on national GHG inventory, and c) Comparison of policy measures on global warming between EU-15 and Japan.

This paper is composed of Section 2, “Analysis on Factors Affecting Energy- and Industry- related CO2 Emissions,” Section 3, “Changes in GHG Emissions by Sector since 1990 (Base Year) Based on National GHG Inventory, Section 4, “Comparison of Policy Measures on Global Warming Between EU-15 and Japan, and Section 5, “Concluding remarks.”

1. Analysis on Factors Affecting Energy- and Industry-related CO2 Emissions

(1) Method of Analysis

C [CO2 emission] is classified into the following four factors, U (energy- carbon ratio, C / E [energy consumption]), S (energy intensity, E / GDP [gross domestic product]), G (per capita GDP, GDP / P [population]), and P, as shown in Equation (1).

C=U * S * G * P

= (CO2/E)*(E/GDP)*(GDP/P)* P Equation (1)

From Equation (1), we can derive Equation (2);

(dC / C) = (dU / U) + (dS / S) + (dG / G) + (dP / P) Equation (2)

And finally we can get Equation (3);

dC = (C / U) * dU(the item on fuel switching)

+ (C / S) * dS(the item on energy conservation)

+ (C / G) * dG(the item on economic growth)

+ (C / P) * dP(the item on population growth) Equation (3)

Using Equation(3), we can calculate cumulative summation of each item and can estimate corresponding contribution of four factors affecting energy- and industry-related CO2 emissions.

(2) Europe (EU-15)

Changes in factors affecting energy- and industry-related CO2 emissions of EU-15 is shown in Fig.1. Since 1990 (base year of Kyoto Protocol), CO2 emissions in EU-15 had been almost leveled off. But they slightly increased especially after year 2000.

The influence of the population growth factor has been almost leveled off and we can recognize small cumulative increase contribution by this factor. As shown in Fig. 1, the economic growth factor is the largest contributor of increasing energy- and industry-related CO2 emissions. On the contrary, the energy conservation factor and the fuel switching factor has been both contributed to decrease CO2 emissions. In the fuel switching, natural gas has played an important role in EU-15.

Fig. 1 Changes in factors affecting energy- and industry-related CO2emissions of EU-15

Fig. 2 Changes in factors affecting energy- and industry-related CO2 emissions of Japan

(3) Japan

Changes in factors affecting energy- and industry-related CO2 emissions of Japan is shown in Fig. 2. Since1990 (base year of Kyoto Protocol), the increase of CO2 emissions has experienced a slowdown as compared with bubble economy period (1987-1990). But total CO2 emissions of Japan in 2004 increased about 10% from the base year.

The influence of the population growth factor has been almost leveled off and we can recognize small cumulative increase contribution by this factor. The situation of this factor is almost the same as EU-15. The economic growth factor showed a small increase contribution in 1990-1991 and in 1995-1997. In other periods since 1990, this factor has had almost no effect on energy- and industry-related CO2 emissions. In addition, the energy conservation factor contributed to increase CO2 emissions because of inefficient activities by economic recessions. These results are quite different from those of EU-15.

The fuel switching factor such as the expansion of nuclear power and natural gas were partly contributed to offset above-mentioned increase of CO2 emissions. But entering 2000’s, the fuel switching factor began to contribute to increase CO2 emissions because of operation troubles in nuclear plants.

(4) USA

Changes in factors affecting energy- and industry-related CO2 emissions of USA is shown in Fig. 3. Since1990 (base year of Kyoto Protocol), total CO2 emissions has showed a steady increase as compared with EU-15 and Japan. Total CO2 emissions of USA in 2004 increased about 20% from the base year.

Different from former two regions, the population growth factor mainly due to immigrants has showed a certain steady contribution to the increase of energy- and industry-related CO2 emissions in the case ofUSA. The economic growth factor has also showed a steady contribution to them, because USA experienced IT bubble during 1990’s.

Fig. 3 Changes in factors affecting energy- and industry-related CO2 emissions of USA

The energy conservation factor was largely contributed to offset the above-mentioned increase of CO2 emissions. The fuel switching factor such as the expansion of natural gas showed a small offset contribution to the increase of CO2 emissions in comparison with the energy conservation factor, because coal played an important role in the power generation sector as a rich domestic resource. This point is also different from the former two regions, EU-15 and Japan.

(5) Comparison of Specific Characteristics

As for EU-15, USA and Japan, changes in per capita GDP, energy intensity and energy-carbon ratio are shown in Fig. 4. The per capita GDP of USA has steadily increased in 1990’s and reached to about 36,400 US$ in 2004. The per capita GDP of EU-15 has also steadily increased especially in the latter half of 1990’s and reached to about 26,100 US$ in 2004. On the contrary, as compared with these two regions, the per capita GDP of Japan has stagnated from 1990 through 2004 and reached to about 26,900US$ in 2004 which is almost the same level as EU-15.

The energy intensity of USA has dropped from about 0.27 g-OE (oil equivalent)/US$ in1990 to about 0.22 g-OE/US$ in 2004 more largely than EU-15 and Japan. But the present absolute level of energy intensity in USA is still higher than that in EU-15 and Japan. The energy intensity of EU-15 has also dropped from about 0.18 g-OE/US$ in 1990 to about 0.16 g-OE/US$ in 2004. The present absolute level of energy intensity in EU-15 is almost equal to that of Japan. The energy intensity of Japan reached to the absolute level of about 0.16 g-OE/US$ already in 1990. But the energy intensities of Japan were worsened during 1990’s because of inefficient activities due to long-term economic recessions and barely reached to about 0.16 g-OE/US$ in 2004 again.

Fig. 4 Comparison of per capita GDP, energy intensity and energy-carbon ratio

The energy-carbon ratio of EU-15 has lowered from about 2.35 ton-CO2/t-OE in 1990 to about 2.13 ton-CO2/t-OE in 2004 more drastically than that of USA and Japan. The energy-carbon ratio of Japan has also lowered from about 2.40 ton-CO2/t-OE in 1990 to about 2.25 ton-CO2/t-OE in 2000. But entering 2000’s, the energy-carbon ratio of Japan increased due to operation troubles of nuclear power plants. The energy-carbon ratio of USA has gradually lowered from about 2.45 ton-CO2/t-OE in 1990 to about 2.39 ton-CO2/t-OE in 2004. The energy-carbon ratio of USA remained at the higher absolute level, because USA uses rich domestic coal resources mainly in the power plants.

Table 1 shows comparison of growth rate of various specific characters. The similar results discussed above are also observed in this table.

Table 1 Comparison of growth rate of various specific characters

CO2
Total CO2 Emissions / CO2 / E
Fuel Switching / E / GDP
Energy Efficiency / GDP / P
Economic Growth / P
Population
EU-15 / 1971-1990 / -0.06 / - 1.22 / - 1.47 / 2.36 / 0.32
1990-2004 / 0.46 / - 0.68 / - 0.91 / 1.69 / 0.38
Japan / 1971-1990 / 1.90 / - 0.54 / - 1.65 / 3.27 / 0.87
1990-2004 / 0.93 / - 0.34 / - 0.01 / 1.04 / 0.24
USA / 1971-1990 / 0.66 / - 0.40 / - 2.16 / 2.23 / 0.98
1990-2004 / 1.13 / - 0.19 / - 1.62 / 1.84 / 1.16

1. Changes in GHG Emissions by Sector since 1990 (Base Year) Based on National GHG Inventory

(1) Method of Analysis

According to UNFCCC (United Nation Framework Convention on Climate Change), member countries must submit respective national GHG inventory data to the UNFCCC Office. These data are published in UNFCCC home page.

In this section, we will analyze changes in GHG emissions by sector since 1990 (base year) for Europe (EU-15), Japan and USA and will discuss obtained results. Especially we would like to turn our attentions to specific characteristics of energy- and industry-related CO2 emissions by sector and other GHG emissions.

Fig. 5 Changes in GHG emissions by sector in Europe (EU-15) from 1990 through 2004

(2) Europe (EU-15)

Figure 5 shows changes in GHG emissions by sector in Europe (EU-15) from 1990 through 2004. Kyoto Target of EU-15 is 8% reduction of GHG, that is, -320 Mton decrease of GHG from the base year level (1990). Total GHG emissions in EU-15 were lowered from-150 to -200 Mton from the base year level during 1993 -1995 and during 1999 - 2002 but increased to -100 Mton in 1996 and in 2003 - 2004.

Total CO2 emissions of the energy and industry sector in EU-15 were lowered to -100 M ton during 1993 - 1994 but after that they were turned to increase and reached to +150 M ton in 2003 - 2004. Especially after 2000, Europe (EU-15) could not avoid to have an increasing trend in total CO2 emissions of the energy and industry sector.

The main increasing components are CO2 emissions from the transport sector (1990 - 1999) and the energy industry sector (1999 - 2004) mainly composed of power generation plants. The main decreasing components are waste CH4 and CFC (flon: fluorocarbon). The reduction measures in transport and power generation sectors are essentially important for European countries.

(3) Japan

Figure 6 shows changes in GHG emissions by sector in Japan from 1990 through 2004. Kyoto Target of Japanis 6% reduction of GHG, that is, -75 Mton decrease of GHG from the base year level (1990). GHG emissions were increased to +80 Mton in1994, but decreased to +30 - +50 Mton during 1998 - 2001, and then again increased to +60 - +70 Mt during 2002 - 2004.

Fig. 6 Changes in GHG emissions by sector in Japan from 1990 through 2004

Total CO2 emissions of the energy and industry sector in Japan were steadily increased to +130 M ton in2003 - 2004 except several recession periods such as 1993, 1998 and 2001. Japan could not avoid basically to have a steady increasing trend in total CO2 emissions of the energy and industry sector since 1990 (base year).

The main increasing components are CO2 emissions from the transport sector (1990 - 1997), the residential and commercial sector (1990 - 2004) and the energy industry sector (1999 - 2004) mainly composed of power generation plants. The CO2 emissions from the industry sector has been leveled off from the base year, but fluctuated by depending on the degree of economic activities. The main decreasing components are agriculture CH4 and CFC (flon: fluorocarbon). The reduction measures in transport, residential and commercial, and power generation sectors are essentially important for Japan.

(3) USA

Figure 7 shows changes in GHG emissions by sector in USA from 1990 through 2004. Kyoto Target of USAis 7% reduction of GHG, but USA was left from Kyoto Protocol since 2001. GHG emissions rapidly increased and reached to the plateau of +850 Mtonduring 1996–1999. After then, they again started to increase and reached to +1,100 Mton in 2004 (+20% increases from the base year level)

Fig. 7 Changes in GHG emissions by sector in USA from 1990 through 2004

Total CO2 emissions of the energy and industry sector in USA were steadily increased to +800 M ton in 2000 nearly in straight line. Due to economic recession after IT bubble, they were leveled off during 2001 - 2002. Recently they started to increase and reached to +950 M ton in 2004 (+18% increases from the base year). USA could not also avoid to have a steady increase in total CO2 emissions of the energy and industry sector since 1990.

The main increasing components are CO2 emissions from the transport sector (1990 - 2004), and the energy industry sector (1990 - 2000) mainly composed of power generation plants. The main decreasing components are CH4 and N2O reduction mainly due to land use changes. The reduction measures in transport and power generation sectors are essentially important for USA.

1. Comparison of Policy Measures on Global Warming Between EU-15 and Japan

(1) Europe (EU-15)

EU member countries were tried various policy measures from earlier stages in the beginning of 1990’s, as shown in Fig. 8. After 2000, several EU member countries aggressively adopted the mix of policy measures such as environment tax, voluntary agreements, and domestic emission trading.

In 1992, EC failed to introduce common carbon tax (energy carbon tax). After this stumble, EU has made a large effort to adopt common directive on minimum tax rate on energy tax and several common directives on renewable energy, energy saving and conservation, and combined power and heat.

In spite of these efforts, recent trend of GHG emissions in EU-15 was changed from decrease to level-off or increase. Total GHG emissions increased from 2000 mainly due to the energy- and industry-related CO2 emissions. Especially CO2 emissions in the transport and power generation sectors started to increase according to steady economic activities after 2000.

Fig. 8 Changes in policy mix of global warming measures in Europe (EU-15)

Fig. 9 EU Plan for achieving Kyoto target of GHG reduction

EU-15 is now facing to the difficulties to achieve Kyoto target by using domestic options, as sown in Fig. 9. On the other hand, EU expanded from 15 to 25 countries in 2004. Thus, EU discussed and determined to adopt EU-wide emission trading scheme. EU member countries also discussed the effective uses of Kyoto mechanism.

EU-15 emission is prospected to be +250 M ton from Kyoto target in 2010, as shown in Fig. 9. New 10 member countries centering East Europe can offer a powerful option to offset this excess by using their Hot Air. Thus, the emission trading scheme by EU is now a quite important option for mitigating GHG emissions.

(2) Japan

Japan was also tried to adopt various domestic options such as energy conservation, fuel switching, and forest CO2 absorption in order to achieve Kyoto target, as shown in Fig. 10. However, all domestic options have several serious difficulties and Japanwill not be able to get good results.

Firstly, energy conservation can achieve necessary CO2 reductions? The industry sector is now strongly depending on her voluntary action plan of GHG reduction. But if economic recovery since 2004 continues to have a steady trend, the industry sector could not control future CO2 emissions easily. In spite of long-term economic recessions since 1992, CO2 emissions in the residential and commercial sector and the transport sector continued to increase. The energy efficiency of equipments used these sector has been improved to some extent, but the problem in these sectors is how to use these energy equipments.

Fig.10 Ground design for achieving Kyoto Target in Japan

Secondly, Japan is now experiencing large downward revision of nuclear expansion due to increasing opposition movement to nuclear power plant. We need to consider alternative options to supply necessary electricity with realizing the increase of CO2 emissions. On the other hand, electricity demand begins to show a saturation trend and uncertainties are increasing.

Thirdly, people in Japan also have a quite large anticipation to renewable energies. But actually speaking, we cannot expect that renewable energies would play a major role in energy supply of Japan in 2010 because of various difficulties such as potential, fluctuations and economics. Expected maximum share of renewable energies is only 3% in primary energy supply in 2010.

Fourthly, natural gas will not increase in absolute volume in 2010, because of higher LNG prices, selection suitable power mix by the power companies and ending of natural gas switching in metropolitan areas. Due to the influences of energy conservation pursued simultaneously, natural gas will increase in terms of share but not in terms of volume.

Fifthly, environment tax will not be a powerful option for reducing GHG emissions, because no large demand drop happened by the skyrocketing rise of oil price since 2004. The environment tax will freeze higher energy price structure in Asia.

Under these situations of domestic options, Japanese government is now eagerly constructing new systems where Kyoto mechanism is utilized effectively. While the Ministry of Environment is now eagerly making the domestic emission trading system, the Ministry of Economy and International Trade and Industry is focusing Kyoto credit acquisition system. Last year, Japan was the largest buyer CDM credits from developing countries especially in Asia.

1. Concluding remarks

Specific characteristics in GHG emissions or CO2emissions are quite different among EU-15, Japan and USA. Thus, simple allocation of total reduction percentage (top-down approach) is not a suitable method for GHG reductions.

From 1995 to 2000, the abolishment of CFC had a large effect on reducing GHG emissions but CO2emissions related energy and industry has not reduced as expected in all of EU-15, Japan and USA. Even EU, CO2 emission will be possible to increase.

Kyotomechanism (emission trading, joint implementation and clean development mechanism) will play a more important role to reduce GHG emissions including CO2 emissions. We should pursue more efficient and smart use of Kyotomechanism.

(References)

EU [2005], “REPORT FROM THE COMMISSION PROGRESS TOWARDS ACHIEVING THE COMMUNITY'S KYOTO TARGET,” COM(2005) 655 final.

EU [2006], “REPORT FROM THE COMMISSION PROGRESS TOWARDS ACHIEVING THE COMMUNITY'S KYOTO TARGET,” COM(2006) 658 final.

Ministry of Environment [2004], “Concrete Proposal of Environmental Tax,” ( env.go.jp/policy/ tax/041105/all.pdf).

Prime Minister Office [2005], “Achievement Plan for the Target of Kyoto Protocol,” ( jp/jp/singi/ondanka/kakugi/050428keikaku.pdf).

UNFCCC [2006], “National Inventory Submissions 2006,”

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