Page 2 of 2 Hatoyama sets global marker
By Iida Tetsunari and Andrew DeWit
What has changed is Japan's new and serious political leadership. Suddenly, the
retreat from the 1990 base-year approach through shifting the focus to 2005 is
gone. So are all the other ploys, such as sector-based targets, to delay and
distract international efforts on broad emissions reductions. New Foreign
Minister Okada Katsuya, a strong proponent of tackling climate change, stresses
that Japan's embarrassingly low targets must go back to the drawing board. In
short, Japan finally has political leadership that understands the gravity of
the climate-change challenge and is prepared to act.
In response to this principled activism by the new political leadership, on the
same day Hatoyama made his announcement, METI's vice minister sought yet again
to scupper it by insisting that Japan was embarking on a very difficult road.
Likewise, the business establishment has amplified criticisms through its
various associations. Climate change and energy policy may very well become
main battlefields of the new leadership's fight to wrest control of
policymaking from the outmoded bureaucratic fiefdoms and the vested interests
they represent.
On August 25, in the midst of the election campaign, the Sankei newspaper ran
an article containing details from what appears to have been a leak from
Tokyo's bureaucratic district, Kasumigaseki. The article referred to a METI
assessment suggesting that the DPJ environmental program would impose extra
costs of 190 trillion yen (US$1.7 trillion). In addition, the per-household
cost for Japan would allegedly increase by 360,000 yen. These were in fact
leaks from the previous government's "Study Group on Mid-term Targets" and
should have been treated with deep skepticism.
Let us first give the DJP's bureaucratic opposition the benefit of the doubt,
and assume that the figures are in fact correct. If so, the extra cost of 190
trillion yen would represent investment and consumption that would grow the
green economy by about 3% of gross domestic product per year. In addition, the
per-household cost of 360,000 yen was used to give the impression of impending
poverty, but that is hardly realistic.
One needs to look at the full study to see the game the leakers were playing.
The study sketched the economic impact, over the 2005 to 2020 period, from
various emissions reductions targets. The study concluded that with only a 4%
emissions cut the economy would grow by over 650 trillion yen between 2005 and
2020. The study also projected that former premier Aso's policy of cutting 15%
by 2020 (relative to 2005 levels) would cost 17 trillion yen in lost growth,
compared with the 4% cut. And it concluded that a 25% cut (by 2020, and
relative to 1990 emissions) would cost 97 trillion yen in economic growth.
But even if we accept these calculations as correct, the study still expects
630 trillion yen in economic growth from 2005 with a 25% cut in emissions. That
means that even with the Hatoyama regime's cuts, per capita disposable income
would rise by 760,000 yen, or about $6,000. The media failed to mention that
aspect of the study.
Now let's suspend the benefit of the doubt conferred in the previous
discussion. Economic studies are only as credible as the data and assumptions
they are based on, and hence deserve close scrutiny. Like most others,
especially the press, the bureaucrats neglected to consider various problems
with the data used and the design of the studies. For one thing, the question
of whether the national economy will grow or contract is treated without any
international context. But as we know from the October 2006 Stern Review on the
economics of climate change, failure to take action threatens the viability of
every national economy as part of the global system.
Second, as we saw above in the 2005 to 2020 assessments of costs, one of the
assumptions in the modeling is that cutting emissions necessarily results in
lower GDP over the ensuing years. But this is not at all how economies adapt
and evolve to price changes. It is, rather, based on a groundless assumption
that the industrial and social structure remains unchanged.
In contrast to this surprisingly reductionist perspective, consider the work of
mainstream and highly respected scholars like Michael Porter, who in 1995 wrote
with a colleague "Toward a New Conception of the Environment-Competitiveness
Relationship". They argued persuasively that dealing with the costs of negative
externalities can spark innovation that leads to economic growth rather than
economic loss.
To be sure, it will certainly not be easy to achieve the target of a 25% cut by
2020. Due to the lack of an effective policy since the Kyoto Accord, Japan's
2007 emissions rose, relative to 1990 levels, by 9.2%. But a 25% emissions cut
can be achieved. What sort of policies and what sort of processes need to be
put in place to achieve the target? The new coalition has to revise midterm
targets, set up a basic law on emissions, facilitate the diffusion of renewable
energy, and the like. Essential means to these ends include an environmental
tax, an emissions trading scheme, incentives for green technological
innovation, and a comprehensive feed-in tariff.
And what of the process? It is essential to transform the cozy domains of
bureaucratic leadership and move towards political leadership in the
environmental and energy policy fields. We can learn from the Obama regime in
the United States, through its appointment of a global warming "dream team". In
the Japanese context, one critical institutional change might be setting up a
climate change and energy strategy committee on the new national strategy
commission.
Among the first tasks of the new leadership will be to temporarily freeze the
feed-in tariff that METI drafted and which is to take effect on November 1 of
this year. Feed-in tariffs are enormously important devices for supporting the
uptake of renewable energy technology through subsidizing household and other
production for the electrical grid. The tariff pays an increment above the base
price of electricity to foster a stable, long-term market for renewable power
and thus accelerate technological improvement and its dissemination. The scheme
currently in place was adopted with incredible haste and only seven days of
public comment. It sorely needs fixing.
One of the reasons for freezing the scheme is that it conflicts with the
election promises of the new administration. The METI scheme is essentially
limited to solar energy. But the Democratic Party promised a comprehensive
feed-in tariff for all renewable energy sources (that is, solar, wind, biomass,
marine and the like). Allowing the feed-in tariff to go ahead as is would be to
allow vested interests in the bureaucracy and energy sector to retain control
over policymaking in this strategic area.
It is ironic, perhaps, that I should call for a freeze of the feed-in tariff
policy I have been advocating for over a decade. But it is essential to get a
real, comprehensive feed-in tariff rather than accept the half-baked scheme
cooked up by METI's internal politics and client-list of vested interests.
As the preceding discussion makes clear, I believe that it is critical to take
issue with a number of economists seeking to raise doubts about the reality of
global warming and discredit policies to deal with it. For example, Ikeda
Nobuo, in the November 10 Japanese edition of Newsweek, insists there is no
real reason to believe that goal warming is actually occurring. Ikeda also
claims that the costs of cutting carbon emissions are being overlooked, and
that Japan will lose 1% of its GDP through attempting to fulfill robust carbon
reduction targets.
He warns that massive costs will be visited on the public through reduced
employment and the like. He even depicts the carbon reduction promise as cheap
populism, backed up with an agenda for a controlled economy.
This kind of nonsense should be ignored. There is certainly healthy debate in
the scientific community over the mechanisms and other aspects of global
warming. But this scientific debate is quite far removed from the kinds of
cheap imitations of so-called scientific scrutiny that still pour forth from
some economists and others who really do not understand the debate. The
important point from the perspective of a public policy framework is the
precautionary principle, which cautions us to err on the side of caution.
Gambling with the future of the human species and the earth is not wise.
When intellectuals seek to advance policy studies in this critical area of
climate change they are well advised to understand the consensus that has
developed within the scientific community and use its insights to ground their
assertions within policy studies. At the very least, those who aspire to the
role of policy intellectuals have a duty to acquaint themselves with the full
body of evidence.
Andrew DeWit is professor of the Political Economy of Public Finance,
Rikkyo University and an Asia-Pacific Journal coordinator. With Kaneko Masaru,
he is the co-author of Global Financial Crisis published by Iwanami in
2008.
(This article was first published by Japan
Focus. Republished with permission from Japan Focus)
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