Who Bears the Burden of a Tax on Carbon Emissions in Japan?

This paper is very preliminary and is not for quotation, but comments and suggestions are welcome. We are grateful for financial assistance from Japan’s Economic and Social Research Institute (ESRI). Much debate surrounds the proposed introduction in Japan of an "environmental tax " on carbon emissions. A great deal of this debate centers on the question of who will ultimately have to pay the costs of the tax and who will reap the benefits. While estimates indicate that the average family will have to pay about 3000 Japanese Yen per year due to the tax, some families will bear disproportionately high burdens. A careful analysis of the proposed policy must contain a discussion of the incidence of the tax. While the tax may be successful at its primary goal, to help Japan meet its obligations under the Kyoto Protocols, it may carry some unintended and unwanted distributional side effects. If the tax is too regressive, it may not be the most preferred policy choice to reach the desired reduction in carbon emissions. Indeed, one of the four long-term objectives of Japan’s Basic Environmental Plan is to ensure that all parties are participants to environmental policy and share the burden fairly