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This paper investigates the impacts of the Target-Setting Emissions Trading (TSET) Program launched by Saitama Prefecture in Japan in 2011 on the adoption of low-carbon technology. Using facility-level data on the manufacturing sector, the causal relationship between implementation of the program and investment in high-efficiency equipment is estimated. The results show that the TSET Program promoted the adoption of high-efficiency machines and devices for the first three years of the second compliance period, whereas the program did not spur investments in high-efficiency equipment during the first compliance period. These results suggest that the manufacturing facilities may have adopted relatively cheaper emissions reduction plans in the first compliance period such as improvements to equipment they already owned, whereas in the second compliance period, when the emissions targets became stricter, they allocated money and resources to introduce high-efficiency equipment. These findings indicate that the TSET Program succeeded in encouraging emissions reduction efforts by facilities in the manufacturing sector covered by the scheme, even though the program lacks penalties for noncompliance. [ABSTRACT FROM AUTHOR]

We develop a simple general equilibrium model in the style of Harberger to analyze the distributional effects of the proposed "environment tax" on carbon in Japan. We derive closed-form equations that show how a change in the tax rate affects the economy-wide return to capital, wage, and output prices. The two main features of the economy that determine the sources-side incidence of the tax are the factor intensities of the polluting and nonpolluting industries and the elasticity of substitution in production between polluting inputs and labor or capital. The input that is a better substitute for pollution usually bears a lower burden of the tax than the other input, although we find conditions under which this is not true. If the polluting sector is relatively capital intensive, then capital can bear a higher burden of the tax. Calibrating this model to the Japanese economy, we find a trade-off between these two effects. Polluting industries are more capital intensive, but capital is likely to be a better substitute for pollution than is labor. [ABSTRACT FROM AUTHOR]