OECD's Environmental Performance Reviews: Japan

  • Evaluation
    • Japan's export-driven economy slowed significantly in 2009 as a consequence of the global economic downturn. The government responded with a large-scale fiscal stimulus and a long-term growth strategy. Environment-related measures accounted for some 16% of the overall anti-crisis package. Support to energy efficiency, renewable energy technologies and related research and development (R&D) constituted the core of the "green" stimulus measures, reflecting emphasis on the transition to a low-carbon society.
    • However, as in many other countries, Japan's stimulus package included measures that can have negative environmental impacts and distort competition, such as support to the car industry and agricultural production, and discounts on highway tolls.
    • "Green innovation" is one of the six pillars of the 2009 New Growth Strategy to 2020. Although still at an initial stage of definition, the Strategy appears to include the main elements of the 2009 OECD Declaration on Green Growth.
    • Employment in environment-related enterprises has doubled since the previous review and accounts for 95% of total (public and private) environmental employment. The eco-business is expected to expand further, providing for additional job opportunities in the sector.
    • Eco-innovation is a core element of Japan's environmental policy and part of the government's strategy to contribute to economic growth and social progress. Japan is a world leader in environment- and climate-related technological innovation, and is a pioneer in some new green technologies, such as green information and communication technologies. Government expenditure for environment- and climate-related R&D increased considerably during the review period.
    • The private sector, especially the manufacturing industry, is considered a driver of eco-innovation. Performance targets, such as the Top Runner Programme, have contributed to technological improvement.
    • Japan has promoted the diffusion of cleaner goods in both the public and private sector. Green public procurement has been mandatory since 2001, although only for central government institutions, which has helped to enlarge the market of some eco-products.
    • Japan provides fiscal support to businesses and households to invest in energy saving and pollution control equipment. Incentive schemes are in place to encourage purchases of energy efficient household appliances (e.g. the Eco-Point Programme) and vehicles. However, rewarding energy-efficient or environmentally friendly products strains the public budget and is less cost-effective than internalising environmental impacts in the price of goods and services.
    • Revenue from environmentally related taxes increased by 6% during the review period, although their share in total tax revenue decreased. The taxation system has been "greened" to some extent, for example with the introduction of a coal tax and tax breaks for fuel-efficient vehicles.
    • However, the tax rates on energy products, including transport fuels, have not changed since the previous review and remain among the lowest in OECD.
    • Phasing out environmentally harmful subsidies should be a central part of a comprehensive environmental fiscal reform, with a view to increasing cost-effectiveness of policy measures and to reducing pressure on the public budget.
    • As emphasised in the previous two OECD Environmental Performance Reviews, businesses often benefit from government financial assistance to meet environmental targets, thereby deviating from a consistent application of the polluter-pays-principle.
    • Income inequality and relative poverty have slightly decreased since 2000, although they remain higher than in the mid-1990s. The impacts of environmentally related taxes and charges on low-income households are an emerging issue and should be further explored.
  • Recommendations
    It is recommended to:
    • evaluate the impact of the New Growth Strategy to 2020 on the environment, as well as the net contribution of environment-related sectors to growth and employment;
    • review transport-related taxation and pricing, with a view to directly linking taxes on the purchase and ownership of vehicles to their fuel efficiency, and to better targeting pollution related to vehicle use through fuel taxes and road pricing;
    • mainstream environmental considerations in the 2011 tax reform, with a view to broadening the use of environmentally related taxes and reducing incentives and subsidies that have perverse environmental effects, or that contravene the polluter-pays-principle;
    • speed up the implementation of green public procurement in local governments, while ensuring its environmental effectiveness, economic efficiency and compliance with competition rules;
    • further expand public direct investment in basic R&D in environment- and climate-related technologies; analyse the effectiveness and dynamic efficiency of current performance targets (e.g. the Top Runner Programme) in inducing ecoinnovation;
    • strengthen the analysis of the social-environment interface as a support for decision-making, including the distributional impacts of environmental policies and the impacts of demographic and other social trends on the environment.