Environmental Policy

Report on Auto-Related Environmental Taxes_2. Needs for Taxation

2. Needs for Taxation

2-1 Overall Picture of Environmental Measures related to Vehicles

Various auto-related environmental measures have been taken in the areas of emissions sources, traffic (physical distribution, human flow, and vehicle flow), and road structure and roadsides. The following presents measures taken in each of these areas.
In addition to the following measures, as stipulated in the Automobile NOx Law, prefectural governors of the specified areas have formulated plans regarding measures to reduce the total volume of nitrogen oxides in automobile exhaust. These plans have been implemented systematically to improve air quality.

(1) Sources of Emissions

  • Based on the Air Pollution Control Law, the amount of exhaust from vehicles and the quality of automobile fuel are regulated.
  • Based on the Law Concerning Rational Use of Energy (the Energy Conservation Law), the level of fuel efficiency is regulated.
  • Based on the Automobile NOx Law, vehicle categories are regulated in specified areas.
  • Use of subsidies and taxation to encourage purchases of environment-friendly automobiles such as the low-emission vehicles (electric vehicles, natural gas vehicles, hybrid vehicles, and methanol vehicles) and vehicles with high fuel efficiency; also, various technological developments are promoted.

(2) Traffic

  • Promotion of a shift in modes of transport by constructing and improving railways, ports, and access routes
  • Construction of public transportation, pedestrian walkways, and bicycle roads, and promotion of their use
  • Lessening of the traffic of large-sized vehicles by properly situating physical distribution facilities
  • Promotion of traffic diversion by encouraging the use of bypasses and differentiation of road functions
  • Provision of guidance, suggestions, and information concerning transportation patterns, e.g. the promotion of joint cooperative transportation and distribution
  • Dissolution of traffic congestion through improvements in intersections and introduction of advanced traffic control systems
  • Study on the development of an Intelligent Transport Systems (ITS) for more efficient traffic flow

(3) Road Structure and Roadsides

  • Establishment of buffer space as environment-friendly facility zones; and construction of underground roads and sheltered roads
  • Studies on local pollution measures, e.g. NOx purification system utilizing soil or photo catalysts
  • Tree planting to lessen air pollution

Considering the current state of environmental problems arising from automobiles, in addition to implementing and strengthening the above measures, it is also important to develop and implement new measures.

2-2 Role of Taxation in Vehicle-Related Environmental Measures

Role of Economic Instruments in Environmental Policies

Today's environmental problems of air pollution and global warming need to be addressed using various methods, including regulatory measures, voluntary efforts of private enterprise and citizens, economic instruments, and the building of infrastructure. Among these methods, economic instruments seek to internalize the social cost created by socioeconomic activities that burden the environment through having this cost reflected in the prices of goods and services. Economic instruments work to encourage consumers to purchase products less burdensome to the environment, and provide incentives for producers to engage more actively and continuously in the development of environmentally-friendly technologies. As a result, it becomes possible to transform the present society into one that has less of an environmental burden and is more sustainable.

The use of such economic instruments is recommended by both the United Nations and the Organization for Economic Cooperation and Development (OECD). For example, Principle 16 of the "Rio Declaration on Environment and Development" adopted at the Earth Summit in 1992 says that "National authorities should endeavor to promote the internalization of environmental costs and the use of economic instruments, taking into account the approach that the polluter should, in principle, bear the cost of pollution." The OECD adopted the "Recommendation by OECD Council concerning the Use of Economic Instruments in Environmental Policies" in 1991. And in 1997, the OECD compiled a report titled "Environmental Taxation and Green Taxation Reform". The report states in its conclusion that "nations should pursue the opportunity and possibility of green taxation reform based on the economy, finance, and environment of each country."
In Japan, the Basic Environment Law enacted in 1993 states that economic instruments be considered as one of the fundamental measures for reducing environmental load. The following year, in 1994, the Basic Environment Plan was implemented. It says that various economic measures that properly reflect environmental costs in the price of goods and services are expected to efficiently reduce environmental load generated by numerous daily activities and are believed to contribute to efficient distribution of resources. Then in the Basic Guidelines on Measures to Tackle Global Warming, developed in accordance with the Law Concerning the Promotion of Measures to Cope with Global Warming and adopted by the Cabinet in 1999, economic instruments are acknowledged as a useful tool to provide incentives to encourage technology development, emissions control, and the introduction of measures.

Role of Taxation in Vehicle-Related Environmental Measures

In order to cope with environmental pollution brought about by automobiles, it is vital to change the socioeconomic activities that involve vehicle use. For this purpose, the use of taxes is effective to internalize the externalities through market mechanisms.
For example, the use of tax in auto-related environmental policy is effective to prompt all actors to choose environmentally superior vehicles rather than those that cause heavier loads on the environment. Currently, the level of emissions from the automobile is regulated at the most stringent level feasible under present technology, and the standard for fuel efficiency was revised recently and became even more stringent. Traffic volume, however, is likely to increase even more, thus offsetting some effects brought about by these regulations. With this backdrop, in addition to the regulatory measures imposed on suppliers, the use of tax on the
demand side can supplement the effect of regulations and effectively encourage the use of environmentally friendly vehicles.

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