I. Basic Concept Regarding Economic Instruments - A. :Utilization of Economic Instruments in Environmental Policies - Taxes and Charges

I. Basic Concept Regarding Economic Instruments

A. Why Are Economic Instruments Necessary?
-- Integration of the Environment and Economics

The environment and the economy are fundamentally inseparable elements. The environment supports human life. Human activity involves creating and providing the resources necessary for economic activities in order to support human life, and at the same time deals with the waste produced through human activities. However, there are limits to the capacity and capabilities of such an environment. Economic activity beyond these limits is not sustainable. Conserving the environment indeed sustains economic activities that improve people's lives. In order for mankind to maintain a sustainable economic society, it is necessary to incorporate consideration for environmental conservation into the current socioeconomic system, in other words, seek measures to integrate the environment and economy. In order to carry this out, the fundamental problem is to determine what kind of government policy will effectively achieve long-term changes.

In the past, it was relatively easy in the short term to discern the impact of former environmental problems such as pollution and the destruction of nature because they were generated in the local areas. It was similarly easy to specify the causal relation between the activity and the resulting damage. For such cases, regulatory measures and pollution prevention using the corresponding technology was effective. However, with the great advances of an economic society, many current environmental problems, such as global warming, the ozone layer depletion, urban and domestic pollution, and increase of solid wastes, are the results of an increase in environmental load arising from daily socioeconomic activities and lifestyles. Environmental problems are not only matters of regional significance, but have taken on global significance. We must be concerned about the long-term impact on future generations, and about the increasing number of issues where the causal relations are less identifiable.

In order to solve these problems, we must reconsider the view that the environment is a "free good" that can be used infinitely. Rather, we must see the environment as finite, precious and common goods extending beyond generations that must be returned to future generations for their enjoyment, as previous generations have done for us. In order to enjoy the blessing of a sustainable environment, we must embrace the concept of reasonably paying the burden to conserve the environment, in other words, the necessary price to use the earth. It is also necessary to formulate government policies that will enable people to see the obscured impact on the earth from economic activities conducted within a finite environment, and enable people to reflect on economic activities.

In order to integrate such considerations into a decision-making process of economic activities, there is a limit, and it ultimately becomes costly to regulate and restrict each of the respective daily activities. It is imperative to use the market mechanism and not just depend on regulatory measures. That is why economic instruments are used and relied upon in government policies throughout the world.

In order to integrate consideration for the environment into the price of goods and services, which is the basic underlying principle of the market mechanism, such methods as environmental taxes and charges, tradable permit systems, and the deposit refund systems are implemented by different countries in various forms.

Taxes or charges aiming at reducing production and consumption of goods that have a direct or indirect negative impact on the environment as well as reducing pollutant wastes are generically called environmental taxes. Tax systems related to environmental tax in various countries include a carbon tax to regulate carbon dioxide emission, a sulfur tax aimed at regulating emission of sulfuric oxides that cause acid rain, and taxes on disposable beverage containers that require polluters to carry the cost of disposing of any material waste they produce and thereby encourage producers to establish a recycle system. Among the various charges, for example, are charges on emissions-- whereby waste is charged according to the amount and quality of the waste emitted -- aimed at restraining unnecessary emission of waste that burdens the environment. One type of charge, levied on using public facilities or services, is used to process waste. A waste disposal charge is levied according to the quality and quantity of the final disposal of waste. Furthermore, there are charges on products levied on imported or produced goods according to the amount and quality of the waste the goods will produce after consumption. Lastly, a natural resource charge is levied on the use, harvest, and import of raw materials that cannot be recycled.

The deposit refunds system is attaching deposits to goods that have a potential environmental load, and then refunding after the goods or the remains are safely returned without placing an environmental load. In OECD countries, such deposits are often attached to drink containers. It is reported that roughly 80 percent of the containers are returned. There are other similar examples to this such as disposable batteries and plastic.

Through endeavors to integrate the environment and economy, it is necessary in the long term to transform the socioeconomic system into a sustainable one. To attain this goal, the constituents of the economic society must also carry the burden. However, this burden should be shared fairly, and economic instruments should be used to realize transformation of the entire society efficiently. It is also necessary to take into consideration that no geographical area, social strata, or public sector should be made to take on extra burden in the process of implementing this change. It is also important to ensure that there will be no major impact or confusion in the short term. As society learns to understand and cooperate along these lines, in the long term, it will be possible to realize a sustainable society with economic activities of high quality through integrating consideration for the environment into economic activities.

The Basic Environment Law and the Basic Environment Plan based on the Law denote the long-term objective of future environmental policies and achieve the government policy framework for them. In them, it calls for appropriate and highly effective implementation of various policies such as planning, environmental impact, regulatory measures, economic measures, environmental infrastructure improvement, voluntary actions, and maintaining environmental information. As can be seen below, economic instruments internalize the cost and consideration for the environment. Conservation activities of various industries and people constituting the economic society are considered an effective means to transform society into a sustainable one. It is necessary to take advantage of such effects by combining them with various government policies and endeavors.