Quality of the Environment in Japan 1995

 (3) Towards a future that need not be concerned about global warming

  As we have seen, future generations could be seriously affected by global warming if adequate measures are not taken. The ultimate goal of countermeasures to global warming is, as explained in the Framework Convention on Climate Change, to "stabilize greenhouse gas densities in the atmosphere at levels that do not result in dangerous artificial interference in the climate system." As can be seen in the IPCC forecasts, achieving this goal will require reductions of greenhouse gas emission volumes over the entire world. It is therefore essential for all countries, whether they be developed or developing, to broadly engage in as much cooperation as is possible, each with their own differing responsibilities, to promote countermeasures.
  With this background, Japan renewed its determination to active-ly handle countermeasures for global warming when the Cabinet made a decision in December 1994 to implement the Basic Environment Plan. This plan aims in the long term for the ultimate goal of the Framework Convention on Climate Change, and in the medium term for creation of an international framework and for implementation of still more active countermeasures under international associations. And for the time being, the plan clearly sets down the determination to actively promote policies for the achievement of the targets set in the Action Program to Arrest Global Warming.
  Internationally, in the first meeting of member states of the above-mentioned convention, held in Berlin in March and April 1995, it was determined to set in motion the process of studying what measures to take for the years beyond 2000, which were not yet clearly specified in the convention. The intent of the decision was to lay down policies and measures for the years beyond 2000 and to aim for numerical restraints and reduction targets in specific periods beyond 2O00, for 2005, 2010, and 2020. The final decision is set to be taken at the third conference of member statesin1997, so as to commence the study process as soon as possible. This action Will strengthen the promises made by inclusion of them in a protocol.
  In the course of these events, Japan as one of the developed countries should be playing a leading role in the creation of future international frameworks. Moreover, social groups that include each one of US should be aware of the responsibilities toward prevention of global warming, and by sharing out responsibilities, we should in the future continue striving to our utmost to restrain emissions of green-house gases in Japan and promoting absorption source measures. Moreover, we should be actively king international harmony to promote environmental cooperation and be promoting a worldwide response that includes the developing countries.
  And by decisive promotion of these efforts, we shall for the first time be able to pass on this limited global environment, which is the common foundation of survival for the human race, as well as this blessed and rich environment of Japan, to future generations.

Chapter4. Developing Highly Effective Environmental Policies for a Sustainable Future

  As has been seen so far, modern civilization, which has developed by seeking new frontiers and expanding its range of activities, is approaching the limits of the environment on a global scale, an experi-ence that mankind has never had before, and is being forced to make a basic reevaluation. Japan, in particular, having used trade and other avenues to deepen its relations broadly with the nations of the world so as to achieve rapid economic growth, and as a member of the advanced industrialized nations having come to hold much influence in interna-tional society both economically and from the point of view of placing burdens on the environment as well, has a big role to play in interna-tional society toward resolution of the environmental problem.
  In this situation, Japan adopted the Basic Environment Law in 1993, and The Basic Environment Plan in 1994, demonstrating to the world that we are taking the lead in building a sustainable society. But while the basic direction of environmental policy has been set, the real task of developing an environmental policy that specifically changes the modern socioeconomic system still remains ahead. Environmental pol-icy is not merely the province of the government or of local public authorities, it also is actively being pursued autonomously by business-men, the people, and private-sector groups, each working under a fair division of responsibility according to their positions. But the capital and labor available for these efforts is certainly not limitless. And if the situation continues unchanged, it is feared that serious environmental problems will appear in the near future of the 21st century, beginning with the problem of global warming, which means that the time frame within which these groups can work to promote their workable environ-mental policies is limited.
  It is therefore extremely important for policy makers, whether they be the government, local public authorities, or the private sector, to select environmental policies that are as effective as possible in terms of the investment costs of capital, labor, and time. Taken in terms of this viewpoint, then, in this chapter we would like to test the viewpoints needed for guaranteeing the effectiveness of future environmental policies, and to take a look at a number of recent cases of environmen-tal policy.

Section1. Viewpoints that Boost the Effectiveness of Environmental Policy

1. Seven Viewpoints that Boost the Effectiveness of Environmental Policy

  The character of environmental problems today has changed. As can be seen by such issues as the global warming problem or the waste disposal problem, the emphasis of environmental problems today has shifted toward how to reduce the burden on the environment caused by business activity or daily life. Moreover, many environmental are global in scale and are complexly intertwined in causing today's situations. And it is possible that such problems as climate change that are caused by global warming may appear and cause damage when it is too late for mankind to do anything about it.
  It will in future be necessary to incorporate environmental policy into increasingly broad socioeconomic activities from all sorts of gov-ernment, local public authority, and private sector groups. Assuring a viewpoint that makes these policies as efficient and effective as possible will probably be an important point in the achievement of a sustainable economy and society that smoothly promotes this kind of integration between the environment and economy.
  Here below, we attempt some adjustments to specific viewpoints for boosting the effectiveness of environmental policy. Methods of adjustment, of course, are not assured, while methods for quantitative analysis of the effectiveness of each viewpoint are also not necessarily assured. Nevertheless, these viewpoints are considered to be important for both the government and local public authorities, and also for the environmental policies of businesses and private-sector groups, and future studies will be needed on assessment methods in terms of admin-istration. In this case, however, we must remain fully aware of the fact that many of the costs and their effectiveness in relation to the environ-ment may be difficult to evaluate in terms of money.

  (1) Prevent environmental damage before it happens

  First, we bring up the viewpoint of preventing environmental damage before it happens. The 1992 edition of the Quality of the Environment in Japan states that it is more cost effective to come up with a policy to promote prevention of damage before it happens than it is to develop a policy after environmental damage has begun to appear. Moreover, examples from Japan and abroad are beginning to show that changing the production process itself as a method of pre-emptive prevention is more cost effective than countermeasures taken at the point of emissions. The viewpoint of preventing damage before it happens is an extremely important viewpoint, especially as policy for environmental problems, where many such problems are difficult to recover from.

  (2) Take countermeasures that concentrate on more basic causes

  In studying countermeasures for environmental problems, it is important to go beyond the surface phenomenon that arises or to primary pollution causes to consider the underlying socioeconomic structural causes. So regardless of likes or dislikes, when. the socio-economic structure leads to burdens on the environment, each individual and group must be aware of that basic cause and reach past the difficulties to obtain countermeasures. When we can consider the basic cause and make systematic policy reforms, each group's environmental conservation activities can become more effective, or in other words, more cost effective. In the waste disposal problem, for example, restric-tions on waste generation, promotion of appropriate recycling, and promotion of appropriate disposal are important. These are related to the production side and are also related to the lifestyles of each and every citizen. This field of view also incorporates environmental educa-tion, environmental training, and other policies, and promoting it can be expected to boost effectiveness.

  (3) Take the elements of the environmental framework in an integrated way

  In promoting countermeasures for chemical substances, policies to date have mainly been framed according to the medium used. If, at the substance level, we consider that releases into a number of media and movements between media can lead to exposures at each medium, then framing countermeasures so as to account for a number of media should be more effective. Moreover, an integrated viewpoint is impor-tant when taking countermeasures at the source of occurrence or for geographical approaches. Compared with policies that deal with pollu-tion in a single medium, the study of environmental conservation policies in the context of integrated support for elements of the environ-mental framework is much more effective.

  (4) Combine environmental policies with other policies

  Combining environmental policy with other policies can result in the promotion of more effective policies. For example, in such areas as traffic congestion policy combined with a policy to reduce automobile emission gases, or reduction of fertilizer use combined with a soil conservation policy, studying policies that take both areas into the field of view from the first stage is more effective. This approach constitutes the foundation of the Basic Environmental Plan. Section 2, in particular, discusses the relationship of environmental policy with trade policy in terms of the validity of mutual support of policies having differing objectives.

  (5) Make appropriate use of the market mechanism

  The viewpoint of making use of the market mechanism can be expected to be a valid way to boost the effectiveness of environmental policy. The market uses price as a signal to distribute complex resources, and price movements are used to resolve surpluses or short-ages of assets or services. One of the major causes of environmental problems was the lack of awareness of the costs to society of environ. mental loads due to socioeconomic activities, and countermeasures were insufficient, so that the costs were not appropriately incorporated into the market mechanism.
  For this reason, environmental externalities should be appropri-ately reflected in product and other prices, and an appropriate price assigned from the viewpoint of the environment, a process that should result in the socioeconomic structure placing a smaller burden on the environment. Of course, while this environmental price cannot necessar-ily be completely calculated in money, it should open up fields that acquire marketability. Environment-related industries have been grow-ing in scale in recent years, a trend that can in a sense be considered to be increasing activity of the market mechanism. We will look at specific examples in Section 3.

  (6) Make appropriate use of information

  Appropriate use of information concerning the environment is essential in promoting an appropriate understanding the current state of and future forecasts for the environment, and in promoting effective efforts in the roles played by each of the major actors.
  Information about the economy and society is advancing rapidly in scope. There are probably both pluses and minuses in determining what the effects on the environment will be from building the informa-tion infrastructure and from using it. It goes without saying that the building of the information society must be directed in such a way as reduce the burden on the environment. Whatever happens, as informa-tion grows in importance, we should promote appropriate delivery of information concerning the environment, and the use by the major actors of such information, to make possible more effective environmen-tal conservation. We shall look closer at this issue in Section 4.

  (7) Appropriately shape the mechanisms for link-ups and participation by concerned parties

  Should, for example, the industrial sphere have a certain environ-mental conservation goal, and it be promoted by the industrial sphere only, or if consumers have a goal that is promoted by consumers only, their efforts will not be very effective. If the government and all other parties work toward a goal, under an appropriate division of roles, then environmental conservation will be promoted more effectively. We have often seen spontaneous, active efforts by a number of major actors in recent years, including international link-ups, and some of these are looked at in Section 5.

2. Taking the Environment in Integrated Ways

  We have presented a number of viewpoints for boosting the effectiveness of environmental policy. Here below, we shall dig out from among these viewpoints some ways of taking the total environment. The other viewpoints will be examined later in their own sections.
  It has been pointed out that the OECD in these last 20 years has not attained as good environmental standards as was expected when compared with efforts and investment that went into each country's pollution policies. In the improvement of energy efficiency or reduction of waste volumes, for example, remarkable displays of efficiency may have been seen over the short-term view, yet expanding those results over the longer term would require making basic changes to socio-economic activities. This is why efforts are turning toward policies that take the environment in integrated ways.
  Some newly considered integrated policies for the environment that can now be seen in the OECD countries include assessment of environmental problems and ranking of their risks, adoption and imple-mentation of environmental plans, integrated strategies formed between policy departments, integrated environmental conservation through geographical approaches, study and implementation of life cycle assess-ments, and information supply and participation. Here below we shall look at some examples at some policies taken for some target sub-stances or for sources of occurrence, and at some environmental conser-vation policies integrated at geographical levels.

  (1) Integrated focus on substance life cycles

  Government plans in the OECD countries for the monitoring and control of chemical substances have been undergoing changes in recent years. Chemical substances are now beginning to be ranked by degree of danger, with integrated consideration paid to their life cycles and the forms they take during use, and then put under controls. This kind of planning can be considered to be a shift from the conventional method of taking countermeasures at the point of emission toward methods that encompass the entire process and entire life cycle to control initial appearances and to reduce emissions. This kind of integrated viewpoint for studying policies at the substance level is now recognized as being very important.

  (2) Integrated environmental viewpoint for source of occurrence policies

  Pollutants are known to traverse between such differing media as the air, water, and soil. For example, 25% of the nitrogen burden in the United States' Chesapeake Bay is believed to be air pollutants generated by automobiles and power plants. Moreover, pollutants discovered at the North Pole Haze are said to be emissions from industrial districts transmitted through the air.
  If waste water and exhaust gases are disposed of at the sources of occurrence, then the amount of sludge and other materials that must eventually be properly disposed of increases. And there are cases where districts using tall smokestacks to reduce air pollution become the cause of damage to forests and lakes in quite distant regions. These cases demonstrate that assessments that take broad swathes of time and space into account when considering the extent of the environment that will affected by policies taken at the sources of occurrence will probably be more valid.
  As a result, as the OECD reports and other sources have intimat-ed, it is important to take such viewpoints as 1) select the most advanced technology that can be acquired for each medium, 2) consider opportunities for reducing or activating waste materials, and 3) inte-gratedly reduce the costs of environmental control systems and pollut-ant emissions.

  (3) Geographical viewpoint for integrated conservation of the environment

  The approach of taking a certain geographical form (distributed forests, lake fronts, etc.), declaring it a unified environment, and then moving to conserve it, is perhaps the most effective way to conduct integrated conservation of the environment. While many examples can be found, there have been some recent cases where this geographic approach has been used from the viewpoints of assuring sustainability and preventing pollution. In Canada's Fraser River Action Plan, for example, the government, province (British Columbia), local commu-nities, and companies have joined together to develop a policy based on a sustainable development plan for the 2 million people living in the area and for the river ecology. In addition, the United States Environmental Protection Agency has joined with seven states and Canada to promote a pilot program for the Great Lakes. The goal of this program focuses particularly on the elimination of organic substances with high bioac-cumulation and, using activities that aim at usage restrictions at the sources of occurrence, hopes to reduce densities in the environment.
  So in proposing environmental policies, one basic viewpoint that can be considered effective is the consideration of geographical charac-teristics to take a broad integration of the environment and so conserve the environment over an entire region.

Section2. Environment and Trade

  World trade volume increased by more than, five times between 1960 and 1989, so that international trade has been strengthening the links of the world economy. In this same period, meanwhile, environ-mental problems have also grown to become global scale in spatial extent and also in time, with ramifications extending to future genera-tions. In this situation, fears are growing that trade expansion and its accompanying economic growth bring bad effects on the environment, and that each country's environmental policies are barriers to free trade. As a result, harmonization of environmental policy and trade policy has become a big issue.
  In this section, therefore, we shall summarize the areas that are considered to be problems in environment and trade, and so examine the basic relationship between environment and trade. Furthermore, we would like to touch on broader policy viewpoints, from the viewpoint of efforts by international institutions, etc., and of adjustments to environ-mental policy and trade rules, through the appropriate combination of environmental policy and trade policy so as to both conserve the environment and promote trade without mutual contradictions and to in fact become positive factors that are mutually supportive.
  The problem of environment and trade is an important problem with very specific meaning for Japan, which is heavily engaged in economic activities and relies greatly on both the import and export aspects of trade. Let's take a look at one aspect, the materials balance of Japan's economic activities (Figure 4-2-1). In fiscal 1993, 2.09 billion tons of resources were newly extracted from the natural sphere for use in Japan's economic activities, of which about one-third or about 660 million tons was supplied from overseas. In addition, about 6 thousand tons of products and other goods are brought in from overseas. On the emissions side, 800 million tons of unneeded materials were discarded, while 1.25 billion tons were newly accumulated as building materials or as durable consumable assets. Recycled resources newly returned to input was 210 million tons. Export volume was 100 million tons, about one-seventh of the import volume, so that Japan's trade balance on a material volume basis is greatly tilted toward the import side. Looking at imports and exports on a price value basis, imports were $240.7 billion and exports were $360.9 billion. When we combine these figures with the land cultivation figures used for Japan's food production that were shown in Chapter 3, Section 1, it is clear to see how much Japan's economy and society is dependent and built on overseas resources and environment.

Fig. 4-2-1 Japan's Material Balance

Fig. 4-2-1 Japan's Material Balance

Note: With the availability of newer statistics in each category, figures have bees updated from material balance listed in the "Quality of the Environment in Japan" of FY1994.
Reference: Calculated by the Environment Agency from various statistics

1. Controversies Surrounding Environment and Trade

  (1) Trade effects on the environment

  While trade in itself is not considered in most cases to be the basic cause of environmental problems, the phenomenon of trade involv-ing the function of internationally linking demand with supply can, both directly and indirectly, have either positive or negative effects on the environment. Here, we shall look at those effects from a number of angles.

  1) Direct effects of goods trading

  Directly negative effects of goods trading on the environment include trade in environmental pollutants such as toxic wastes or toxic chemicals, where serious environmental pollution can arise when appro-priate environmental measures are not taken or when accidents occur, such as crude oil spills from tankers. For toxic wastes, in particular, exports from developed countries to developing countries had become a social problem after a number of incidents in the latter half of the 1980s, as a result of which the Basel Convention on the Movement across International Borders of Toxic Wastes, and Regulations concerning Their Disposal was adopted in 1989, thus placing trade in toxic wastes under treaty control for the purpose of environmental conservation (see Chapter 5, Section 4, (3)).
  In addition, there is the international trade in products made from wild fauna and flora that are threatened with extinction. There are many causes of species extinction, including destruction of habitat and over-hunting, but as can be seen from rhinoceros horn or cockatoos, the existence of buyers in foreign countries can be a cause of over-hunting. It is believed that over-hunting was the cause for the extinction of a number of species that went extinct before 1989 (not necessarily due to international trade) (Table 4-2-1). When the main cause is over-hunting due to international trade, then controlling it from the trade side has validity, a concept that resulted in the signing of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (Washington Convention) (see Chapter 5, Section 6, (2), iii.).

Table 4-2-1 Causes of Extinction

Table 4-2-1 Causes of Extinction

Notes : 1. Includes trade for commercial, daily survival, sports hunting, and capture for pets, zoos, and research.
   2. Includes unknown and predatory animal control.
   3. This figure represents the percentage of species driven extinct mainly by these causes.
   4. This figure represents the percentage of species either affected by extinction or by the threat of extinction from these causes, the total, therefore, will exceed 100%.
Source : Reid and Miller (1989)

  Furthermore, concerning the worldwide decline in tropical for-ests, total tropical forest lumber products are not a very large percent-age of international trade and so trade is not generally considered a major cause of its decline. Nevertheless, trade in tropical wood can in some cases be intimately connected tropical forest decline, and the International Tropical Timber Organization (ITTO) has set a goal to limit trade in lumber to that which is produced in a sustainable form by the year 2000, and to promote sustainable development so as to leave no bad effects on the environments of tropical wood producing countries (see Chapter 5, Section 5, (3), I.).
  By contrast, some positive effects on the environment include trade in environmental conservation technologies and products. Trade plays an important role in popularizing these technologies and products, and contributes to conservation of the environment. The market for environmental conservation technology is expected to grow larger in the future, with the current market scale of $ 200-300 billion expected by one forecast to expand to about $600 billion by the year 2000. National trade balances in environmental conservation equipment are as shown in Figure 4-2-2.

Fig. 4-2-2 Country Trade Balances in Environmental Protection Equipment

Fig. 4-2-2 Country Trade Balances in Environmental Protection Equipment

Reference: Prepared from EPA, International Trade in Environmental Protection Equipment

  2) Effects of expanding trade scale

  In general, heightened trade activities expand the world economic scale overall. The OECD, for example, estimates that the increase in wealth resulting from the culmination of the Uruguay Round could be as much as $200 billion annually (as of 2002). But the effects on the environment are not necessarily clear. One research result has it that increasing income from trade will, particularly in the developing coun-tries, engender the capital and psychological margin for environmental conservation, resulting in environmental improvement. And rising in-comes are necessary for breaking the vicious cycle of poverty, popula-tion increases, and environmental destruction. On the other hand, others say that expanded trade will expand the use environmental resources worldwide, and promote an economy and society of mass production, mass consumption, and mass waste.
  Expansion of trade scale would also be a cause of increased burden on the environment from the transport sector. An EC task force predicted that unification of the intra regional market would result in an 8-9% increase over present levels of SO2 and NOx emissions by 2010, and the major portion of that would be emissions from the transport sector.

  3) Effects of trade-induced conversions of production and consumption structures

  Trade can change the location and density of international pro-duction and consumption activities, and so affect the environment. In Southeast Asia, for example, the rare habitats nurtured by the man-grove forests have been progressively turned into shrimp culture ponds, backed by demand for shrimp in Japan and elsewhere. According to Environment Agency estimates, mangrove forests in Thailand suddenly began to decline from about 1979, and that by 1989 expansion of shrimp culture ponds had resulted in the loss of about 30% of the total mangrove forest area seen in 1961, equivalent to 120,000 hectares (Fig-ure 4-2-3).
  Moreover, some in the developing countries state that the current international trade system is made for the benefit of the developed countries, and that the production and consumption structure it is based on is a barrier to sustainable development. They assert that production and export subsidies from the developed countries make unfairly com-petitive agricultural products that ordinarily should not be able to maintain any international competitiveness, a stance that encourages overproduction, and that could be the cause of such environmental effects as land degeneration in the developed countries of Europe and North America, and which also forces developing countries into situa-tions where they must rely on primary products exported at low levels that cannot internally recoup the environmental costs. Moreover, they point out that funds for development of the developing countries may possibly be difficult to obtain because of the tariff and non-tariff barriers restricting access to the markets of the developed countries. Agenda 21 addressed these points, while the Uruguay Round also achieved some results in reducing subsidies.

Fig. 4-2-3 Mangrove Forest Decline in Thailand Caused by Development of Aquaculture Ponds

Fig. 4-2-3 Mangrove Forest Decline in Thailand Caused by Development of Aquaculture Ponds

   -Developed for export to Japan --Developed for export (All aquaculture production is estimated to go for export)
Reference : Prepared by the Environment Agency

  But when the free movement of capital is recognized, the threat exists of companies avoiding places with high costs for environmental countermeasures and investing instead in countries with lax environ-mental regulations, hastening the transfer of intensely polluting com-panies (creation of "pollution heavens") and creating so-called "pollution export" situations. In answer to this concern, however, corroborative research has found that the severity or laxness of environmental stan-dards is just one factor among many in corporate decisions on location, and no meaningful correlation can be found between direct investment and environmental standards. Nevertheless, in the negotiating process for the North America Free Trade Agreement (NAFTA), environmen-tal NGOs expressed strong concerns that American companies' shift to Mexico would result in a worsening environment, with the result that the NAFTA text incorporated regulations preventing member states from lowering environmental standards to promote investment.

  (2) Basic relationships between environment and trade

  In general, trade follows the principle of comparative advantage, which plays a large role in promoting effective production on a global scale, as each country increasingly produces and exports those things that it is better at producing than other countries, and shrinks produc-tion in those fields where it is more inefficient than other countries, importing those things, thus achieving a division of production in optimum places at optimum scale. This characteristic of trade reduces the burden on the environment caused by inefficient use of resources, and allows countries with a small environmental capacity to avoid siting of industries that place heavy burdens on the environment, with the result that, in concert with the positive effects that trade can have on the environment mentioned above, trade can contribute to the promo-tion of environmental conservation.
  In reality, however, as we have seen, trade can either cause or promote environmental destruction. According to economics, the cause is that trade is conducted without adequate reflection of the environ-mental costs of utilizing natural resources and polluting the environ-ment in the market costs of goods and services, which promotes in-appropriate utilization of the environment. Therefore, if environmental policy in each country is so designed as to internalize these environmen-tal costs into the market price, then it will be possible to improve the direct relationship between economic activities, including trade, and environmental destruction. Therefore, implementation of appropriate environmental policies, both internationally and domestically, to active-ly internalize environmental costs is a very important viewpoint to take for maintaining the resource base that is the foundation of trade and for maintaining and strengthening free trade.
  Nevertheless, environmental policy that aims for utilization of economic methods and internalization of environmental costs could be misconstrued as a barrier to free trade because it alters "competitive-ness" as perceived in today's conditions where environmental costs are still inadequately internalized. Moreover, trade restrictions are some-times necessary, as seen in the measures taken to protect wildlife that are threatened with extinction mainly because of international trade. In this kind of case, in particular, adjustments between environmental and trade policies is necessary to dispose of the environmental and trade problems.
  The direction of international research is analysis of the mutual effects of environmental conservation and trade, toward achievement of sustainable development and also toward how much environmental policy and trade policy can be made to be mutually supportive. Topics include how to set up the environmental policies required to minimize the negative effects of trade on the environment and to maximize the positive effects, and how to make adjustments when the demands of environmental policy and the demands of free trade collide with each other.

2. Efforts Toward Mutual Support between Environment and Trade

  (1) Efforts by international institutions toward mutual support between environment and trade


  Although the environment and trade problem was not a specific target of negotiations in the GATT (General Agreement on Tariffs and Trade) Uruguay Round of negotiations, much important progress was seen on environment-related items, reflecting the rising international interest in the problem in concert with the convening of UNCED. First, in the preamble to the agreement establishing the WTO (World Trade Organization), protection of the environment and sustainable develop-ment have been newly added to the previous goals of improved living standards and assurance of complete employment. And whereas the GATT preamble had set a goal for "perfect utilization of the world's resources," the agreement establishing the WTO calls for "utilization in the most suitable form of the world's resources, in line with the goal of sustainable development." And on the organizational side, a Committee on Trade and Environment under the aegis of the newly established WTO was set up at the first general board meeting of the WTO Agreement in January 1995. This committee is to issue a report on the items listed in Table 4-2-2 at the first ministerial meeting scheduled to occur within two years after the launching of the WTO, and will in future conduct studies on revising the rules concerning the multifaceted trade system. Moreover, the Technical Barriers to Trade Agreement (TBT Agreement), agreed upon and revised in the Uruguay Round, contains regulations concerning sanctions that can be taken under certain conditions for environmental conservation, and recognition of exceptional sanctions.

  2) Organization of Economic Cooperation and Development (OECD)

  The OECD has long expressed basic ideas concerning environ-ment and trade, including such ideas as the Polluter-Pays-Principle (PPP). Since 1991, however, the Environment Policy Committee and Trade Committee have convened a joint expert's group for addressing the issue. In June 1993, "Guidelines for Procedures for Uniting Trade Policy and Environmental Policy" were drawn up and ratified by the ministerial council. These guidelines, presenting a four-point guide that each national government should follow, with the aim of mutual support from the procedural viewpoint for environment and trade, include (i) unification of policy decisions for environment and trade, cooperation with non-governmental people, and promotion of information disclosure, (ii) studies, reviews, and after-inspections of trade and environment, (iii) international cooperation concerning trans-border, regional, and global-scale environmental problems, and (iv) consideration of expert knowl-edge in environment, trade, science, and other fields when managing conflicts. Moreover, alongside these guidelines are operating plans for the future to promote analysis and discussion of 10 items, including (i) studies, reviews, and follow-up methods for trade and environmental policies, (ii) effects on the environment caused by trade liberalization, (iii) processes and production methods (PPM), (iv) use of trade sanctions with the goal of environmental conservation, (v) life-cycle management (LCM), (vi) harmonization of environmental standards, (vii) principles and concepts concerning trade and environment, (viii) economic methods, environmental subsidies, and trade, (ix) environmental pol-icies, investment, and trade, and (x) conflict management.
  Later, in response to the decision made by the 1994 ministerial council, the 1995 ministerial council was to receive a report that includ-ed a presentation of the state of implementation for, and practical conclusions of, the above procedural guidelines. The OECD studies can be considered to be important background for discussion at the WTO and elsewhere.

Table 4-2-2 Terms of Reference of the WTO Committee on Trade and Environment and Matters to be Addressed

1. Terms of reference
  The preambular language of the Ministerial Decision on Trade and Environment of 15 April 1994 and the followings :
 (a)to identify the relationship between trade measures and environmental measures, in order ta promote sustainable development ;
 (b)to make appropriate recommendations on whether any modifications of the provisions of the multilateral trading system are required, compatible with the open. equitable and non-discriminatory nature of the system, as regards, in particular ;
 * the need for rules to enhance positive interaction between trade and environmental measures, for the promotion of sustainable development, with special consideration to the needs of developing countries, in particular those of the least developed among them ; and
 * the avoidance of protectionist trade measures, and the adherence to effective multilateral disciplines to ensure responsiveness of the multilateral trading system to environmental objectives set forth in Agenda 21 and the Rio Declaration, in particular Principle 12 ; and
 * surveillance of trade measures used for environmental purposes, of trade-related aspects of environmental measures which have significant trade effects. and of effective implementation of the multilateraldisciplines governing these measures.
2. Matters to be addressed
  Matter listed below, as, well .as relevant issues
 * the relationship between the provisions of the multilateral trading System and trade measures for environmental purposes, including measures pursuant to multilateral environmental agreements ;
 * the relationship between environmental policies relevant to trade and environmental measures with significant trade effects and the provi-sion of the multilateral trading system ;
  In p,articular, charges and taxes for environmental purposes, and requirements for environmental purposes relating to products, includ-ing standards and technical regulations, packaging, labeling and recy-cling;
 * transparency of the above measures
 * the relationship, between the dispute settlement mechanisms in the multilateral trading "system and those found in multilateral environ-mental agreements;
 * the effect of environmental measures on market access, especially in relation to developing countries, inparticular to the least developed among them, and environmental benefit,s. of removing, trade barriers ;
 * the issues of exports of domestically prohibited goods.

  3) Efforts at other international institutions

  There are also institutions other than GATT/WTO and OECD that are each from their own positions actively engaged in dealing with problems concerning environment and trade.
  In response to the Rio Declaration on Environment and Develop-ment and Agenda 21 approved at the 1992 UNCED (United Nations Conference on Environment and Development), which revealed a basic international recognition of environment and trade, the United Nations Commission on Sustainable Development (CSD) in its second meeting held in 1994 took up a study of the problem of environment and trade, and came to a decision concerning "trade, environment, and sustainable development." This decision affirmed the stipulations of the Rio Decla-ration and Agenda 21, and agreed that basic viewpoints should include the fact that free trade can play a major role in sustainable develop-ment, that it is necessary to eliminate subsidies that harm environmen-tal conservation and distort trade, that environmental costs should be internalized and use of economic methods promoted, and that close links between the GATT/WTO and CSD, UNEP, UNCTAD, and other inter-national institutions be assured. In addition, items that were deemed to require consideration in the future included recognition that there are proper reasons for a diversity of environmental regulations in the various countries and that the differences in cost based on this diversity constitutes the foundation of international trade, elimination of protec-tionism disguised under the name of environmental conservation, and harmonization of environmental standards and regulations at a high level while making considerations for the developing countries.
  The United Nations Environment Proqramme (UNEP) and the United Nations Conference on Trade and Development (UNCTAD) jointly convened meetings in February and November 1994, called the UNCTAD-UNEP High Level, Informal Session on Trade, Environment and Sustainable Development, to serve as forum for frank exchanges of opinion between high level participants from developed and developing countries. In addition, UNCTAD in May 1994 established the Ad Hoc Working Group on Trade, Environment, and Development to promote studies on environmental labeling and environment conservation-oriented products, mainly from the point of view of improving market access for developing countries.
  The International Standards Organization (ISO), established as a non-governmental organization for the purpose of easing trade of goods and services through standardization of international regulations, set up an expert committee (TC207) to prepare regulations for environmental controls that commenced operations in 1993. Under the auspices of this expert committee, six sections were established, dealing with environ-mental control systems, environmental monitoring, environmental labe-ling, and other issues, and each sector is proceeding with its own completion date target for the studies. Although ISO regulations are always voluntary, they function in practice as international standards, so from the viewpoint of environment and trade, attention should be focused on their specific moves toward international harmonization of procedures.
  Elsewhere, the WWF (World Wildlife Fund) and other environ-mental NGOs are also engaged in the debate concerning the environ-ment and trade. While NGO statements span a broad range, in general, they promote internalization of environmental costs, conduct evalua-tions of trade policy in terms of the environment, conduct their own trade sanctions where effective international environmental agreements do not exist, approve of discriminatory handling of similar products developed under differing production processes, assure NGO participa-tion in study platforms (including conflict management processes) con-cerning the environment and trade, and build fair trade relationships between North and South.
  In the industrial sphere, as well, discussion on environment and trade is in progress. The World Industrial Conference on the Environ-ment (WICE), for example, issued a report in March 1994 entitled "Trade and Sustainable Development: A Business Outlook," and presented it to the GATT secretariat.

  4) Studies in Japan

  Along with these efforts by international organizations, studies on the environment and trade are also in progress in Japan. For exam-ple, the Ad Hoc Group on Global Environmental Problems sponsored by the director general of the Environment Agency published a report in April 1995, as the result of a year-long study. In addition, the Industrial Structure Council, an advisory group to the Minister of International Trade and Industry, established under its auspices a WTO division where scholars of learning and experience can engage in discussions. And the Economic Council's World Economic Committee, as well as the Ministry of Finance's Institute of Fiscal and Monetary Policy, are also engaged in studies, and their reports handle the problems of environ-ment and trade, as well.

  (2) Adjusting environmental policy with trade rules

  In the effort to achieve mutual support between the environment and trade, a major specific part of that process is adjustment of environ-mental policy with trade rules. Since the basic framework of current trade rules, as represented by the GATT/WTO agreement, was built before the appearance of the globally spreading environmental problems of today, attention is being paid to the effects that environmental policies have on trade rules, and appropriate positioning of the environ-mental conservation viewpoint within trade rules, and particularly global environmental problems, is becoming a topic for discussion.

  1) Trade sanctions and trade rules in multilateral environmental agreements

  As global environmental problems have developed, there have appeared a number of examples of multilateral environmental agree-ments where trade sanctions have played an important role. In cases where trade is a direct cause of environmental problems, such as inter-national trade in toxic wastes or wildlife, trade sanctions can be effec-tive, and are a part of the above-mentioned Basel Convention and Washington Convention. And even in situations where trade cannot be said to be a direct cause, such as destruction of the ozone layer, trade sanctions have been included in such agreements as the Montreal Protocol on Substances that Deplete the Ozone Layer to prevent free riders on the agreement (free riders on the implementation efforts of protocol member states), promote membership, and boost the agree-ment's efficacy.
  While problems can arise in the relationship between trade sanc-tions against non-member states and the most-favored-nation treatment (the principle that bans discriminatory treatment between GATT or WTO member states) in trade rules, there is believed to be general agreement, from the viewpoint of assuring an agreement's efficacy, on the validity of the use of trade sanctions against non-member states for specific cases. Moreover, there has never been a specific case of conflict over this point at the GATT. Nevertheless, it is important from the standpoint of assuring the legal standing of multilateral environmental agreements, which include the levying of trade sanctions against non-member states, as well as for new multilateral environmental agree-ments that may be signed in the future, that the positioning of trade rules for these kinds of multilateral environment agreements be clar-ified, and a number of methods to that end have been proposed. The methods divide broadly into use of the waiver article in Article 25 of the GATT, which recognizes exceptions in case-by-case examination, and to prior establishment of conditions that do not contradict the GATT/ WTO agreements. Each of these two methods have their strong and weak points, and will probably become a major point of study for the WTO in the future.

  2) Harmonization with environmental standards

  When there are particularly wide spreads in the product stan-dards of different countries, manufacturers must produce a wide variety of goods in response to the varying national standards, which is decided-ly inefficient from the standpoint of trade policy. As a result, the Technical Barriers to Trade Agreement (TBT Agreement) requires that, where international standards exist, the international standards should be followed unless there is a legitimate reason not to. Product standards concerning the environment must also follow this rule. On the other hand, however, in considering emission standards and other environment-related standards or regulations, etc. (referred to as here-after "environmental standards, etc"), it is not always necessary to harmonize the environmental standards of countries when the environ-mental conditions or stage of development can be so different in each country, and which may not be realistic anyway. It is inappropriate, therefore, for developed countries to forcibly impose high environmen-tal standards on developing countries, while at the same time, high environmental standards should not be immediately viewed as non-tariff barriers.
  Nevertheless, as long as each country bases itself on the use of its own environmental standards, etc, then there are cases where harmon-ization of standards is important. In trans-border or global scale prob-lems such as acid deposition, the results of the decisions of one country to maintain high or low environmental standards, etc., can result in other countries being affected. In these particular cases, it would be nice to see in some kind of form in harmonization of standards. And even in the case of domestic environmental problems, it is desirable from the standpoint of strengthening environmental protection to strive toward stricter standards when standards that are laxer than other countries cannot be adequately justified, as was affirmed in the 1972 OECD "Guiding Principles for the International Economic Aspect of Environ-mental Policy."
  Methods for harmonizing environmental standards, etc., include "unification" that involves lining up under exactly the same standards, establishment of minimum standards or standards applied step-by-step, and certification of each other's systems and standards (mutual certifi-cation). But when actually conducting mutual certification for the content of environmental standards, etc., some say that there are many issues such as establishment of scientific knowledge that must be overcome, and that harmonization must first be useful not so much in establishing the content of standards but in the procedural aspects of testing and assessment methods.

  3) PPM regulations and trade

  In life cycle assessments, product regulations that focus on the production process from the environmental point of view has come to be emphasized along with assessment of the product itself, through a method known as PPM (Processes and Production Methods) regulation. Specific examples of targets of PPM regulation include computer chips cleaned by CFCs that can cause destruction of the ozone layer, lumber produced from unsustainable forest management operations, tuna fish-ing that also snares dolphins, and other products manufactured by environmentally unsound processes.
  Domestically manufactured products targeted by PPM regula-tions do not necessarily result in trade-related problems. But when PPM regulations are tied to trade sanctions, or even when not associated with trade sanctions, PPM can cause extra-local problems when demands are made for strict PPM application to foreign products sold in domestic markets, and becomes a problem related to trade rules. Trade rules generally disapprove of one-sided PPM-based trade sanctions that a country imposes to deal with environmental problems outside of its own territory, because it is generally difficult for an importing country to impose restrictions on product manufacturing methods, its application is arbitrary, it can easily become linked to protectionism, and differences in production methods can be considered to be one source of a country' s comparative advantage in trade, a point that could also be made for wage standards. Moreover, application of PPM regulations that were established for environmental conditions in one country to other coun-tries where environmental conditions are different may very well be undesirable in terms of environmental conservation. So it would appear that one-sided trade sanctions based on PPM designed to handle envi-ronmental problems in a country's territory are generally not appropri-ate. In responding to global environmental problems, however, it may be necessary to harmonize multilateral PPM regulations. And trade sanc-tions based on PPM established under multilateral environmental agree-ments may also be able to play a certain role. The Montreal Protocol, in fact, allows for the possibility of putting import restrictions on non-member states whose products (limited to those products that do not contain the designated substances) are manufactured with sub-stances that destroy the ozone layer. In the 1993 conference of member states, however, it was agreed that sanctions were not a possibility at that particular time.

  4) Effects on trade from sanctions made for environmental conservation

  In much the same way as for environmental standards, etc., countries are basically allowed to independently levy sanctions deemed necessary for environmental conservation. Some of these environmental conservation sanctions, however, can have effects on trade. Here, we shall look at some specific examples of environmental sanctions, includ-ing environmental labeling, package recycling regulations, and eco-nomic methods such as taxes and subsidies.
  Japan's environmental labeling system of "eco-mark" and other markings is recognized as a valid way for consumers to independently apply voluntary sanctions for environmental conservation, and it has now been introduced into India and more than 20 other developing countries Nevertheless, if the environmental labeling system is not properly constructed it can become a virtual non-tariff trade barrier to exports, a point that increasingly concerns those in developing coun-tries. Moreover, one international trend that has strengthened in recent years has been the institution of life cycle assessment (LCA) methods that use environment labeling certification standards to list the total burden on the environment from product manufacture to waste disposal. It has been pointed out that requiring a product to be manufactured according to an importing country's PPM regulations could result in virtual extra-regional application of PPM regulations.
  And in package recycling regulations, countries may, in seeking the reduction of waste material burdens on the environment, issue regulations on what kinds of packaging materials may be used, require reclamation of packaging materials or containers, or require reclama-tion and reuse of a certain percentage of a product. Some fear that these kinds of requirements, which would be relatively more difficult for foreign businessmen to fulfill than for domestic businesses, serve as virtual non-tariff barriers.
  It is important when seeking to boost the efficacy of environmen-tal labeling systems or package recycling systems to consider the effects on trade, and thereby ensure that environmental sanctions do not become a trade-related problem. Sanctions should be transparent to foreign businessmen, and for those in developing countries, in particular, it is important to offer technical and capital cooperation for help in responding to the systems.
  Taxes, subsidies, and other economic methods related to the environment are also important issues for trade-related study. Should a country, for example, independently introduce a carbon tax to control carbon dioxide emissions, it has been suggested that this would depress the international competitiveness of that country's products, and com-panies annoyed with that loss of competitiveness would shift their production sites overseas, resulting in a so-called "carbon leakage." Whereas GATT allowed border tax adjustments (tax exemptions for exports and tax surcharges for imports) as a sanction to moderate the effects on competitiveness due to differing tax rates between exporting and importing countries, the Uruguay Round of negotiations specifically named energy, fuel, and other intermediate input materials as being possible subjects for border tax adjustment, a development that opened the way for taxes, subsidies, and other economic methods related to the environment to become targets for border tax adjustment.
  It is technically difficult, however, to calculate specific tax adjustment values, and further discussions and proofs of the effects that economic sanctions caused by border tax adjustment may have is required.

  5) Environmental regulations in NAFTA

  As can be seen, a variety of points can be brought up in discus-sions of problems surrounding environmental conservation and trade rules, and these discussions are even now in progress at the OECD, WTO, and elsewhere. In the course of these discussions, the launching of the North America Free Trade Agreement (NAFTA) in December 1992 along with the supplementary agreement on the environment has attracted attention as an attempt to promote free trade in the region and to produce a mutually supporting relationship with environmental conservation (Table 4-2-3).
  In emphasizing the environment, NAFTA has gone beyond GATT rules in implementing regulations for a number of areas. Firstly, NAFTA states that whenever there is disagreement between the trade sanction regulations of such multilateral environmental agreements as the Washington Convention or Basel Convention and the NAFTA regulations, the international agreements are to take priority, with the condition that the one least likely to conflict with NAFTA regulations may be selected. Secondly, in setting environmental standards, NAFTA' s Sanitation and Plant Sanitation sanction (SPS) regulations allow member states to take the "more rigorous sanctions" to protect the life and health of people, animals, and plants. Moreover, "standards are not to be dropped" when standards are being harmonized. PPM regulations, by contrast, are not placed any higher than GATT regulations. Thirdly, in the area of conflict management procedures, whenever conflicts arise between NAFTA member states of environment, health, or safety sanctions, the state filing a complaint may seek to resolve the conflict under NAFTA's environmental protection regulations rather than through the WTO. Also, NAFTA countries that file complaints using NAFTA's conflict management for environmental sanctions are respon-sible for proving that the other state has violated NAFTA rules. Moreover, the NAFTA conflict resolution panel must set up an indepen-dent scientific survey institution and seek cooperation from experts, making it easier to obtain expert information about environmental problems. This arrangement became the model of arrangements made in the Uruguay Round for obtaining opinions of outside experts in GATT conflict management panels.
  In addition to the main text of the NAFTA agreement, an auxiliary agreement on environmental cooperation was added in Sep-tember 1993. It provided for the establishment of an Environmental Cooperation Committee to support the conflict management panel and to function as a public mouthpiece for NAFTA's environmental effects, and also stipulated that the North American Development Bank and others should provide financial support for environmental infrastructure development along the U. S. -Mexico border. The interesting thing about NAFTA is that environment-related bureaus became involved in the negotiation process as well as the trade-related bureaus, and that these groups conducted surveys and forecasts of the environmental effects that NAFTA will bring, and issued reports.

Table 4-2-3 Environment in NAFTA (North America Free Trade Agreement) and WTO

Table 4-2-3 Environment in NAFTA (North America Free Trade Agreement) and WTO

(Table 4-2-3 continued)

(Table 4-2-3 continued)

  (3) More inclusive efforts toward greater mutual support between environment and trade

  As we have seen, in order to obtain mutual support between environment and trade toward achievement of sustainable development, it is important on the one hand to consider the effects of environmental policy on trade and to appropriately position trade rules in terms of environmental conservation so as to lay the foundations for building up needed environmental policy. On the other hand, it is important to promote more inclusive efforts, by having all major actors connected with trade implement appropriate environmental policies or demon-strate serious consideration for the environment to promote internaliza-tion of environmental costs and to prevent the appearance of trade-related problems with the environment before they happen.
  The first thing that this kind of viewpoint demands is probably active environmental cooperation with developing countries that do not have adequate leeway for conducting environmental policy. These developing countries are in various stage of development, and it is therefore necessary to shape cooperation in response to their respective situations. For example, many of the least developing countries that are plagued with the vicious cycle of population growth, poverty, and a worsening environment, need to achieve economic growth to break out of that vicious cycle, and trade can play an important role in that regard. But economic growth tends to improve the environment in macroeconomic terms, and it will thus be necessary to keep to a minimum the appearance of such negative environmental effects as pollution or destruction of nature that may arise in certain stages of economic growth. In addition, countries that are well on the way to development seek capital and technical assistance for improving their abilities to handle environmental measures. While trade sanctions may sometimes be effective in encouraging environmental policies in these developing countries, trade sanctions can be still more effective, as can be seen in the Montreal Protocol and other agreements, by combining them with such activities as capital outlays and technology transfers.
  It is also important to promote increased environmental conser-vation efforts by companies and others that are the most specifically involved in trade activities. In this context, The Basic Environment Plan passed by the Cabinet in December 1994 clearly states that businessmen should be promoting international cooperation through technology transfers and other means, and should be taking the environment into consideration when engaged in business or trade activities overseas. Moreover, people at the citizen level can also play an important role in environment and trade problems. For example, direct trade between consumers in the developed countries and producers of coffee or other agricultural products in developing countries can support the indepen-dence of producers in developing countries, and help them to cultivate with low levels of agricultural chemicals. This movement, which involves the purchase of goods at several times higher than the world price, is called "fair trade" has appeared in Britain, Germany, and other European nations, and is also beginning to spread in Japan as well. It is attracting attention as a method at the citizen's level for promoting internalization of environmental costs and the locally mutual support of environment and trade. More generally, citizen understanding of envi-ronment and trade is deepening, so that citizen consumption is trending toward environmental conservation, a development that should improve the relationship between environment and trade. Should expansion of product markets that positively affect the environment (green markets) continue, it should result in the promotion of the manufacture and trade of environment conservation-oriented products. And since it will in-directly affect in a positive way the problems of environment and trade, this increased environmental awareness by the citizens is a trend that should be supported.
  In many cases, implementation of one-sided trade sanctions for the purpose of environmental conservation is often associated with trade conflicts, so that particularly in the case of global environmental problems it is better to actively promote agreements in multilateral form to avert such conflicts before they start. Moreover, concerning the OECD procedural guidelines, it is important to improve linkages between the various authorities over environment and trade policy, as well as the exchanges of opinion between the government and the private sector, in order to promote unification of environmental and trade policy in procedural terms at both the international and the domestic level.
  One important point in approaching the environment and trade problem from the standpoint of sustainable world growth is how to handle primary products such as agricultural, forestry, or fisheries. In other words, agricultural, forestry, and fisheries products are generally products that have closer relationships to the environment than manufactured goods, and production or harvesting of these primary products can only happen when the environment that is their production base is sustainable and healthy. And that production-base environment supports many other external economic functions in addition to its production and harvest function, with forests, for example, functioning as a storehouse of water sources, as a habitat for wildlife, as a absorber and fixer of carbon dioxide, and as a supplier of a pleasant environment. These factors show that calculation of environmental costs for primary products can be particularly complex. And since supply price flexibility is low while price fluctuations can be very large, the market structure is such that it is difficult to internalize environmental costs into the price. Because of these characteristics, the agriculture agreement in the Uruguay Round handled agricultural products differently than manufactured goods were handled, and the necessity of environmental protection was seen as running alongside food security as being a non-trade item of interest. When dealing with agricultural, forestry, and fisheries products, it is necessary to take sufficient account of their deep relationship with the environment, and it will probably be necessary to conduct further studies for appropriate handling of primary products.
  In considering these above points, Japan should be actively participating and contributing in the future to discussions at the OECD, WTO, or elsewhere on the environment and trade, and should also be actively working to develop environmental policies of its own. At the same time, it is also important to remember that, when promoting trade, all countries should share a common awareness that they should be building the environmental policies needed for their own socioeconomic situations. Japan, by building on this awareness, should be strengthening its efforts to build up the capabilities of less developed countries so that they can deal with their own environmental problems and to internalize their environmental costs, and should exhibit active leadership towards the formation of multilateral cooperation for dealing with global envi-ronmental problems. As we saw in Chapter 2, this sort of effort is particularly in demand in the Asia-Pacific region where Japan has the deepest links in both the environmental and economic areas. We should also not forget the role that the forum for Asia-Pacific Economic Cooperation (APEC) can play in promoting free trade in the region.

Section3. Environment and Market

  In this section we would like to consider the relationship between the environment and the market. By properly reflecting the environmen-tal costs in the transaction cost of manufactured goods and services, the utilization of the market mechanism from an environmental point of view can, probably, be provided for. In order to properly incorporate the expenses that occur in society that accompany environmental loads into the market mechanism, it is necessary to utilize policy measures, such as regulatory measures and economic measures, and to promote behav-ior that conserves the environment by each person in society. Among economic measures there are measures that aid and measures that assign a burden. In either case, they are measures that promote, by means of economic inducement, behavior suited to conserve the environ-ment by economic entities. Further, through the internalization of this kind of externality areas will also be created that acquire marketabil-ity. From the above mentioned viewpoint, here is a general survey of the theoretical considerations of economic measures that assign burdens, especially, as well as examples of the practical application of concrete policies, and, concerning the trend of environment-related industries that have been expanding their scope recently, their present condition and future course of industrialization, etc.

1. Environmental Policy and the Market Mechanism

  (1) Theoretical considerations related to economic burden measures

  In Japan, since the oil crisis, resource conservation and energy conservation has progressed, centered on the area of industry, but, on the other hand, along with the spread of mass production, mass con-sumption and a mass throw-away type of socioeconomic activity, the concentration of population and socioeconomic activity in metropolitan areas has continued. Due to this, the environmental problems of global warming and an increase in the amount of urban life type pollution and waste discharge have occurred, and it has become still more necessary for each entity to deal with them. Accordingly, let's look at the way of thinking about utilizing market mechanisms in environmental policies.
  The market has the function of performing complicated resource distribution with one price signal, for example, since an increase in price reduces demand and increases supply, a shortage of goods is resolved. This kind of excess and deficiency of goods and services is resolved through the fluctuation of prices, but when the main factors are not properly reflected in prices, the market cannot efficiently exhibit this distribution effect.
  For this reason, providing for the utilization of the market mechanism from an environmental point of view can be regarded as a possibility by properly reflecting the environmental cost in the transac-tion prices of manufactured goods and services.
  The environmental loads that has occurred along with production and services brings about negative external effects that become social costs. Providing for internalization that utilizes measures that assign the economic burden of taxes and surcharges, etc. to the transaction routes of the market is the function of what is called Pigou taxation.
  From the first costs (external diseconomies) that arise in society accompanying the environmental loads also should be reflected in the market price by properly incorporating them in the relevant goods and services. However, it can also be said that it is impossible to internalize external diseconomies by direct negotiations between the victims and the assailants related to each and every production process and service involving a burden on the environment. For this reason, it can be assumed that there are cases in which this type of market price of goods and services does not correspond with the social costs themselves per one unit of the production amount properly reflecting the cost of the external diseconomy (marginal cost), and in extreme cases only reflects the private cost of the producer. Consequently, excessive production and consumption are promoted as shown in Figure 4-3-1.

Fig. 4-3-1

Fig. 4-3-1

  The point Em where the private supply curve and demand curve cross is the present situation, that is, it shows the situation in which the external diseconomies are not internalized. The production amount is shown by Qm and the price is shown by Pm. Here, let's internalize the external diseconomies. One method for doing this is that of the way of thinking of the economic method of taxes and surcharges, etc. that raises the market price to restrain the amount of production (amount of consumption), by adding an amount corresponding to the marginal cost of the external diseconomy per unit production cost to the private marginal cost to make it agree with the social marginal cost. The amount added is C=Es-Et, and according to this the equilibrium point shifts from Em to Es. Under the new equilibrium point the production amount is restrained from Qm to Qs and the price is raised from Pm to Ps.
  In environmental policy, when the economic method of taxes and surcharges, etc. is used, it is necessary to compare the cost of preventing pollution and the benefits able to be obtained by it.
  Let's consider a case of a business discharging pollutants with the vertical axis as cost and the horizontal axis as the level of regulation (from a situation of complete regulation to the situation of no regulation (100%)). Generally, it can be thought that, compared to a small amount of pollution, an ever greater amount of damage is produced with a large amount of pollution. That is, the marginal damage amount increases with the amount of pollutants discharged. To show this in the diagram (Figure 4-3-2), the marginal damage cost is described by the curve rising on the right. Further, in order to increase the cost of abatement that has become additionally necessary as the abatement becomes ever more strict, the marginal abatement cost is described as the curve descending on the right.
  When the margin crossing point e is seen, the additional damage cost due to pollution and the additional benefit due to abatement of the pollution are identical. Consequently, if the discharge amount could be controlled at this level, it could be regarded as the most desirable from the standpoint of economic efficiency.
  To regard daily socioeconomic activity and the utilization of resources as sustainable a viewpoint utilizing the above-mentioned market mechanism is indispensable. This is because validity can be expected even if the effect of environmental policies is further in-creased. ft is said that compared to direct regulation, theoretically, there are no costs for measures that assign an economic burden. As the reason for this, generally, the taking of countermeasures in order, beginning with those with the lowest cost, can be mentioned. Compared to regulations that require the use of a specific process and technology, and forcing all polluters to abate in the same way, the same abatement amount can be achieved with more inexpensive economic costs.

Fig. 4-3-2 Cost and Benefit of Pollution and Policy Methods

Fig. 4-3-2 Cost and Benefit of Pollution and Policy Methods

Source: OECD (1993)

  (2) The environmental conservation effect due to measures that assign economic burdens

  Up to now we have attempted a theoretical consideration of the validity of measures that assign economic burdens. Here let's look at several actual examples of the relationship between their utilization and their effect on improving the environment. The following are examples that are said to show, particularly, the environmental improvement effect comparatively clearly. Further, concerning these examples, sev-eral were taken up also by last year's Quality of the Environment in Japan.

  * Drainage surcharge in Germany

  The German drainage surcharge was introduced in 1976 for the purpose of giving an incentive to improve the quality of the water drained. The surcharge system was conducted by the federal state and COD (chemical oxygen demand) and heavy metals are subject to the surcharge.
  Several years before the introduction of the surcharge the sugges-tion related to the announcement effect, the rapid increase in investment for pollution prevention, was obtained.

  * Nitrogen oxides discharge surcharge in Sweden

  In Sweden, to achieve at an early period the new 1995 discharge guidelines for nitrogen oxides, introduced the nitrogen oxides discharge surcharge system in 1992. According to this, in 1992 an abatement of 20-25% was anticipated but, actually, an abatement of 30-40% was achieved, greatly exceeding predictions.

  * Surcharge on the discharge of substances that pollute the air in France

  In France in 1980 the "Air Quality Public Corporation" was established with the purpose of monitoring air pollution and developing air pollution prevention technology. For the purpose of the business of this public corporation the government was given the right to establish a special surcharge. For five years from 1985 it is said that an amount of sulfur oxides equivalent to about 8% of the total amount discharged in all of France was abated.

  * Environment tax on domestic airplanes in Sweden

  In Sweden in 1989 an environment tax was imposed on domestic airplanes for the purpose of reducing the exhaust from airplanes. Due to this the replacement of combustion chambers proceeded and it was reported that the amount of hydrocarbon discharged was reduced 90%.

  * Denmark's tax on waste products

  Denmark's tax on waste products was introduced in 1987. It was imposed, according to weight, on waste that was disposed of by incinera-tion and landfill, except for items that were specially regulated. As a secondary effect of the tax many small scale treatment businesses that could not satisfy the governmental demands were forced out of business. Further, due to the same tax, from 1987 until 1989 the amount of waste products discharged decreased 12% and the amount of waste products that were reused increased 7%. Since 1990 the definition of waste has been expanded, but the increase in the amount of taxable waste has been less than predicted.
  Further, as an unanticipated effect, such uses as the use of such materials as construction scrap etc. in road construction progressed.

  * Taxation of plastic shopping bags in Italy

  In Italy a tax 200% of the market price was imposed on plastic shopping bags. In the same country from 1983 until 1988 the consump-tion of plastic shopping bags increased 37%, but this consumption amount decreased 20-30% in 1988 when the tax was imposed.

  Further, let's touch on Singapore's system of permission to drive into specified areas. This system was originally a measure introduced for purposes other than environmental conservation, but by achieving the original purpose, secondarily, it contributed to the improvement of the environment.
  In Singapore the number of cars rapidly increased along with economic development and it became a great obstacle to improving the flow of traffic in the metropolitan area. Accordingly, Singapore introduced the system of permission for driving into specified areas in 1975 for the purpose of improving automobile traffic flow in the metropolitan area.
  A car that is about to drive into a specified area (zone) must buy a ticket and display it on the front. There are one day tickets as well as one month tickets (Table 4-3-1). They can be bought at a booth alongside the road or at the post office. Since a fee must be paid in order to drive into the city it is said to be an economic measure.

Table 4-3-1

Table 4-3-1

Note License fee as of 1989

  With the introduction of this system, the number of cars that drove into this specified area greatly decreased to about 1/3 that of the previous year. At the present, also, the increase in the number of cars that enter has remained low compared to the economic growth rate. The smooth flow of traffic in the city has been ensured (Table 4-3-2).

Fig. 4-3-3 Amount of Automobile Traffic in Singapore City

Fig. 4-3-3 Amount of Automobile Traffic in Singapore City

Note : In 1975 when the system was introduced the number of vehicles that drove into the center of the city rapidly decreased to about one-third that of the previous year.
  Afterwards until 1988 it increased slightly and then again slightly decreased in 1990 due to a revision of the system.

  (3) Viewpoint of the economic effects due to the use of measures that impose an economic burden

  Concerning the effects due to the utilization of measures that impose an economic burden, to mention its viewpoint when the OECD report is referred to, these are the effects on the industrial sector, economic growth, prices, trade, the effect on employment, the indirect effect on household finances, and the effect on the area and technologi-cal innovation.
  Among these effects, there are those that are settled with short-term adjustment, but there are also ones that are adjusted over a longer term and, when evaluating, it is necessary to investigate to what extent a time framework can be considered. Measures that impose an eco-nomic burden have been used comparatively recently.
  Concerning their long-term and widespread effects, from now on it will be beneficial to proceed further, as far as possible, with quantita-tive research, including simulation analysis based on economic models.

Table 4-3-2 Numerical Model and Its Predicted Result Concerning the Effect on the Japanese Macroeconomy of Global Warming Countermeasures

Table 4-3-2 Numerical Model and Its Predicted Result Concerning the Effect on the Japanese Macroeconomy of Global Warming Countermeasures

(Table 4-3-2 continued)

(Table 4-3-2 continued)

(Table 4-3-2 contioued)

(Table 4-3-2 contioued)

Source : Global warming economic system study group second interim report

  (4) The circumstances of utilizing economic methods in foreign countries

  1) OECD countries

  i. Recent trends

  The situation of the economic method of taxes and surcharges in OECD member countries is as follows, according to the OECD survey "Survey on Environmental Taxes in OECD Member Countries." Fur-ther, in this document the various taxes and surcharges with the aim of reducing the discharge of environment polluting substances, and sub-stances that have a harmful effect on the environment directly or indirectly, are called by the general term environmental taxes.
  The main trends around environmental taxes in the OECD recent-ly can be roughly divided into the following two categories.
  First, Denmark, the Netherlands, Sweden and Norway have incorporated environmental taxes into revisions of their entire tax systems. For example, in a proposal to the Danish parliament it was emphasized that the object of taxation should shift from labor income to consumption and manufactured products that have a harmful effect on the environment.
  The other is the kind of small-scale utilization of environmental taxes in countries like Austria, Germany, Belgium and France. It is not part of a large-scale revision of the tax system. It is a new, or increased, utilization of the existing tax system.
  Below, in accordance with the arrangement of the report, we would like to look at three points, (1) the many kinds of surcharges on manufactured products, (2) revision of the energy tax system and (3) the utilization of a investigative committee.

  (i) Taxes and surcharges on manufactured products

  Distinguishing a consumption tax imposed for financial reasons, we would like to look at taxes and surcharges imposed on specific goods not for the purpose of annual revenue.
  In Belgium several new taxes and surcharges have been introduced or are being studied. For example, a surcharge of 10 BF has been imposed on. disposable razor blades. This does not amount to targeting the deposit refund system, and it is carried out in the same way as is the taxation on beverage containers that cannot be reused. Surcharges on disposable cameras, electric batteries, industrial ink, glue, petroleum and solvents, paper, insecticides and herbicides are being studied. For some of them agreement to implement has been arrived at for ones for which an implementation date has not yet been decided.
  Several new surcharges were introduced in Denmark due to a revision of the tax system carried out in January 1994. For example, a tax was imposed on the use of ground water and surface water by ordinary households, and taxation with respect to household and indus-trial sewage is also planned to be introduced from 1997. Further a new tax on plastic and paper shopping bags was established. And, in addition to the surcharge on waste being raised, a distinction was made between disposal by incineration and disposal by landfill.
  On Canada's Prince Edward Island a tax was introduced on advertising flyers with a lower tax rate if recycled paper is used. This aimed to induce issuers to reuse newspapers.
  In Italy, in March 1994, from the viewpoint of promoting recy-cling, instead of the tax on plastic bags that had existed, a tax was imposed on the use of virgin polyethylene. Further, in the regions of Italy, the introduction of a special tax for the purpose of managing the discharge and disposition of waste materials became a possibility.
  A system similar to this can be seen also in Turkey where an environmental cleanup tax was introduced in 1994. Tax is imposed on waste material and sewage. It applies to households and non-households. Its purposes also include increasing annual revenue, in addition to reducing pollution and changing consumption patterns.
  Also in Switzerland extensive taxation of imported goods is recognized under the law, but when there is no reason from the stand-point of competitiveness or the environment they are not applied.
  Further, for example, as in the wrapping tax of the German city Kassel, the utilization of economic methods of taxes and surcharges on disposable containers can also be seen at the level of cities, towns and villages.

  (ii) Transportation tax and energy tax

  In England, needing to satisfy public promises related to restraint on the discharge of greenhouse gases, has stated that it would raise the tax on gasoline higher than the rate of inflation for several years from now on.
  Denmark gives a benefit to owners of passenger cars that have been used for ten or more years when they scrap them, and the rise in the fuel tax also has the financial side that it finances the cost of this scrapping plan.
  In Finland the consumption tax related to fuel is divided into two parts. Namely, the charge from the financial aspect, and the environ-mental charge on the carbon energy ratio and from other environmental viewpoints. The kilometer tax was abolished and changed to a special tax on diesel fuel distinguished according to standard, light and being inside a city.
  In Italy, within the limits of a specified proportion, the consump-tion tax on diesel fuel made from plants is removed. Before December 1994 diesel-fueled passenger cars that were registered as easy on the environment were exempt from the road tax for three years.

  (iii) Utilization of study committee

  Several examples, like the following, can be seen of the utiliza-tion of a study committee.
  In the province of Ontario, Canada, a task force was established including industry and organizations in charge of the environment The purpose of this task force was to identify the causes that hindered environmental conservation activity and to discover a way to effective-ly utilize economic methods to conserve the environment.
  In Denmark, in order to analyze the necessity of utilizing environ-mental taxes on industry in a more centralized way, in 1993 a working party was established by the related ministries and agencies. Here the importance of utilizing annual revenue again to maintain the interna-tional competitiveness of industry was emphasized.
  In Sweden a committee was established in the parliament from the viewpoint of whether a tax system should somehow be constructed that incorporates more environmental viewpoints. Investigation of the existing environmental tax and the future outlook concerning a shift of the tax base to increase annual revenue by methods that have less of a social burden, and an evaluation of the results, are included.
  In the Netherlands, in order to investigate the possibilities of further enlarging the base of the environmental tax, research is being conducted by the concerned ministries and agencies.

  2) Asian countries

  The situation of the utilization of economic methods in Asian countries is as follows, according to the OECD survey "Applying Economic Instruments to Environmental Policies in OECD and Dynamic Non-member Economies."
  Surcharges for the collection of waste materials are still not very familiar in East Asia, but because the amount of waste materials is continuing to increase and disposal sites, also, are becoming scarce, the introduction of appropriate waste material surcharges, and the promo-tion of recycling and restraints on the total amount of discharge, are urgent business.

  i. Taxes, surcharges, etc.

  In Taiwan the introduction of the economic burden measures of taxes and surcharges for the purpose of preventing pollution, etc. are being actively studied. In 1991 an Air Pollution Control Law was revised so that it became possible to assess a pollution prevention fee.
  In South Korea a discharge surcharge is placed on discharges that exceed the regulation standards. However, because the standard is low businesses have not installed pollution prevention equipment and have chosen to pay the surcharge.

  ii. Deposit refund system

  South Korea and Taiwan have deposit systems.
  South Korea introduced an extensive deposit system in 1991, but there were insufficient incentives and the recovery rate has stopped at 0.2%.
  In Taiwan a deposit system is used to recover PET bottles. The target of recovering 60% by the fourth year has been stated, but in the current third year it is 41%.