From an average Japanese citizen, the biggest worry of Prime Minister Hatoyama’s global warming pledge (25% reduction relative to 1990 levels) is of course the cost. Needless to say, if the added burden on each household is above that of what’s reasonable, the policy should be reconsidered. Currently, the 360 thousand yen per household estimate is rampant throughout the media. There have been few calculations done on the actual cost of reducing greenhouse gases at a 25% clip by 2020 (of course this is a relatively new pledge); thus, the media is lightly using the ¥360K figure as almost a scare tactic, and it is causing confusions in the general public. The Hatoyama administration knows this, and they have recently committed to do a reanalysis on the numbers. Between now and the day when the new estimation figures are in, the misleading estimate need to be clarified.
Vested Interests
The source of the ¥360K figure came from the Prime Minister’s Office and their Midterm Goal Investigation Committee (rough translation). The actual calculations were done by The Institute of Energy Economics, Japan. This is basically a think tank that does (gasp!) energy calculations. Because of the vested private and bureaucratic interests, think tanks are far from the most legitimate source of information — especially Japan.
Another blogger has done some of the research already about the big-name profiles within the organization:
Let’s look at the names of their employees. The director Naito Masahisa is a former Chief of Ministry of Economy, Trade and Industry. Even looking at the other names, many of them have oil, electricity and gas companies listed in their resumes.
This doesn’t negate the possibility of a legit estimation. But we now know that the think tank who came up with these numbers know and are affiliated with the energy industry (Sarah Palin!), but not necessary the environment.
Predictive Factors and Non-Factors Influencing the ¥360K Value
The committee from the Prime Minister’s Office (call it MGIC for now) calculated a number of policy scenarios. They gave out the result that the 25% reduction scenario compared to the null case reduced each households’ disposable income by ¥220K along with an increase of ¥140K in light and heating bills, to a total of ¥360K. They mentioned improvement of green technology and its corresponding increase in jobs as positive impacts of the climate change bill; whereas, the negative impacts came from carbon polluting industries, a loss of disposable income per family and weakened ability to compete internationally resulting in a loss of exports.
As mentioned in a critical report (「地球温暖化の中期目標の選択肢」の読み方と問題点（pdf）) by the Weather Caster Network (気象ネットワーク), there are many problems with this estimate. One of the major problems is that there were no considerations to improvements by the economy via green business and also returns to investments of new technologies. They assume automatically, green investments = loss in GDP; in other words, the calculation includes the cost of action, but not the potential returns. Of course calculating returns to clean energy is a project onto itself, but citing the MGIC estimate should include the disclaimer that it is a conservative (in terms of returns on investment) estimate.
Another problem with the analysis is the assumptions given to how the government tries to reduce greenhouse gases. The 25% reduction case includes a disproportionately large amount of cuts assumed by installations and improvements to clean energy technologies. More of the burden can be shifted to the carbon producing industries for a more realistic, and more efficient way to cut emissions. Of course the think tank that did the analysis has connections with the energy industries, so it is not surprising to see this bias.
Another assumptions that they presume is the reduced ability to compete in various industries where energy prices are essential. This may very well be true, but I would have liked to see the analysis done in cases instead of just an assumption. There are ways to improve energy efficiency without significantly adding to the costs. New technologies like Concentrated Solar Power (CSP) have the potential to generate clean energy with less money and less environmental damage. What I want to say is, the “lessened international competition” assumption does not include all the possible dynamics (reduction of environmental costs, export of clean technology, energy security) with the inclusion of more clean technologies; the simple action=cost assumption is woefully inadequate.
Spin
The larger problem is the lazy use of the ¥360K figure in the media. Let me clear up the ¥360K figure here. This figure is actually the difference in cost of an average household’s disposable income for the year between the year 2005 and 2020; it is not the yearly reduction in income. I actually was confused at first when I started looking into this issue, and I won’t be surprised if the general populace who doesn’t pay attention to environmental issues will be confused as well. There very well may be media outlets that intentionally throw out the number without specifying the context, like that’s a set number. If you divide ¥360K by 15 (years), it’s only about a ¥24K annual cost (ignoring inflation and whatnot).
The most misleading part of this figure is that ¥360K per household is cast upon the context of annual 1.3% annual increase in the GDP. If you extrapolate the 1.3% increase from 2005 to 2020, the average household increases their disposable income by more than ¥1000K. The ¥360K value is subtracted from the ¥1000K figure to end in a net increase in disposable income by about ¥760K. So what the media really should say is not “you’ll lose ¥360K of your year’s disposable income in year 2020,” but “you’ll only increase your disposable income by ¥760K.” Below is a graph shown in the eco Nikkei article to illustrate this point:
The green line is the disposable income growth from 2005 to 2020 of the 25% reduction case, and the red line is basically the growth for the null case. It’s not so bad after all eh?
Another thing I’d like to mention is this graph from the MGIC:
This time series plot (it’s actually an image plot not based on data) basically says that there is no difference between the CO2 emissions of the 25% reduction case (bottom time series) and the null case (top time series) by the end of 2050. This is a perfect talking point for the delay proponents to say that because global warming effects won’t be coming to Japan until a few decades later, we should wait until the price of clean technology goes down. A few problems. There are ways to reduce greenhouse emissions without a tremendous cost because much of the technology is ready to go. In addition, getting behind in the “green race,” Japan misses out on a great opportunity to expand an enormous job sector. Investments now will enable Japan to increase the speed of carbon emission reductions. Like it is shown in the graph above, I remain very skeptical that increasing investments around 2030 will make the null case “catch up” to the “invest now” case. The above theoretical graph is a conceited effort at tackling climate change, and it doesn’t include any of the uncertainty that’s important in an environmental sense.
Moreover, it is dangerous to just lay back and wait to see what happens. One way to look at this problem is by through catastrophes. Weak action on climate change enables the probability of a catastrophe to rise. The price of a catastrophe happening is gargantuan compared to the minuscule economic adjustments in the different policy scenarios. Here is what Martin Weitzman says (pdf):
The conventional economic advice of spending modestly on abatement now but gradually ramping up expenditures over time is an extreme lower bound on what is reasonable rather than a best estimate of what is reasonable.
The Cost of No Action
Here is the most important point (related to the previous one), is that the cost of no action is way higher than the cost of action. Of course the media and the MGIC never emphasize this point.
So what are the predicted costs of global warming on Japan? In a word: big. According to the IPCC, if you take the average cost of the 3.4 degree Celsius increase case and 1.8 degree Celsius increases case, it is predicted that the annual environmental damage will cost around ¥17 trillion. So if you say the current Japan’s GDP is around ¥550 trillion, that means that every year, 3% of the current GDP will be deducted. Of course compared to the ¥360 figure, this gets bonked down every year.
I will describe the details in a future post. But mainly the costs are due to flooding, high tides, agriculture yields (especially rice), health costs from heat strokes, etc. There is a recent comprehensive document out (「地球温暖化「日本への影響」ー最新の科学的知見」（pdf）) that describes the details of climate change impacts.
