Evaluation of Tradable Permit Policy to Reduce CO₂ Emission from Private Passenger Vehicles in Japan: A Case of Fuel Economy Trading Policy

Abstract

CO₂ emission from transportation sector in Japan has been reducing due to increasing fuel price, economic recession and CO₂ mitigation policy mix, which includes fuel economy regulation and tax exemption for purchasing better fuel economy vehicles. Japanese government makes further CO₂ reduction polices with tightening fuel economy regulation, because Japanese government intends to certainly reduce CO₂ emission from transportation sector. Existing researches, however, show that policy mix based on fuel economy regulation and tax exemption for buying new fuel-economy-improving car losses social welfare. Fuel economy trading has been gotten a lot of attention as an alternative policy for fuel economy regulation. This study evaluates introduction of fuel economy trading policy, a kind of tradable permit policy in transportation sector, to Japan. I use computational partial equilibrium model to simulate and evaluate effects of the policy. As a result, fuel economy trading policy doesn’t undermine social welfare than fuel economy regulation, but reduction of CO₂ emission by the policy is less than by the regulation.