This article investigates the theory of emissions trading. It aims to identify issues to be discussed in designing emissions trading schemes, and to explore their policy implications. Emphasis is given to the potential and limitations of the scheme, and to clarification of the merits and challenges. According to introductory-level economic theory, economic policy instruments including environmental tax, subsidies, and tradable permit schemes yield identical results in respect to economic efficiency, given that these are optimally designed; the differences are in the initial distribution of property rights. Based on this basic view, I construct my discussion on elements that can make these policy instruments differ from each other. I underline the roles of information asymmetry, definitions of rights, market power, intertemporal trading, uncertainty, etc.

The Japanese Ministry of the Environment has been encouraging unit-based pricing, and city municipalities have introduced this policy in the hope of achieving an emission reduction effect, a reallocation effect from recycling, and financial benefits. However, several years after the introduction of unit-based pricing, some municipalities have reported an increase in waste emissions as compared to the emissions in the first year that the policy was introduced. We determine whether or not the rebound effect is statistically significant by using data on Japanese cities’ waste emissions under unit-based pricing obtained by panel data analysis. The results of estimation reveal that although long-run reduction eventually erodes the price elasticity of non-recyclable waste, the level of erosion is very trivial. The results of estimation for recyclable waste provide significant evidence of the long-term learning effect of sorting waste.

This study introduces a new method of investigating whether results from a contingent valuation (CV) survey are rationally understandable. The method checks whether differences in response times to survey questions are realized across survey participants in a manner consistent with theoretical expectations. The new method is applied to an experimental CV survey of Japanese climate policy. The survey divides its respondents into two groups. One group is subject to conditions where the results of the survey are expected to have a consequence in government policy formulation. The other group is subjected to conditions where the survey results have virtually no impact on government policy. The survey is computerized and the response time for each page of its questionnaire is automatically measured. The average response time among the first group is found to be longer than that of the second. The response times are regressed on explanatory variables including characteristics of the questionnaire pages and personal attributes. A panel regression technique is employed. The signs of the coefficients of the explanatory variables among the first group perfectly meet theoretical expectations, whilst most signs of the coefficients for the second group fail to meet the expectations. Using this new method of investigating response times together with conventional methods of investigating stated values will improve the procedure for assuring the correctness of CV results.

Currently, the Japanese government is studying and implementing various measures to prevent global warming. However, some sectors are still unsatisfactory for the prevention of global warming. The transportation sector is one of them. Measures for passenger vehicles, which account for a large share of the energy consumption of the sector, have been running late. Recently, environmental policies and tax systems have provided an increasingly positive environment for accelerating the improvement of fuel efficiency in passenger vehicles. However, the energy savings will induce a rebound effect, and the anticipated energy savings from these energy-efficiency improvement programs may not be achieved. This paper estimates the rebound effect for passenger vehicles in Japan using micro panel data. Our estimations confirm the existence of the rebound effect (18%). Thus, there is a possibility that the improvement policies intended to promote fuel efficiency may cause a partial decrease in the anticipated energy savings.