Carbon pricing is central to achieving climate targets, yet its economy-wide and distributional effects, particularly through the transport sectors, remain insufficiently understood. This study employs a static multi-regional computable general equilibrium (CGE) model of Japan to evaluate the economic, environmental, and welfare impacts of carbon pricing, with explicit treatment of transport modes. We simulate a business-as-usual baseline and five policy scenarios, including a national emissions cap achieving a 10% reduction in CO2, a transport exemption scenario, and three alternative revenue-recycling schemes. The results indicate that achieving a 10% national emissions reduction requires a carbon price of approximately 4,153 JPY per ton of CO2, with a modest aggregate GDP loss. However, impacts vary substantially across regions. Carbon-intensive industrial and cold-climate regions experience larger output and welfare losses, while some manufacturing regions benefit from the interregional reallocation of production. Carbon pricing also induces strong modal shifts away from emission-intensive water and air transport toward rail and road transport. Exempting transport services recovers only a small share of GDP losses but reduces total emissions abatement by nearly 30%, with the loss driven almost entirely by water transport. Revenue recycling further shapes distributional outcomes. Returning tax revenues to source regions widens disparities, while equalizing per capita welfare losses improves fairness but slightly increases national welfare costs. Overall, the findings demonstrate that carbon pricing design matters as much as the price level. Maintaining coverage of emission-intensive transport, while using revenue recycling to address regional and household burdens can improve policy acceptability without undermining mitigation effectiveness.
Xiao et al. (Sun,) studied this question.