The Economic Dividends of Decarbonization: Evidence from Municipal-Level Renewable Energy Investment in Japan

This study utilizes a novel municipal-level panel dataset covering Japan from 2012 to 2023 to assess the causal effects of renewable energy investment on local economic growth and employment. Following the 2011 Fukushima nuclear accident, Japan implemented the Feed-in Tariff (FIT) system, triggering unprecedented growth in renewable energy investment. However, the net effects of these investments on local economies remain controversial. To address endogeneity issues in investment decisions, this study employs an exogenous natural resource endowment (solar radiation and wind speed) as an instrumental variable. The findings reveal that renewable energy investments significantly boost per capita GDP and employment rates at the municipality level. These effects exhibit substantial heterogeneity: distributed rooftop solar installations yield different economic impacts compared to centralized large-scale photovoltaic plants. Furthermore, projects developed through community-led initiatives or novel business models like corporate power purchase agreements (PPAs) generate divergent local economic spillover effects. Furthermore, spatial econometric analysis identifies significant positive spatial spillover effects, indicating that renewable energy development in one municipality can stimulate economic activity in neighboring areas. The findings suggest that well-designed renewable energy policies serve not only as a key tool for achieving national decarbonization goals but also as an effective lever for promoting coordinated regional development and realizing a "just transition.".