Evaluating the Effectiveness of Japan’s 2012 Carbon Tax: Evidence from the Synthetic Control Method

What is the effect of Japan's 2012 carbon tax on CO₂ emissions?This paper analyzes Japan's 2012 carbon tax's efficiency in reducing carbon emissions by using the synthetic control method with data from 1990 to 2023.The synthetic control is made using the weighted average of countries without carbon taxation to replicate Japan's emission patterns in the absence of the policy.Japan's emissions track the synthetic closely before treatment, but diverged upwards largely in 2011-2012 due to the Fukushima nuclear disaster and the resulting surge in fossil fuel use.Even after the Fukushima accident, this paper's results suggest that the carbon emissions were not substantially affected by the carbon tax imposed in 2012.This finding suggests that Japan's low tax rate and its industrial exemptions have been insufficient in altering emission trajectories, emphasizing the need for stronger and complementary climate policies and higher carbon tax rates.