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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
Green Growth Knowledge Platform (GGKP)
Fourth Annual Conference on
Transforming Development Through Inclusive Green Growth
6-7 September 2016
Jeju International Convention Center, Republic of Korea
LATEST TRENDS IN THE GREENING OF TAX SYSTEMS IN JAPAN, EUROPE,
NORTH AMERICA AND AUSTRALIA, AND THEIR IMPLICATIONS FOR JAPAN
NAITO Aya1, and MOTOKI Yuko1
1
Environment and Energy Division 1, Mizuho Information & Research Institute, Inc. 2-3 Kanda
Nishikicho, Chiyodaku, Tokyo, Japan.
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The Fourth Green Growth Knowledge Platform Annual Conference (2016)
6-7 September 2016. Jeju, Republic of Korea
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
ABSTRACT
Japan as a world’s 8th largest CO2 emitter is required to advance low-carbon actions and needs to
mobilise every available measure to tackle climate change issues. Environmental taxation is one of
the most important tools to achieve this objective, thus authors conducted interviews to experts in
Japan and 15 countries (9 European countries, US, Canada and Australia) to investigate the latest
trends of greening taxation in those countries. This paper is based on the result of our interviews
and compares all countries to extract policy recommendation to the environmental taxation in
Japan.
As for the energy taxes in Japan, our analysis indicate that Japan’s fuel tax rates are low compared
to European countries on both transport and industry fuels thus there is a potential for tax increase.
Especially for the Tax for Climate Change Mitigation (so-called carbon tax), the tax rate is quite
low compared to other countries which have carbon taxes and the future prospect of tax increase
(price signal) is not indicated in Japan. In addition, carbon tax revenue is recycled into the special
account then used for CO2 emissions reduction projects in Japan, whereas multiple other countries
successfully use tax revenue to stimulate economic growth. As for vehicle taxes, changes in tax
burden based on environmental performance are significantly small in Japan compared to Europe.
Moreover, fuel efficiency standards which would be criteria of vehicle tax rates are well below the
levels in Europe and providing little incentive to further technological development.
To achieve low-carbon and sustainable future, now is the time for Japan to seek for emissions
reduction through greener taxation policy based on the policy recommendation gained from other
countries’ experiences.
Keyword: environmental tax, carbon tax, energy tax, vehicle tax
1. INTRODUCTION
In December, 2015, COP21 (the 21st Conference of the Parties to the United Nations Framework
Convention on Climate Change) adopted the Paris Agreement as the new framework for
international cooperation against global warming, which stipulated that all countries, including the
United States and China, must submit their voluntary greenhouse gas reduction targets and steadily
take actions to meet them. The Agreement further spells out the goal of limiting the temperature
rise to less than two degrees above pre-Industrial Revolution levels and requires further efforts to
limit the rise to less than 1.5 degrees (Ministry of Foreign Affairs in Japan, 2015 ). In addition, the
United Nations adopted the Sustainable Development Goals in September, 2015 under which all
countries agreed to emphasise environmental programs in their development goals in a shift from
the previous goal, which focused on poverty eradication, to sustainable development (United
Nations, 2015).
While Japan is a world economic power that would be expected to lead the effort to build a
low-carbon society, its greenhouse gas reduction goals for 2030 (26 percent reduction below 2013
and 18 percent reduction below 1990) do not compare with the goal set by the EU (40 percent
reduction below 1990). It has been also pointed out that Japan’s recent move to promote thermal
power generation in the country runs counter to a growing global trend, such as the tightening of
power plant regulations in the UK and the US as well as the withdrawal of investment from
businesses engaging in fossil fuels in a movement called “divestment” (E3G, 2015). The world is
looking at Japan’s approach with an increasingly critical view.
In order to keep abreast of the world, Japan should mobilise every possible tool, including
regulatory and economic ones, to concentrate its effort on increasing the use of renewable energy
and energy efficiency. Environmental taxation is an important tool for this purpose. According to
the Organisation of Economic Cooperation and Development (OECD), environmental taxes (or
environment-related taxes) consist of “energy taxes” levied on energy goods, “vehicle taxes”
levied on automobiles and other transportation equipment, and “other environmental taxes” levied
on waste and natural resources, all of which are characterised by their potential for reducing
emissions at the consumption stage or improving production technology by having polluters, such
as businesses and consumers, take into account the cost of environmental pollution through price
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The Fourth Green Growth Knowledge Platform Annual Conference (2016)
6-7 September 2016. Jeju, Republic of Korea
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
signals (OECD, 2010). The environmental taxes also benefit the government by providing
revenues.
The movement toward the greening of tax systems that impose taxes based on environmental loads
(Committee for the Promotion of Greening the Whole Tax System , 2012), which has spread over time,
has been in practice in Europe for 20 years as environmental tax reforms (ETR) and environmental
fiscal reforms (EFR). We surveyed the approaches taken by Japan and other countries toward the
greening of tax systems for the past two years, and reported on the latest trends in major European
countries last year (Motoki and Naito, 2015). This year, we expanded the scope to cover 16
countries (Japan, Germany, UK, France, Italy, Sweden, Denmark, Finland, Switzerland, Ireland,
Portugal, Netherlands, Belgium, USA, Canada and Australia) and carried out interview surveys of
the tax experts, including administrators, in these countries. This paper summarises the latest
trends in the greening of tax systems in these countries. We also present our views on future issues
and the course of action for Japan based on our findings from comparisons of the surveyed
countries.
2. APPROACHES TO THE GREENING OF TAX SYSTEMS IN JAPAN AND THE
WORLD
Figure 1 shows a comparison of the amount of revenues from environmental taxes and their
composition as well as revenues from environmental taxes as a percentage of GDP in Japan and
the world. Japan’s ratio is about 1.5% (7 trillion JPY), which is higher than the US (0.7%) and
Canada (1.1%), but lower than Australia (2%) and Europe (1.8 – 3.9%). Denmark has the highest
ratio, which is 2.5 times that of Japan. The composition of tax revenues varies by country. Energy
and vehicle taxes account for more than 90% of all environment-related tax revenues in all
countries, except the Netherlands. The category of “other environmental taxes” includes a variety
of levies intended for dealing with waste and recycling, pollution-related problems and the
conservation of natural resources and ecosystems. This category accounts for as much as 10% of
all environment-related taxes in some countries, such as the Netherlands, Denmark and France.
We shall examine the specific approaches taken by Japan, Europe, North America and Australia for
the greening of their tax systems. Table 1 lists major environmental taxes that each of the survey
countries has introduced to date.
Figure 1. Revenue from environment-related taxes as percentage of GDP (2013)
Source: Compiled by Mizuho Research Institute from the OECD database on instruments used for environmental policy
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The Fourth Green Growth Knowledge Platform Annual Conference (2016)
6-7 September 2016. Jeju, Republic of Korea
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
Table 1. Environment-related taxes currently in effect
Country
Japan1
Belgium2
Denmark
Energy taxes
Energy tax
Carbon Tax
(w/o Carbon Tax)
Vehicle taxes
Acquisition tax
Gasoline Tax, Local
Gasoline Excise, Diesel Oil
Delivery Tax, Oil and Gas Carbon Tax (Tax
Tax, Aviation Fuel Tax,
for Climate
Automobile
Petroleum and Coal Tax,
Change
Acquisition Tax
Electric Power
Mitigation)
Development Promotion
Tax
Fuel Tax, Federal
Vehicle registration
contributions for electricity
―
tax (BIV)
and natural gas
Gasoline Tax, Tax on
petroleum products, Gas
CO2 tax
Registration tax
tax, Tax on coal, Duty on
electricity
Other transport taxes
Freon tax
Waste tax
Motor Vehicle
Weight Tax,
Automobile Tax,
Light Vehicle Tax
Norikura
Environmental
Conservation Tax
(Gifu Pref.)
―
Industrial waste tax
(ex. Mie Pref.)
Annual road tax
―
―
Landfill tax,
Industrial Waste Tax
Motor Vehicle Tax
―
Tax on CFC
Excise duty on
motor cars
Rail Tax
―
Finland
Energy Tax, Stockpile
duties
CO2 tax
Registration fee of
vehicles
France1
TICPE, TICGN, TICC,
TICPE, Local tax on
electricity (TICFE+TCFE)
Carbon Tax
Cartes grises,
Bonus-Malus
Germany
Energy Duty, Electricity
Duty
―
―
Motor Vehicle Tax
Ireland
Fuel Tax, Electricity Tax
Carbon Tax
Vehicle
Registration tax
(VRT)
―
―
Mineral oil and derivate
excise tax, Tax on natural
gas, Coal tax, Tax on
electricity
Excise tax on gasoline and
other mineral oils, Taxes on
Netherlands
an environmental basis
(Energy Tax)
Italy
Portugal
Tax on oil products, Energy
Service Tax
Carbon Tax
Sweden
Energy Tax
CO2 tax
Others (pollution)
Ownership tax
Tax for Civil
Tax on company
Aviation, Solidarity
cars, Axle tax,
contribution on
Annual Malus
airline tickets
Waste tax, Tax on
Ni/Cd batteries, Tax
on PVC and
phthalates
Tax on Waste, Oil
Waste Levy, Oil
Damage Levy
―
TGAP
Aviation Tax
―
―
Motor tax
Air Travel Tax
―
Landfill Levy
Vehicle registration
tax (IPT)
Vehicle tax
Tax on boats and
aircrafts, Tax on air
taxi
―
Special tax on landfill
Registration tax on
motor cars (BPM)
Annual road tax
(MRB)
―
―
Taxes on an
environmental basis
(Waste Tax)
Tax on motor
Traffic tax (IUC)
vehicle sales (ISV)
―
―
Regulatory fee on
water and waste
services
―
―
Waste Tax
Super green car
premium
Annual road tax
Cantonal tax on
Tax incentive
Car tax, CO2
motor vehicles, Fee
Cantonal taxes on
Switzerland
Tax on mineral oils
CO2 on fossil
―
―
reduction penalty
on heavy goods
waste
fuels
traffic
Fuel Duties, Climate
Vehicle Excise
UK
―
―
Air passenger duty
―
Landfill tax
Change Levy
Duty
Harbor
Tax on
Gas Guzzler Tax, Registration fee,
USA2
Fuel excise tax
―
Maintenance Trust ozone-depleting
―
Tax on Track
County use taxes
Fund Excise Tax
chemicals
Federal excise taxes on
Green Levy,
BC Eco fee (Tire tax,
Canada2
motive fuels, BC motor fuel BC Carbon Tax Automobile air
―
―
―
Battery tax)
tax, BC LNG tax
conditioners
Stamp duty,
Australia
Fuel excise tariff
―
Motor vehicle tax
―
ODC excise tax
Waste levy
Luxury Car Tax
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The Fourth Green Growth Knowledge Platform Annual Conference (2016)
6-7 September 2016. Jeju, Republic of Korea
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
Table 1. Environment-related taxes currently in effect (cont.)
Others (pollution)
Country
Japan
Others (resources)
Tax on
Pollution prevention Nuclear energy
Water
Tax on harvesting of
Packaging tax
extraction of raw
tax
tax
abstraction tax biological resources
materials
―
―
Nuclear Fuel
Tax (Fukui
Pref.) etc.
―
Hunting tax、Fishing
License Tax
(Fujikawaguchiko
Town)
(Joyo City) etc.
Aggregate Tax
Tax on landscape
change and cutting
trees
Forest conservation tax
(ex. Kochi Pref.), Tax
for history and culture
(Dazaifu City),
Environmental
cooperation tax (ex.
Izena Village), etc.
Belgium2
Packaging
charge
Water pollution tax
―
Tax on water
withdrawal,
Groundwater tax
―
―
―
Denmark
Packaging tax
Sulfur tax, NOx tax,
Pesticide tax, Tax on
wastewater
―
Tax on piped
water
―
Duty on raw
materials
―
Finland
Excise on
certain
beverage
packages
―
―
―
Hunting and fishing
licenses, Tax on dogs
―
―
France
TGAP
TGAP, Tax on airport
noise
Tax on nuclear
facilities
Royalties water
withdrawal
―
TGAP, Royalties
mine
―
―
―
Nuclear fuel tax
―
Fishing/Hunting tax
―
―
Environmental
Levy On
Plastic Bags
―
―
―
―
―
―
Italy
―
Provincial tax for
environmental
protection, Tax on
emissions of sulfur
dioxide and nitrogen
oxides, Regional tax on
aircraft noise
―
―
―
―
―
Netherlands
―
―
―
Minerals charge
―
Portugal
Tax on
lightweight
plastic bags
Tax on noise
―
―
―
Sweden
―
Sulphur tax, Pesticide
tax
Nuclear fuel tax
―
―
Natural gravel tax
―
Switzerland
―
Cantonal taxes on
wastewater, Incentive
tax on VOCs
―
―
―
―
―
UK
―
―
―
―
Aggregates Levy
―
USA
―
―
―
―
Betting and gaming
taxes
―
―
―
Germany
Ireland
Taxes on an
environmental
―
basis (Tap water
tax)
Fee for the use
of public water
domain,
Fishery license tax,
Regulatory fee
Tax on hunting
on quality of
licenses
water for human
consumption
Canada2
―
―
―
―
―
Australia
―
Aircraft noise levy
―
―
―
BC Mineral
exploration tax
credit
―
Note 1: As of January, 2016 in each country.
Note 2: Japan levies the Tax for Climate Change Mitigation (Carbon Tax) as part of the Petroleum and Coal Tax; France
levies its carbon tax as part of the Domestic Duty on Consumption of Energy Products (TICPE) and other taxes.
Note 3: Belgium’s Landfill Tax, Water Pollution Tax and Groundwater Tax are regional taxes levied in Flanders and Waste
Tax and Tax on Water Withdrawal are levied in Wallonia; the Automobile registration fee and County use tax
(USA) are state taxes in New York State; and the Motor Fuel Tax, LNG Tax, Carbon Tax, and Eco fee and Mineral
Exploration Tax Credit (Canada) are provincial taxes in the Province of British Columbia.
Source: Compiled by Mizuho Research Institute from the interview survey results and the information obtained from each
country.
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6-7 September 2016. Jeju, Republic of Korea
―
―
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
3. CURRENT SITUATION OF GREENING TAX SYSTEM IN JAPAN
There are a total of seven energy taxes: the Petroleum and Coal Tax levied on the importation and
extraction of fossil fuels; the Gasoline Tax, Local Gasoline Excise Tax, Oil and Gas Tax, Diesel
Oil Delivery Tax and Aviation Fuel Tax, which are levied on different fuels throughout the
distribution of petroleum products; and the Electric Power Development Promotion Tax which is
levied on the sale of electricity. Japan introduced the Tax for Climate Change Mitigation (Carbon
Tax) in October, 2012 as an add-on to the Petroleum and Coal Tax. It is levied equally on all fossil
fuels at a rate corresponding to their CO2 emissions. The final rate will reach 289 JPY/tCO2 in
April, 2016 after incremental increases by 1/3 over 3-1/2 years. The revenue is placed in the
Special Account for Energy Policy to be used to fund projects designed to reduce energy-related
CO2 emissions. All other energy tax revenues are placed in the general budgets of the national and
regional governments.
Vehicle taxes include the Automobile Acquisition Tax levied on the acquisition of automobiles and
the Motor Vehicle Weight Tax, Automobile Tax and Light Vehicle Tax levied on their ownership.
There are fuel efficiency-based tax reductions, such as the Eco-car Tax Incentives and the special
exemption of the automobile tax and light vehicle tax. The vehicle tax revenues are generally
incorporated into the general budget except that a portion of the Motor Vehicle Weight Tax
revenue is earmarked for compensation payments related to pollution-related health damage. In
conjunction with the increase of the Consumption Tax rate to 10% in April, 2017, the Automobile
Acquisition Tax will be replaced by a tax entitled “Taxation Based on Environmental
Performance” (tentative title) which is a new levy on automobiles and light vehicles at the time of
acquisition (Government of Japan, 2015).
All other environment-related taxes are levied at the local level, and their total revenue accounts
for less than 1% of all environment-related tax revenues. As of January, 2016, pollution-related
taxes include an industrial waste tax levied by 28 governments, including Mie Prefecture, and
nuclear power-related taxes levied by 14 governments, including Fukui Prefecture. In the resource
sector, 36 governments, including Kochi Prefecture, levy a forest conservation tax as an add-on to
their respective resident tax as well as the Hunting Tax which is a statutory tax. Certain local
governments have introduced additional environmental levies to fund the nature conservation
programs in their respective regions, such as the Fishing License Tax (Township of
Fujikawaguchiko in Yamanashi Prefecture), the Aggregate Tax (Joyo in Kyoto Prefecture and one
other municipality), the Environmental Cooperation Tax (Village of Izena in Okinawa Prefecture
and two other municipalities) and the Environmental Tax for History and Culture (Township of
Dazaifu in Fukuoka Prefecture).
4. COMPARISON OF ENERGY TAXES AND IMPLICATIONS FOR JAPAN
In this chapter, we will focus on energy taxes, and compare and examine them from the two
viewpoints of “taxation based on fuel types” and the “design of the carbon tax” with reference to
the latest trends in taxation in the countries we surveyed in order to present our views on the
course of action from which Japan could learn with respect to the greening of Japan’s tax system.
4.1. Comparison of Tax Bases by Fuel Types
First, we divided fuel types into transportation and industrial use and compared the rates of the
energy taxes levied on them in each country. Two types of taxes are levied on energy consumption:
the existing energy taxes levied as excise taxes and the carbon tax levied equally according to the
carbon content of fossil fuels. In this paper, we calculate the sum of these taxes by converting their
rates to a rate per ton of CO2 emissions in order to make comparisons.
4.1.1. Transportation fuels
A look at the transportation fuels (gasoline and diesel) in Figure 2 indicates that Japan’s tax rates
are the lowest next to those in North America and Australia for gasoline, and the lowest next to the
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The Fourth Green Growth Knowledge Platform Annual Conference (2016)
6-7 September 2016. Jeju, Republic of Korea
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
US for diesel. The Tax for Climate Change Mitigation (Carbon Tax) accounts for only 1% and 2%
of the gasoline tax and diesel tax rates, respectively.
The UK imposes the highest tax rate, 3 times that of Japan, for both gasoline and diesel. Gasoline
is taxed at a significantly higher rate than diesel in many countries, except the US, the UK,
Australia, and Switzerland. There is as much as a 50% difference in the rates for the two fuel
types. The differences widen when the rates are converted to per-liter rates, with diesel fuel
enjoying tax preference. In view of the health hazards and air pollution risks of exhaust gas from
diesel cars (OECD, 2014), however, France imposed an additional levy on diesel fuel in
conjunction with the increase in its Carbon Tax in 2016. As Belgium and Switzerland are expected
to follow France with similar measures, the move to remedy the gap between gasoline and diesel
taxes appears to be accelerating in Europe.
4.1.2. Industrial fuels
A comparison of the industrial fuels (coal, natural gas and heavy fuel oil) in Figure 3 indicates that
Japan’s tax rates are at a low level for all categories. The Tax for Climate Change (Carbon Tax)
accounts for 49% of the rate of coal tax, 42% of natural gas tax, and 27% of heavy fuel oil tax. The
highest rates are levied by Denmark at 24 times Japan on coal, 41 times Japan on natural gas, and
4 times Japan on heavy fuel oil.
Many other countries that have adopted a carbon tax levy it on industrial fuels at the same rates as
the existing energy tax or even higher. While the energy taxes in the past afforded significantly
lower rates for industrial fuels compared to transportation fuels, the carbon tax, which is intended
to suppress greenhouse gas emissions, is imposed equally on a wide range of energy consumption,
including industrial energy. Carbon tax countries, such as France and Switzerland, are planning to
raise the rates on industrial fuels through increases in their carbon tax. These countries seek to
reconcile the environment with the economy by taxing the industrial sector at a non-preferential
rate while mitigating the impact on their economy with finely-tuned tax reductions and
exemptions.
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The Fourth Green Growth Knowledge Platform Annual Conference (2016)
6-7 September 2016. Jeju, Republic of Korea
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
Figure 2. Comparison of tax rates for transportation fuels (gasoline and diesel)
Note: Effective rates in 2015 in each country, except Japan’s Tax for Climate Change Mitigation (Carbon Tax), which will
come into effect in April, 2016. US data includes New York state taxes, and Canada BC provincial taxes. The
emission factors and energy content used in this report are taken from the “Ministerial Ordinance on Calculation of
Greenhouse Gas Emissions Emitted by Specified Emitters” (METI and MOE Ordinance No. 3 of 2006). Foreign
exchange rates are based on Mizuho Bank’s monthly average exchange rates from April to October, 2015.
Source: Compiled by Mizuho Research Institute based on the EU, 2015, Excise Duty Tables and the respective country
data.
Figure 3. Comparison of tax rates for industrial fuels (coal, natural gas, and heavy fuel oil)
Note: Taxation on natural gas (for industrial use) is divided into 4 tiers, the lowest rate (over 1.000m3) of which is
identified in this graph as “Natural gas (large)” and the highest (less than 170m3) as “Natural gas (small)”. Both
were estimated under the same conditions used for Figure 2.
Source: Compiled by Mizuho Research Institute based on the EU, 2015, Excise Duty Tables and the respective country
data.
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The Fourth Green Growth Knowledge Platform Annual Conference (2016)
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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
4.2. Comparison of System Designs of Carbon Tax
With respect to taxation on fuels, we compared the features of the carbon tax systems in Japan and
eight countries where the carbon tax is in effect (Finland, Sweden, Denmark, Switzerland, Ireland,
France, Portugal, and the Canadian province of British Columbia) in terms of tax rates, tax
revenue recycling, and tax reductions in order to compare Japan’s Tax for Climate Change
Mitigation (Carbon Tax) and the carbon taxes adopted by the other countries.
4.2.1. Carbon tax rates
Changes in the carbon tax rates shown in Figure 4 indicate that the rate of Japan’s Tax for Climate
Change Mitigation (Carbon tax) is relatively low, with no plan for further increases at this point
after it rises to 289 JPY/tCO2 in April, 2016.
The tax rates have risen significantly in other countries. For example, France is planning an
eightfold increase from the original rate of 7 EUR/tCO2 (950 JPY) set in 2014 to 56 EUR/tCO2
(7,600 JPY) in 2020 and 15-fold to 100 EUR/tCO2 in 2030 (13,500 JPY). Switzerland, which
introduced its carbon tax in 2008 at the rate of 12 CHF/tCO2, determines the rate based on the
most recent CO2 emission reduction results. Accordingly, the rate will increase to as much as 120
CHF/tCO2 (15,300 JPY) in 2018. In Portugal, where the tax rate is determined based on the
previous-year average of the price of EU Emission Allowances (EUA), there may be a sharp
increase in the rate depending on international trends in carbon prices. As a number of
international organisations have estimated the carbon prices in 2030 to be, on average, 10,000 JPY
per ton of CO2 emissions1, the goals set in Europe are ambitious on a par with the daunting
predictions. Furthermore, the clear signal for future carbon prices has led to the removal of
uncertainties for businesses in making their investment decisions (New Climate Economy, 2014).
In fact, British Columbia (Canada) anticipated such a benefit, and gave advance notice of carbon
tax rates for the 5-year period at the time of their introduction and widely publicised them
(Pedersen and Elgie, 2015).
Figure 4. Changes in carbon tax rates and country outlook
Note 1: For Switzerland, the highest rate is used because its 2018 carbon tax rate varies from 96 – 120 CHF/tCO2.
Note 2: Foreign exchange rates are based on Mizuho Bank’s monthly average exchange rates from April to October, 2015.
Source: Compiled by Mizuho Research Institute from the interview survey results and information obtained from each
country.
1
The averages were calculated based on estimates by the International Energy Agency (using the values for EU), US
Environmental Protection Agency and the Department of Energy and Climate Change. Source: IEA, 2015, World Energy
Outlook 2015; EPA, 2015, The Social Cost of Carbon; DECC, 2015, Updated short-term traded carbon values used for
UK public policy appraisal.
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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
4.2.2. Use of carbon tax revenues/tax reduction
As Table 2 indicates, the revenue from Japan’s Tax for Climate Change Mitigation (Carbon Tax) is
placed entirely in the Special Account for Energy Policy and used to fund projects aimed at
reducing energy-related CO2 emissions so as to increase the environmental effect (“budget
effect”). In contrast, the countries we surveyed place their tax revenues in their general budget and
leave the environmental effect entirely to incentives, such as energy-saving activities in response
to rate increases (“price effect”). Sweden, which is known for the highest carbon tax rate (1,120
SEK/tCO2; 160,000JPY), carried out an environmental tax reform in 1991 and appropriated the
increased tax revenue to significantly reduce corporate taxes (to 53% in 1990, 30% in 1991, and
22% in 2015) to ease the tax burden on businesses from the point of view of revenue neutrality in
conjunction with the introduction of the carbon tax, SO2 tax, and value-added tax on energy
consumption. Such an approach has also been adopted in Finland and Canada (Province of British
Columbia).
Furthermore, Europe exempts corporations participating in the EU-ETS from taxation in order to
protect them in the face of international competition, to prevent carbon leakage, and to avoid
double taxation through the carbon tax and emission credits2. In some cases, taxation on the
agriculture sector is reduced, even if it is not covered by the EU-ETS, due to the limited scope of
measures available to it and for the purpose of mitigating effects on small-scale farmers. Japan has
also adopted this measure. In the case of France, the initial carbon tax rates on gasoline and diesel
were left unchanged in order to avoid sharp increases in prices as a result of the introduction of the
carbon tax. Energy taxes were divided into the carbon tax and others in order to gradually increase
the proportion of carbon tax in the second and subsequent years. In order to avoid impacting
industry and to maximise the positive effects on both the economy and the environment, many
countries we surveyed are implementing a variety of measures by utilising tax revenues and
fine-tuning tax reductions and exemptions.
2
On the other hand, in response to indications that excessive preferential treatment of the industry could spoil the
effectiveness of the carbon tax, Sweden will phase out the tax reduction for the industry (to 60% of the standard rates) by
2018. Source: Andersen, M., S., 2015, Reflections on the Scandinavian Model: Some Insights into Energy-Related Taxes
in Denmark and Sweden、Ministry of Finance Sweden, 2015, Environmental taxes in Sweden.
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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
Table 2. Overview of carbon taxes by country
Country
Year
introduced
Rate
(JPY/tCO2)
Revenue
(100 mil
JPY)[year]
Fund
Use of Revenue
Major tax reduction and
exemption
 Control energy-related
CO2 emissions through  Naphtha for producing
energy conservation
imported/domestic petrochemical
measures, promote
products; diesel used in
renewable energy, clean
agriculture, forestry and fishing.
fossil fuels
 Exemption for EU-ETS
companies
 Reduce income taxes
 Reduce for industrial
and reduce employment
power/CHP; refund for
costs to businesses
energy-intensive industry and
agriculture
Japan
2012
289
2,623 [2016]
Special
account
Finland
1990
7,834
(For transport)
737
[2008]
General
account
Sweden
1991
16,074
336
[2014]
General
account
 Reduce corporate taxes
(revenue neutral）
 Exemption for EU-ETS
companies/CHP
 Reduce to 60% of standard rate
for industry and agriculture
Denmark
1992
3,103
670
[2014]
General
account
 Expend according to
government fiscal
demand
 Exemption for EU-ETS
companies
Switzerland
2008
10,739
969
[2014]
Ireland
2010
2,702
465
[2012]
France
2014
2,972
3,377
[2015年]
Portugal
2015
901
128
[2015]
British
Columbia
(Canada)
2008
2,883
1,191
[2015]
 Exemption for domestic ETS
General
 Return 1/3 to the
companies
account
Buildings programme
 Reduce for companies achieving
(Partially placed and the remaining 2/3 to
legally binding commitment
in a fund)
citizens and businesses  Exemption for gasoline/diesel for
transportation
 Exemption for EU-ETS
General
 Reduce deficit (fiscal
companies
account
consolidation)
 Reduce for diesel used in
agriculture
 Carbon tax revenue is
partially earmarked for the
General
 Exemption for EU-ETS
Competitiveness and
account
companies
Employment Tax Credit
(CICE) in general budget.
 Use for corporate tax
general
 Exemption for EU-ETS
reduction by 2020
account
companies
(planned)
 Return to taxpayers
General
through reduction of
 Exemption for fuels for
account
other taxes (corporate,
cross-border transportation
etc.)
Note 1: Effective rates in 2015 in each country, except Japan’s Tax for Climate Change Mitigation (Carbon Tax), which
will come into effect in April, 2016.
Note 2: The revenues are shown in the most recently available values, except for Japan’s Tax for Climate Change
Mitigation (Carbon Tax), which is an estimate for FY2016 (full year).
Note 3: Foreign exchange rates are based on Mizuho Bank’s monthly average exchange rates from April to October, 2015.
Source: Compiled by Mizuho Research Institute from the interview survey results and information obtained from each
country.
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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
4.3. Course of Action for the Greening of Japan’s Energy Taxes
Based on the comparisons between Japan and other countries surveyed, we summarised the
implications for Japan with respect to the course of action it might take to further the greening of
its energy taxes as follows:
 Maximise the “price effect” by increasing energy tax rates (carbon tax in particular),
and provide a clear indication of the long-term prospects for future carbon prices in
order to remove business uncertainties; and
 Use tax revenues to revitalise the economy.
4.3.1. Increasing the rates of energy taxes
As discussed in 4.1., we believe Japan needs to examine the potential for turning existing energy
taxes, such as the Gasoline Tax and Diesel Oil Delivery Tax, into a carbon tax in addition to
significantly increasing the Tax for Climate Change Mitigation (Carbon Tax) in keeping with
Europe, where many countries are introducing energy taxes at higher rates than Japan, and the
emerging global trend to “shift tax burden from labor and income to consumption and
environment”. The effect of Japan’s Climate Change Mitigation (Carbon Tax) on CO2 reductions
is estimated to be 2% (Ministry of the Environment Japan, 2012), most of which is produced by
the budget effect. It is essential that Japan maximise the price effect in the future by increasing the
tax rates.
Industry in Japan is highly critical of the Tax for Climate Change Mitigation (Carbon tax) and
states that drastic reconsideration, including its elimination, is an urgent issue (Keidanren, 2015).
Yet the global situation is on the opposite way and more private sectors around the world are
embracing the carbon tax. For example, major oil companies, such as Shell and Total, issued
statements in 2015 saying that carbon pricing would make the road map for future investment clear
even though the system would be a burden on them (BG, BP, Eni, Royal Dutch Shell, Total, 2015 ).
More than 1,000 companies from 74 countries expressed support for carbon pricing at the UN
Climate Summit in 2014 (United Nations, 2015). In such an environment, it is advisable that Japan
raise tax rates in order to maximise the price effect. At that time, it will be more important that
Japan present the long-term outlook on “future carbon prices”, in order to remove uncertainties
cast on businesses by following the examples of British Columbia (Canada) and Switzerland.
4.3.2 Using tax revenues to revitalise the economy
Unlike other countries in our survey, Japan’s current Tax for Climate Change Mitigation (Carbon
Tax) limits the use of revenue to measures that reduce energy-related CO2 emissions. These
measures help to maximise the effect on the environment by creating a budget effect. With respect
to the increased tax revenue resulting from future rate increases, some are of the opinion that it is
important for Japan to select the measures from among the diverse choices that will bring positive
effects to the economy with a view to overall tax revenues. If this is to be the case, Japan should
look at the examples of other countries. For a country like Japan, which has a large fiscal deficit,
we also believe that using tax revenues to fund deficit reduction, as Ireland has done, or using tax
revenues equivalent to reducing corporate taxes and social security contributions, as Germany and
Sweden have done, will be the subject of analysis that is of considerable political importance.
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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
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5. COMPARISON OF VEHICLE TAXES AND THE IMPLICATIONS FOR JAPAN
In this chapter, we focus on vehicle taxes, and, based on the latest trends in taxation in the
countries in our survey, discuss and compare them from the two points of view of “levels of
taxation on standard automobiles” and the “status of the introduction of taxation based on fuel
efficiency”. We then present our view on courses of action for Japan suggested by the results with
respect to the greening of vehicle taxation.
5.1. Comparison of Tax Burden Relating to the Acquisition, Ownership, and Motoring of
Standard Automobiles
We compared the amount of tax burden relating to the acquisition, ownership, and motoring of
passenger vehicles in the countries we surveyed. The tax items included consumption taxes and
energy taxes linked to the acquisition of vehicles and the fuel efficiency while operating vehicles
as well as vehicle taxes (acquisition and ownership). The respective tax burdens are compared by
aggregates of the amounts of these taxes.
Table 3 indicates that all countries, except Germany and the UK, impose a tax on the acquisition of
automobiles. Many countries have adopted CO2 emissions or fuel efficiency as a tax base. Japan is
a minority, which bases the tax solely on the prices of vehicles. Ownership is taxed in all countries
except Canada. Similar to the acquisition tax, taxation is based on either CO2 or fuel efficiency
alone or in combination with other elements, such as weight or cylinder capacity.
We calculated the tax burdens based on the tax systems of the various countries and the 12-year
ownership of a standard gasoline car with fuel efficiency meeting Japan’s 2015 emission
standards, and a diesel car of the same class.
In Japan, vehicle taxes impose 50% of the tax burden (1.27 million JPY on a gasoline car and 1
million JPY on a diesel car), most of which relates to ownership, as indicated in Figure 5. A
comparison of gasoline cars and diesel cars indicates that they are categorised by the same weight,
cylinder capacity classes, resulting in the same tax burden. At the same time, however, diesel cars
enjoy larger tax reductions on fuel efficiency than the cost increase from vehicle price. In addition,
a low rate of energy tax on diesel fuel further reduces the tax burden on diesel cars in all of the
acquisition, ownership, and motoring categories.
In Europe, there is a more than ten-fold difference in tax burden between the countries that impose
lower tax rates, such as Sweden, Germany, France, the UK and Italy, which have domestic
automobile manufacturers, and Denmark and the Netherlands, which impose higher tax rates.
Some countries, such as Denmark, the Netherlands, and Belgium, impose additional taxes on
diesel cars based on the air pollution and health risks posed by diesel. This trend has been
spreading to other countries gradually. Furthermore, Europe imposes a high value-added tax in the
range of 19% to 25% on acquisition and motoring, resulting in a generally higher tax burden in the
EU than in Japan.
The burden of vehicles taxes is small in North America and Australia. In the US, in particular, the
tax burden relating to motoring is considerably small due in part to having the lowest gasoline tax
and diesel tax compared to other regions.
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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
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Table 3. Taxes relating to acquisition, ownership, and motoring of passenger vehicles
Country
Acquisition tax
Ownership tax
Consumption tax
/ VAT rate
Japan1
 Automobile Acquisition Tax (price)
 Motor vehicle weight tax (weight)
 Automobile tax (cylinder capacity)
 Light vehicle tax (fixed amount)
8％
Belgium2
 Vehicle registration tax (CO2, Euro
standards, fuel type)
 Annual road tax (cylinder capacity, CO2,
Euro standards, fuel type)
21％
Denmark
 Registration tax (price, fuel efficiency, fuel
type)
 Motor vehicle tax (fuel efficiency)
25％
Finland
 Registration fee of vehicles (price, CO2)
 Excise duty on motor cars (CO2, fuel type,
weight)
24％
France
 Cartes grises (puissance fiscal, CO2)
 Bonus-Malus (CO2)
 Annual Malus (CO2)
20％
Germany
―
 Motor Vehicle Tax (CO2, cylinder
capacity)
19％
Ireland
 Vehicle registration tax (price, CO2)
 Motor tax (CO2)
23％
Italy
 Vehicle registration tax (horse power)
 Vehicle tax (horse power, Euro standards)
22％
Netherlands
 Registration tax on motor cars (CO2, fuel
type)
 Annual road tax (CO2, weight, fuel type)
21％
Portugal
 Tax on motor vehicle sales (cylinder
capacity, CO2, fuel type)
 Traffic tax (cylinder capacity, CO2)
23％
Sweden
 Super green car premium (CO2)
 Annual road tax (CO2, fuel type, weight)
25％
UK
―
 Vehicle excise duty (CO2)
20％
 Cantonal tax on motor vehicles (horse
power, CO2)
8％
Switzerland  Car tax (price)
2
 CO2 reduction penalty (CO2, weight)
USA2,3
 Gas Guzzler Tax (fuel efficiency)
 Registration fee (weight)
 County use taxes (fixed amount)
Canada3
 Green Levy (fuel efficiency)
 Automobile air conditioners (fixed amount)
―
12％
Australia
 Stamp duty (price)
 Luxury Car Tax (price)
 Motor vehicle tax (weight)
10％
8.88％
34.8％
Note 1: Japan’s vehicle taxes provide rate reductions based on fuel efficiency.
Note 2: Vehicle taxes are imposed regionally in Flanders, Belgium; an ownership tax is imposed in Canton of Geneva,
Switzerland, and in New York State, USA.
Note 3: The US sales tax figure is an aggregate of New York State and New York City taxes (top: rate on acquisition;
bottom: rate on mileage); sales tax in Canada is an aggregate of the federal value-added tax and the provincial sales
tax in BC.
Note 4: Rates for vehicle taxes, consumption tax, and energy tax are effective as of January, 2016, calculated based on
Mizuho Bank’s monthly average foreign exchange rates from April to October, 2015.
Source: Compiled by Mizuho Research Institute from the interview survey results and information obtained from each
country.
Page 14
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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
Figure 5. Tax burden relating to acquisition, ownership, and motoring of standard automobile
Note 1 Parameters for passenger cars (gasoline/diesel cars): Vehicle price - 1.8 million JPY/2.1 million JPY; cylinder
capacity – 1,800 cc/2,000 cc; vehicle weight – 1.5 t / 1.6 t; fuel efficiency - 15.3 km/L / 18.4 km/L (in JC08 mode);
horsepower – 142 PS (common). Calculations are based on the assumptions of an emission factor of 2.32 kgCO2/L,
a travelled distance of 10,000 km per year, and redemption of 12 years. Fuel efficiency is the value as stated in
vehicle catalogues.
Note 2: Gasoline price (excluding tax) is calculated for each country based on that country’s average for the 2nd and 3rd
quarters of 2015 published in the IEA Energy Prices and Taxes (Vol. 2015, Issue 4); foreign exchange rates are
based on Mizuho Bank’s monthly average exchange rates from April to October, 2015.
Note 3: Calculated by applying the tax systems listed in Table 3. at the tax rates in effect as of January, 2016 in each
country, except, in addition to Flanders (Belgium), the Canton of Geneva (Switzerland), and New York State (US),
local tax rates are used for the acquisition tax in France (City of Paris), vehicle taxes in Italy (City of Rome),
ownership tax in Netherlands (Province of Noord-Holland), and ownership tax in Australia (State of New South
Wales).
Source: Compiled by Mizuho Research Institute from the interview survey results and information obtained from each
country.
5.2. Current Status of Fuel Efficiency-Based Taxation – Comparison of Tax Burdens
According to Fuel Efficiency
We investigated how taxation on gasoline cars and diesel cars based on differences in fuel
efficiency would change the weight of the tax burden.
Figure 6 presents the results of our calculations of the changes from the baseline in tax burden for
both gasoline and diesel cars when two types of alternative cars (with a certain level of fuel
efficiency and poor efficiency) are added to the standard cars used in 5.1. With respect to the fuel
efficiency of the alternative cars, the rate of change was set to 30% from the standard level based
on the fact that the CO2 emission target for 2021 (95 gCO2/km) required about 30% improvement
from the current level (130 gCO2/km in 2015).
The graph below indicates that the scope of change in Japan (460,000 JPY for gasoline cars and
360,000 JPY for diesel cars) is wider than in North America and Australia, but narrower than all
European countries in this survey. A comparison of Japan and Europe suggests that the scope of
change in Europe is 1.5 to 10 times wider in Japan. The fact that the countries for which larger
changes are seen mostly in vehicle taxes, such as the Netherlands, Denmark and Ireland implies
that their inclination toward tax increases is linked to fuel efficiency.
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6-7 September 2016. Jeju, Republic of Korea
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
With contributions from these tax systems, the EU as a whole has already met its 2015 goal early,
with the average emissions from passenger cars in 2014 at 123.4 gCO2/km (EEA, 2015). In order
to meet the increasingly demanding CO2 emission goals and the control of exhaust gas, European
countries are likely to continue to increase their level of taxation based on CO2 emissions, fuel
efficiency, and exhaust emissions in order to accelerate the popularisation of automobiles with
high environmental performance.
Figure 6. Changes in tax burden per car at different fuel efficiencies
Note: Calculated based on the same parameters used for Fig. 5.
Source: Compiled by Mizuho Research Institute from the interview survey results and information obtained from each
country.
5.3. Direction of the Future Greening of Vehicle Taxes in Japan
Based on the comparisons made between Japan and the world, we summarised the measures that
Japan should implement in order to continue with the further greening of its vehicle taxes as
follows:
 Introduce a flexible tax system linked to fuel efficiency (i.e. tax based on fuel
efficiency); and
 Tighten the fuel efficiency standards, closely linking them to taxes based on fuel
efficiency
5.3.1. Introducing a flexible tax system linked to fuel efficiency
As discussed in Sections 5.1. and 5.2., our current survey clearly reiterated the fact that Japan’s
changes in tax burden based on environmental performance, such as fuel efficiency and CO2
emissions, are significantly small compared to Europe. Japan must direct its future efforts toward
introducing a more flexible tax system that is linked to the environmental performance of vehicles
, as is the case in Europe.
Page 16
The Fourth Green Growth Knowledge Platform Annual Conference (2016)
6-7 September 2016. Jeju, Republic of Korea
Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
Japan will replace its Automobile Acquisition Tax with a new tax based on the environmental
performance linked to fuel efficiency in April, 2017. Given the continuing effort to tighten the
standards through the Eco-car Tax Incentives and other measures, the design of a new taxation
regime based on environmental performance is a dramatic departure from the past that can lead to
disincentives for purchasing or developing eco-cars. As the new tax will actually decrease tax
revenues, the financial basis of local governments may be affected as well.
According to the tax reform proposals for 2016, the tax brackets in taxation based on
environmental performance are to be reviewed every two years. Immediately after introducing the
new system, it is essential for the government to investigate the trends in improvements of fuel
efficiency and development of eco-car technologies as well as the effects on local government
finances. The government should then put forward an appropriate proposal from the viewpoint of
the environment for a revision of the system. From the viewpoint of the weight of tax burden on
users and tax revenues, ownership taxes (Motor Vehicle Weight Tax, Automobile Tax, and Light
Vehicle Tax) are more important in Japan than the acquisition tax. Japan should set out in the
future to consider a structure for the permanent greening of its ownership tax system that includes
a tax based on fuel efficiency.
5.3.2 Tightening the fuel efficiency standards
Behind the tightening of taxation in Europe (for example, shifting of the tax base to CO2 and more
stringent conditions of tax reduction) lie strict CO2 emission goals that demand unremitting
efforts. Although Japan has similar fuel standards, its goals are 16.8 km/L in 2015 and 20.3 km/L
in 2020 (equivalent to 138 gCO2/km and 114 gCO2/km, respectively3, which are well below the
levels in Europe (95 gCO2/km in 2021) and the US (143 gCO2/mile, or 89 gCO2/km, in 20254. As
far as past trends in fuel efficiency in Japan indicate, these goals are expected to be easily
achievable (Ministry of Land, Infrastructure, Transport and Tourism, 2015), thus providing little
incentive to further technological development.
Countries other than those we surveyed in this paper (for example, China) are considering
introducing fuel standards that are stricter than Japan (ICCT, 2014). As one of the world’s leading
automobile powers, Japan must continue with the greening of its automobiles through stricter fuel
standards that are linked closely to taxes based on fuel efficiency.
6. CONCLUSION
Based on the results of our two-year study, we summarised the latest trends in the greening of tax
systems in 16 countries including Japan. In Europe, the move to shift the tax burden toward
environmental taxes is shared by the EU and its member countries, with many increasing their
environmental taxes almost annually. With respect to the carbon tax, Sweden, Switzerland, and
France have introduced, or are going to introduce, a carbon tax at a rate that is 10 times higher than
the one set at the time of its initial introduction. The “visualisation” of these prices is understood to
be a policy that is likely to be welcome by businesses because it eliminates long-term
uncertainties. Environmental taxes have been designed to maximise the positive effect on both the
environment and the economy in Europe, with Denmark and Sweden reporting remarkable success
in decoupling that reduces CO2 emissions while expanding the economy. Japan should also strive
to realise sustainable growth through the greening of its tax system. Policy recommendation which
is based on the other countries’ experiences is summarised in section 4.3 (energy taxes including
carbon tax) and 5.3 (vehicle taxes) in this paper.
In addition to energy and vehicle taxes, other countries have introduced a wide variety of taxes in
order to combat pollution and protect resources. All of these taxes are intended to contribute to the
building of a “low-carbon society”, a “sound material-cycle society”, a “society in harmony with
nature”, and a “safe and secure society”, which were held up in the Fourth Basic Environment Plan
3
4
Converted at 1L=2.32kgCO2
Converted at 1 mile=1.60934km
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Latest Trends in the Greening of Tax Systems in Japan, Europe, North America and Australia,
and Their Implications for Japan
NAITO and MOTOKI
in Japan. While regional governments in Japan have actively introduced forest conservation taxes,
industrial waste taxes and so on, there are many more environmental taxes that are yet to be
introduced in Japan. They include a Freon tax, a water abstraction tax, a groundwater tax, a
packaging tax, a waste water tax, a tax on noise, and a fishing license tax, to name a few.
With the adoption of the Paris Agreement and the Sustainable Development Goals, now is the time
for Japan to mobilise every available measure to tackle the significant reduction of CO2 emissions
and to achieve sustainable growth towards 2030, 2050, and beyond. We will continue to
investigate the various means available to promote the greening of tax systems in Japan while
keeping one eye on the approaches taken by other countries around the world.
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EEA (2015) Monitoring CO2 emissions from passenger cars and vans in 2014.
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Government of Japan (2015) Outline of Tax Reform in 2016. (in Japanese)
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