Collaboration between Japan and China for Reducing CO2 emissions: An Analysis based on World-Wide Dynamic CGE Model

The 15th Conference of the Parties (COP15) took note of the Copenhagen Accord inDecember 2009, in which each country was requested to provide her target of reductionin greenhouse gas emissions for 2020 to the United Nations Framework Convention onClimate Change (UNFCC). Japanese Government was committed to a target of 25%reduction below 1990 by 2020. Some people are skeptical about the target. They areconcerned about competitiveness of Japanese industries. In the first part of this paper, we evaluate the impact of targets for 2020 on both theworld economy by using the world-wide dynamic CGE model. According to thesimulation, we find the following results. (1). If major countries including China keep their commitment, world CO2 emissionswill decrease by 3.6 % in 2020. Rate of carbon leakage is estimated to be 9.9%.On the other hand, if China does not kept her commitment, world CO2 emissionsdecreased by 3.4% and rate of carbon leakage is estimated to be 14.5%. It impliesthat China will take an important role in the Copenhagen Accord. (2). The impacts of Copenhagen Accord on GDP are -1.4% in Japan, -0.3% in US and EU,while it is 0.3% in China. (3). In the case of Japan, output of steel and iron industry decrease by 11%, while thatof machinery and transportation is small, and exports increase. Moreover, if thegovernment cut capital income tax by using the revenue of emission trade, GDPloss will become moderate by -0.6%. In the second part of this paper, we evaluate the impact of bilateral credit schemebetween Japan and China. In the simulation, Japan is supposed to reduce CO2emissions by 15% by 2020 domestically and to buy remaining permit of emissions fromChina by using bilateral credit scheme. According to the simulation, GDP loss in Japanis estimated to be -0.3%, while GDP gain in China is estimated to be 0.3%. It impliesthat GDP loss in Japan will reduce from -0.6% to -0.3%, even though Japan keep hercommitment of 25% reduction.