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A Carrot without a Stick? The impact of a voluntary cap-and-trade system on economic performance inside manufacturing plants: Evidence from the Japanese ETS

Author

Listed:
  • Aline MORTHA
  • Toshi H. ARIMURA

Abstract

Characterized by higher political acceptability, voluntary environmental policies are becoming increasingly popular, but their effect on economic activity is unclear. In this research, we evaluated the impact of a voluntary cap-and-trade system on the economic performance of manufacturing plants, analyzing the case of the Japanese Saitama ETS (SETS), implemented in 2011. This policy was implemented more than a decade ago, but little is known about its economic impact. We utilize a rich dataset containing data from Japanese plants from 2004 to 2019 and estimate the average treatment effect of the policy using DiD and PSM methods. Our results showed that SETS had a positive effect on value added, estimated between 6.07% to 27.92%, compared with non-targeted plants. This policy also had a positive impact on employment, as wages are shown to increase by 3.66%, along with increased labor productivity (5.26%) of similar magnitude. The positive effects of the policy are mostly experienced by plants in non-energy-intensive sectors, as well as plants belonging to SMEs. The policy also did not affect the plants’ competitiveness, as increases in total costs are compensated by higher revenue.

Suggested Citation

  • Aline MORTHA & Toshi H. ARIMURA, 2026. "A Carrot without a Stick? The impact of a voluntary cap-and-trade system on economic performance inside manufacturing plants: Evidence from the Japanese ETS," Discussion papers 26048, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:26048
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    References listed on IDEAS

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