Production of electricity often comes with environmental problems such as air pollution or climate change issues. Economic theory suggests that these problems are generated because environmental issues are outside of markets. In other words, governments can solve environmental issues by internalizing them into markets. In the context of climate change, regulators can solve the issue by putting a price on carbon emissions, i.e. carbon pricing.

There are two ways of implementing carbon pricing. First, by putting tax on carbon emission, regulators can reduce carbon dioxide emissions in an efficient way. This is known as carbon tax. After the first introduction in Finland, many countries adopted carbon tax including emerging economies such as Mexico or South Africa. Alternatively, governments can reduce carbon emissions in an efficient way by creating a market of carbon, i.e. emission trading scheme (ETS). European Union has adopted EUETS as the first and the largest ETS of carbon emission. Now, China started to implement ETS at the national level as well. In Japan, Tokyo and Saitama have implemented ETS, but not at the national level. Using a facility level data, I conduct an empirical analysis of these ETSs in Tokyo and Saitama to see if these ETSs really reduced CO₂ emissions.

Though carbon pricing is an efficient policy tool, it generates burden on various stakeholders. Thus, carbon pricing induces the equity issue. One of my research topic is how to balance the equity and the efficiency under carbon pricing.

Recently, a new perspective of carbon pricing, known as Ågdouble dividend is gaining attention. Carbon pricing can reduce carbon emission, which is the first dividend. If the government use the tax revenue to reduce distortionary tax such as corporate tax or labor tax, the government can stimulate economic activities. For example, if they can reduce corporate tax by recycling the carbon tax revenue, they can induce investment by firms, which can lead to economic growth. In this way, we can achieve both the reduction of environmental impacts and economic growth. In fact, northern European countries, Germany and British Colombia in Canada adopted this concept and realized the double dividend. In my research, I examine if the doubled dividend can be applied to Japanese economy.

Moreover, I discuss the problem of existing fuel tax systems and the necessary reform. The lecture will give you a comprehensive review of carbon pricing and the cutting edge knowledge of the related research.