image: The figure shows the percentage changes in GDP (dark bars) and CO₂ emissions (light bars) across different regions in Japan under a carbon pricing scenario targeting a 10% national emissions reduction. While emissions decrease in all regions, the economic impacts vary significantly, with most regions experiencing modest GDP losses and a few showing slight gains. These results highlight regional disparities in both mitigation outcomes and economic effects.
Credit: Energy and Climate Management, Tsinghua University Press
As countries accelerate efforts to meet climate targets, carbon pricing has emerged as a key policy tool for reducing emissions. However, its impacts on economic performance and sectoral structure—particularly in the transport sector—remain a subject of ongoing debate. In Japan, where transport plays a vital role in both economic activity and emissions, understanding these impacts is especially important.
To address this issue, Yayue Xiao and Toshi H. Arimura in Waseda University and Shiro Takeda in Kyoto Sangyo University developed a multi-regional computable general equilibrium (CGE) model to assess how carbon pricing would affect Japan’s economy and transport system. The model covers 10 regions and 45 sectors, with a detailed representation of transport activities, including rail, road, water, and air transport, as well as private vehicle use. By incorporating carbon pricing into production and consumption decisions, the model captures how price signals drive changes in economic behavior and transport choices.
The team published their review in Energy and Climate Management on March 23, 2026.
The study provides a clear quantitative benchmark for climate policy. “The results indicate that achieving a 10% national emissions reduction requires a carbon price of approximately 4,153 JPY per ton of CO₂, with a modest aggregate GDP loss,” the authors reported. This finding suggests that meaningful emission reductions can be achieved without substantial economic disruption at the national level.
Beyond aggregate effects, the study reveals important structural changes in the transport sector. As carbon pricing increases the cost of carbon-intensive activities, high-emission modes such as water and air transport experience significant declines, while lower-emission modes—particularly rail—become more competitive. “These results show that carbon pricing not only reduces emissions but also reshapes transport demand. However, the intensity of change depends strongly on each region’s infrastructure and modal baseline,” the authors explained. This highlights how existing infrastructure and regional conditions influence the extent of behavioral adjustment.
The analysis also uncovers notable regional disparities. While all regions achieve emission reductions, the magnitude of economic impacts varies depending on local industrial structures and energy use patterns. Regions with energy-intensive industries tend to reduce more emissions but may face higher adjustment costs. These differences underscore the importance of region-specific policy considerations when implementing carbon pricing.
In addition, the study emphasizes that policy design plays a crucial role in determining overall outcomes. In particular, the way carbon tax revenues are redistributed has significant implications for both efficiency and fairness. “These results underscore the trade-off between equity and efficiency in carbon tax revenue allocation,” the authors noted. Carefully designed revenue recycling mechanisms can help mitigate regional inequalities while maintaining economic efficiency.
Looking ahead, the researchers stress that addressing regional disparities will be key to policy success. “Balancing regional disparities is crucial for policy effectiveness,” they concluded. This suggests that future climate policies should combine carbon pricing with complementary measures—such as infrastructure investment and targeted regional support—to ensure a smoother and more equitable transition.
The team expects that their findings will provide valuable insights for policymakers seeking to design carbon pricing strategies that achieve emission reductions while maintaining economic stability and regional balance.
This work was supported by Waseda University Grant for Special Research Project (project number: 2025C-008).
About the Authors
Yayue Xiao is a PhD student in the five-year PhD programme in Economics at Waseda University. She is also a research associate at the Faculty of Political Science and Economics and a research fellow at the Research Institute for Environmental Economics and Management, Waseda University. Her research interests include energy economics, environmental economics and industrial ecology. Her research focuses on understanding the economic impacts of climate change mitigation policies. Her goal is to address the challenges of human-induced climate change by improving the design and effectiveness of climate change mitigation policies. She aims to contribute to policy design that balances environmental sustainability with economic growth and social equity. Homepage: https://www.waseda.jp/fpse/faculty/2025/04/18/2974/.
Journal
Energy and Climate Management
Article Title
Evaluating the impacts of carbon pricing on transport in Japan: A computable general equilibrium analysis
Article Publication Date
23-Mar-2026