Economic Impact of CO2 Emissions and Carbon Tax in Electric Vehicle Society in Toyohashi City in Japan

Abstract

In this paper, we explore the economic impact of promotion and realization of an electric vehicle society (EVS) in Toyohashi City in Japan. More concretely, this paper emphasizes a computable general equilibrium (CGE) modeling approach to evaluate the following issues: economic impacts of subsidies for the promotion of an EVS, economic impacts of carbon tax in order to reduce CO2 emissions, a change of industrial structure toward an EVS, and modal shift toward an EVS. Our simulation results demonstrate that after applying 5-25% up subsidies to five industries including electric vehicle (EV) manufacturing, EV transport, solar power, cogeneration, and other transports, the total industrial output and city GDP increase. A large growth rate is found in industries where subsidies are introduced, but a growth can be seen in nonferrous metal industry without subsidies as well due to a repercussion effect. Moreover, it is interesting that decreasing proportions are found in coal and petroleum, mining, heat supply, and gasoline vehicle (GV) transport industries. However, an increase in the total CO2 emission in Toyohashi City is interpreted as a rebound effect. All the commodity prices decrease since subsidies are given to some industries. Hence, Toyohashi City's economy shows a direction where the demands for conventional vehicles and energy use are decreasing; conversely, the demands for EVs and renewable energy are increasing illustrating a different lifestyle from the current one. Regarding CO2 emissions, we introduced a carbon tax of 1000 yen/t-CO2 for industries except the five industries mentioned above. As a result, the total CO2 emission decreases, and the equivalent variation shows a positive value as compared with the base case. Thus, introducing 5-25% subsidies and the carbon tax can really represent a realistic alternative society to EVS in Toyohashi City.