Effect of Technology Change on CO2Emissions in Japan’s Industrial Sectors in the Period 1995–2005: An Input–Output Structural Decomposition Analysis

Abstract

This paper employs two-stage input–output structural decomposition analysis (SDA) to identify the factors responsible for changes in Japan’s CO2 emissions for two periods: 1995–2000 and 2000–2005. First, the study decomposes the total change in CO2 emissions for each period to obtain the contribution of change in CO2 emissions per unit output $$(\hbox {CO}_{2}$$(CO2 emissions coefficient), change in technology (technology effect), and change in final demand. The study observed from the first-stage decomposition that emissions coefficient and final demand drive the change in the first period (1995–2000) while the technology effect drives the change in the second period (2000–2005). The high contribution of the technology effect is driven by activities of iron and steel; coke, refined petroleum and gas; road transportation; and electricity sectors. Having observed the trend of the technology effect across the two periods, the study carried out a second-stage decomposition on technology effect in the second period to examine the contribution of each sector and observed that chemical and pharmaceuticals; iron and steel; road transportation; and construction sectors are mainly responsible. In conclusion, improvement in technical efficiency especially at the industrial process level of each industry will help Japan achieve greater level of CO2 emissions reduction.