This commentary is part of Energy Rewired, a project from the CSIS Energy Security and Climate Change Program studying the industrial strategies of major economies for the energy transition. The

This commentary is part of Energy Rewired, a project from the CSIS Energy Security and Climate Change Program studying the industrial strategies of major economies for the energy transition. The

Carbon border adjustments confront the trade and climate nexus with two primary policy paths: a race to the bottom or a virtuous circle. A race to the bottom scenario occurs when countries abandon

Democrats in Congress may have to shrink the size of the proposed spending package, the Build Back Better Act, to get the Senate votes necessary to pass it under budget reconciliation. The Washington

Soil carbon sequestration has gained traction within the Biden administration as a way for farmers to reduce or even reverse U.S. agriculture’s greenhouse gas (GHG) emissions. To advance this

After a decade of planning and trials, China officially launched a national carbon trading market last week. Called the national emissions trading scheme (ETS), it initially targets carbon emissions

Download the Brief The Issue This brief is the sixth and final in a series on achieving net-zero global greenhouse gas emissions by 2050. The CSIS Energy Security and Climate Change Program hosted

Japan became the latest major economy to publicly announce it aims to achieve economy-wide carbon neutrality by 2050, a goal made during the Japanese version of the U.S. State of the Union by newly minted prime minister Suga Yoshihide on October 26. Previously committing itself to an 80 percent reduction in its greenhouse gas emissions by 2050, Japan updated its target. The commitment necessitates an ambitious pace and scope of transformation in the country’s energy and industrial structures. The country’s power sector, which depends on fossil fuels for over 70 percent of supply, is the leading source of carbon dioxide (CO2) emissions by Japan today. Despite achieving a 24 percent reduction in CO2 emissions between 2013 and 2018, the sector remains responsible for about half of the country’s CO2 emissions, followed by the transportation sector (19 percent), the industrial sector (18 percent), and the commercial and residential sector (10 percent). How much and how quickly the country can transform the power supply mix is, therefore, crucial for Japan’s success in meeting the net zero emissions by 2050. The new pledge also necessitates a broader buy-in from the business community beyond the power sector. For example, between 2013 and 2018, carbon emissions by Japan’s industrial sector reduced 8 percent, while those by the transportation sector reduced 15 percent. There clearly is a long way to go, but there is a foundation to build upon. Under the auspices of the Japan Business Federation (Keidanren), over 100 private companies and business associations from the industrial, commercial, transportation, and energy sectors have developed or adopted low-carbon action plans through 2030. These plans generally seek to maximize the use of best available technologies as well as expand renewable energy and energy efficiency measures, not only along the manufacturing process, but also in business operation. Furthermore, the Japan Climate Leaders’ Partnership—a coalition of over 150 companies—has been calling for greater adoption of a 2050 carbon neutrality pledge in the corporate world by promoting global initiatives like RE100 within Japan. Japanese companies with a 2050 net-zero pledge include JERA, Kawasaki Heavy Industries, and Toyota. In particular, success by JERA, which is the largest electric power generating company in Japan and the largest company that imports liquefied natural gas in the world, would have a significant effect on the national success. Meanwhile, a few others with a 2050 goal have a reduction target at 80 percent, presumably to conform to the earlier commitment by the Japanese government. Notably, associations from some carbon intensive sectors, such as steel and cement making, also have developed detailed long-term carbon reduction pathways even if they lack a specific zero-carbon commitment. The national pledge will likely compel many to update their existing carbon reduction action plans and strategies. In his speech, Prime Minister Suga stressed the role of innovation in enabling such a transformation and called for Japan to emerge as a leader in the global clean energy industry. Carbon neutrality goals present a set of economic, political, and societal challenges to any country. So the right question is not whether Japan will be able to deliver on its commitment by 2050, but how widely the vision can garner the public support as the pledge urges a diverse set of stakeholders to reimagine the future of its economy in unison. Japan has begun formulating its triennial Basic Energy Plan, due out in 2021. Under the existing plan, issued in 2018, natural gas and coal would account for 63 percent of the country’s electricity supply in 2030, followed by renewables for 22-24 percent, and nuclear energy for 20-22 percent. According to the latest study by the Institute of Energy Economics, Japan, the country’s CO2 emissions from the electricity sector under the reference scenario (which generally comports to the existing energy plan) will decrease from about 1,080 million tons (mt) today, to 940 mt in 2030, and to 738 mt in 2050. Interestingly, under the report’s advanced technologies scenario, the country can further reduce the emissions level to 483 mt in 2050 if the share of fossil fuel-based power supply decreases from 73 percent today to 16 percent in 2050 and if the shares of solar and wind grow, respectively, from 6 percent to 18 percent (3.4 percent annually) and from 0.7 percent to 20 percent (10.7 percent annually). The share of nuclear energy will also need to rise from 6.2 percent today to 22 percent in 2050. The carbon neutrality vision clearly demands a substantial revision of the current outlook. The zero-emissions pledge will likely propel the new Basic Energy Plan to double down on renewables and energy efficiency while also promoting hydrogen and carbon capture and recycle technologies. Beyond that, how extensively the country’s coal policy will be revised, as noted in the prime minister’s speech, and whether the urgency of decarbonization can help the government overcome lingering opposition to nuclear energy are some of the questions that warrant close attention. Additionally, how much the carbon neutrality pledge can mobilize needed investment in low-emission technology development and deployment, and how the climate commitment may affect Japan’s resource diplomacy, which has traditionally valued strong ties with countries with hydrocarbon resource wealth, remains to be seen. Jane Nakano is a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C. Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s). © 2020 by the Center for Strategic and International Studies. All rights reserved.

The European Green Deal is many things, but the one proposal that most animates outsiders, especially in the United States, is the idea of implementing a carbon border adjustment mechanism, which is basically a tax on imported goods based on their carbon content. On its surface, the proposition is reasonable: if Europe decarbonizes faster than other countries, it should not impose undue costs on domestic producers that exporters to Europe do not bear. The carbon border adjustment mechanism avoids that problem by taking into account the carbon intensity of goods sold into the European Union. But the proposal can create as many problems as it solves—depending on how it is implemented. The Why and How of Carbon Border Adjustments The mechanism is a response to “carbon leakage.” A carbon price imposes costs, and if foreign suppliers do not bear these costs, they will gain an advantage. Over time, production will shift to jurisdictions that do not impose this tax, and the country that imposed the measure in the first place will have punished its industry while doing little to limit (global) emissions. The solution to this problem, so far, has been to exempt industry from having to pay these costs by allocating emission rights to them for free. Now Europe wants to impose a cost on imported goods to offset whatever advantage they might have. In practice, there is mixed evidence of carbon leakage. Several Western countries have gone through a form of deindustrialization, but it is hard to say whether this has been due to energy costs or other factors. In Europe, moreover, heavy industry has received allowances to emit for free, shielding it from carbon costs. How can carbon leakage be measured if heavy industry is not exposed to its full effects? We also know that energy is a significant cost driver for only a few industries; like earlier concerns about environmental dumping, which never truly materialized, this might be a threat that exists mostly in theory, not practice. The mechanics of implementing a carbon border adjustment are complex as well—so complex in fact that one must wonder if this could happen at all. There are, at the core, four questions. First, what industries to cover, on what basis, and how far upstream should the system go? Second, what is the best way to measure emissions and verify the numbers? Third, how should the carbon border adjustment relate to other carbon costs—say the European Emissions Trading Scheme that already exists, or whatever carbon price a foreign producer might have paid already. And fourth, under what mechanism would such measure be implemented, can the system be made compatible with existing obligations under the World Trade Organization and existing EU powers, or will implementation depend on new rules? This is a policy, therefore, that tries to solve a problem that might not be a problem, and it is cumbersome and complicated to implement—so much so that it is unclear if such a measure could ever work in practice. Is it possible that trying to implement this measure leads to cross-border conflict and serves as a distraction from other, more collaborative policy measures? It all depends on how the measure is designed and implemented. What Are the Benefits? The most important reason to impose a carbon border adjustment mechanism is to secure the buy-in of local industry for deeper decarbonization policies. It is hard for any country to agree on aggressive targets, and it is harder to do so when powerful constituencies—people with money and connections and companies that employ a lot of people—are fighting against these measures. Regardless of how much carbon leakage exists in practice, powerful people see it as a problem. Offering a solution to that problem might help garner support or, at least, lessen opposition. Read that way, a carbon border adjustment mechanism is helpful because it enables a country to be more ambitious—regardless of what other countries do and how they respond. And if the country in question is big enough, efforts by industry to decarbonize might help develop new practices and technologies that might be useful to other countries as well. The second benefit is to develop some infrastructure that might be needed down the line. One can imagine a future where the carbon content of a good really matters—where consumers want to know whether more or less carbon was emitted in the production of one good over another, or whether governments taxed carbon emissions even if those emissions originated in a foreign country. Doing these things will depend on a complex ecosystem: rules on what to measure and how; processes for real-time and independent verification; and an apparatus to ensure compliance, avoid double counting, and check whether the rules are achieving their intended purpose. This infrastructure exists, to an extent, within different countries, but an effort to harmonize standards across countries would be essential. The carbon border adjustment mechanism is a vehicle to accelerate that conversation—even if the end goal is years away and has to overcome serious practical obstacles along the way. The third benefit, in theory at least, is that this tax will induce companies to adopt lower-carbon technologies in order to access or be more competitive in a market where the carbon intensity of a good matters for the bottom line. Whether this happens in practice, however, depends on two factors: how many countries sign up, and how ambitious the measure ends up being. The Price Must Be Right If Europe implements a carbon border adjustment mechanism alone, it becomes a low-carbon island. Exporters who are competitive in that environment will keep exporting to Europe, and others will sell their goods elsewhere. If more countries join—the United States and Japan, for example—the island now encompasses a significant share of the world economy, and suddenly, companies have greater incentive to invest in low-carbon technologies to be able to sell into that big market. Eventually, as more countries join, the world effectively adopts a version of a global price on carbon. How this evolves, however, depends on the level of ambition that countries in the “club” have. If the ambition is high, the cost on carbon is likely to be high as well, and it is entirely possible to see a world where a carbon border adjustment becomes a major barrier that basically penalizes poorer countries that generate more of their energy from fossil fuels. If the ambition is very low, by contrast, the measure ends up being a modest cost passed on to consumers, with little impetus to accelerate the development of low-carbon alternatives. There exists, in other words, a sweet spot. Set the carbon price too high and you splinter the world trading system—one world becomes low carbon, another becomes high carbon, with limited trade between them. Set the price too low and it becomes a modest cost that is absorbed into final prices without much decarbonization impact. The price, therefore, must be just right: it should allow the most technologically advanced firms in emerging economies to be competitive and incentivize the rest to invest in lower-carbon approaches. Otherwise, whatever gains are made inside the low-carbon bloc will be offset by what happens outside of it. Nikos Tsafos is a senior fellow with the Energy and National Security Program at the Center for Strategic and International Studies in Washington, D.C. Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s). © 2020 by the Center for Strategic and International Studies. All rights reserved.

在每隔一段时间的简短交谈中，CSIS执行董事Philips J.Vermonte说了一些让我们研究人员笑到最后的话。他说：“我们就像蜡烛。他的工作是在黑暗中照亮周围，但我们自己的身体正在燃烧！”这是一个笑话，反映了智库和学术界在公共话语中的普遍地位。他们在智力上很重要，但往往处于不利地位。许多人一致认为，为了获得对社会发展和福祉有益的发现，研究在决策中的地位不能降低。一个经常被强调的理想情况是数据驱动的政策制定。最近，一个流行的概念与数据的开头不同，它是经济中的新石油。太喜欢行话的人民和政府将对最新的概念感到兴奋。但实施是另一场戏剧。