Impact of the Saitama Prefecture Target-Setting Emissions Trading Program on the adoption of low-carbon technology

This paper investigates the impacts of the Target-Setting Emissions Trading (TSET) Program launched by Saitama Prefecture in Japan in 2011 on the adoption of low-carbon technology. Using facility-level data on the manufacturing sector, the causal relationship between implementation of the program and investment in high-efficiency equipment is estimated. The results show that the TSET Program promoted the adoption of high-efficiency machines and devices for the first three years of the second compliance period, whereas the program did not spur investments in high-efficiency equipment during the first compliance period. These results suggest that the manufacturing facilities may have adopted relatively cheaper emissions reduction plans in the first compliance period such as improvements to equipment they already owned, whereas in the second compliance period, when the emissions targets became stricter, they allocated money and resources to introduce high-efficiency equipment. These findings indicate that the TSET Program succeeded in encouraging emissions reduction efforts by facilities in the manufacturing sector covered by the scheme, even though the program lacks penalties for noncompliance.