Wrong time, wrong direction for gas tax cut in Japan

AllAfrica

14 hours ago

Japan stands at a critical crossroads in its climate policy. While the world accelerates toward electric vehicle (EV) adoption to combat the climate crisis, seven opposition parties—including the Constitutional Democratic Party, Japan Innovation Party, and Democratic Party for the People—have submitted a bill to abolish the provisional gasoline tax rate.
If enacted, this legislation would not only reverse Japan's climate progress but also cast doubt on the nation's commitment to the Paris Agreement.
The proposed abolition represents a fundamental misunderstanding of what Japan needs to achieve its climate goals. Instead of reducing taxes on fossil fuels, Japan should be gradually strengthening its gasoline tax and using the revenue to accelerate the transition to EVs. This approach represents the only realistic path toward a decarbonized society.
Japan currently imposes a tax of 53.8 yen (36 US cents) per liter on gasoline (including the volatile oil tax), but this level remains merely moderate among OECD countries and falls far short of European nations that have implemented comprehensive carbon pricing policies.
To accelerate decarbonization, Japan should gradually increase its gasoline tax to 80 yen per liter and strategically invest the revenue in renewable energy and EV infrastructure.
With Japan's annual gasoline consumption estimated at approximately 44.6 billion liters, a 26.2 yen increase would theoretically generate about 1.17 trillion yen ($7.9 billion) in additional revenue annually.
Even accounting for reduced demand, this could yield 800-900 billion yen in new funding for climate initiatives. This revenue should be redistributed across four key areas:
Enhanced EV Purchase Support: Increase current new car subsidies from 900,000 yen to 1.5 million yen, while expanding support to used EVs and corporate fleet renewals.
Charging Infrastructure Expansion: Accelerate nationwide deployment by establishing 30,000 rapid charging stations by 2030, with 150 billion yen allocated specifically for addressing charging deserts in rural areas.
Power Grid Decarbonization: Maximize the environmental value of EV adoption by supporting 100% renewable energy for EV charging and promoting residential solar-plus-storage systems.
Just Transition Support: Address public concerns about price increases through burden reduction measures for low-income households and rural residents, plus electrification support for the transport industry.
The environmental impact is clear. Japan's greenhouse gas emissions total 1.135 billion tons (CO2 equivalent), with the transport sector accounting for 192 million tons (20%).
Automobiles represent 85.7% of transport emissions, meaning about 17% of Japan's total CO2 emissions come from vehicles. As the world's fifth-largest CO2 emitter, Japan's action in this sector directly impacts global climate crisis mitigation.
A 26.2 yen tax increase would send a clear price signal and could potentially reduce transport sector CO2 emissions by 2% annually (approximately 2.2 million tons)—a level consistent with international carbon tax effectiveness studies.
Japan's gasoline tax burden ranks 29th among 35 OECD countries, with a tax rate of 41.5%—significantly lower than European leaders: Netherlands: 58.4% (1st)
Italy: 58.2% (2nd)
Ireland: 57.3% (3rd)
Germany: 57.2% (5th)
Japan: 41.5% (29th)
United States: 15.5% (35th)
European countries consistently exceed 50% tax rates, prioritizing environmental and fiscal policy through fuel taxation. Abolishing the provisional rate would cost Japan approximately 1.25-1.5 trillion yen annually in lost revenue—equivalent to 2% of general account tax revenue—while other nations strengthen their climate policies.
Beyond climate concerns, gasoline tax reduction would undermine Japan's automotive industry competitiveness:
Global EV Acceleration: The EU plans to ban gasoline and diesel car sales by 2035, China achieved 37% EV market share for new registrations in 2023 and the US Inflation Reduction Act provides up to $7,500 in EV tax credits.
Competitive Risk: Reducing gasoline taxes would diminish consumer incentives for fuel efficiency and EV adoption, allowing Chinese manufacturers like BYD—already among the world's largest EV producers—to further extend their global market leadership.
Strategic Necessity: Gradually increasing gasoline taxes while expanding EV support would accelerate domestic market electrification, strengthen Japan's industrial base, and maintain technological competitiveness essential for global market success.
Rather than viewing gasoline tax as merely a revenue source, Japan should position it as the cornerstone of carbon pricing policy, creating a virtuous cycle of climate action and economic investment.
European countries with 50-60% gasoline tax rates demonstrate how fuel taxation can effectively drive decarbonization.
Japan must embrace a comprehensive approach: raise gasoline taxes to encourage behavioral change and invest the revenue in next-generation social infrastructure. This taxation-and-reinvestment package represents the foundation for genuine Green Transformation (GX).
Abolishing gasoline taxes would create dual risks: climate crisis acceleration and automotive industry competitiveness decline. If Japan is serious about achieving Paris Agreement goals, policies that break fossil fuel dependence are essential.
The time has come for courageous decisions that ensure a sustainable society for future generations. The choice is clear: Japan can either retreat into short-term populism or advance toward long-term sustainability.
The world is watching, and history will judge accordingly.
Yoneyuki Sugita holds a PhD in US diplomatic history and has previously served as executive director of strategic relationships at Temple University Japan, a senior trade policy advisor at the UK Embassy in Tokyo and professor at Osaka University.