This paper examines the long-run relationship between energy demand, GNP and the real energy price in Japan using data covering 1887-2001. It is found that, if an Underlying Energy Demand Trend is appropriately incorporated, the resulting econometric model produces a long-run income elasticity of about unity and a long-run price elasticity of about-0.2. The estimated model is utilised to forecast energy consumption and CO2 emissions up to 2012. It is shown that given current economic conditions and policies there is considerable uncertainty about whether Japan will be able to meet its Kyoto target by reducing CO2 emissions in 2008-2012 to the 1990 level. It is shown that this uncertainty depends on the strength of the economy and leaves the Japanese government with a difficult policy dilemma. If there is a resurgence in growth to something near the annual average growth rate since the early 1980s a considerable effort will be required in order to meet its Kyoto target; requiring not only using the Kyoto Mechanisms, but also additional tougher domestic policies and measures such as emissions capping, R&D incentives, and education for energy conservation in addition to a pricing and tax policy.
- CO emissions
- Energy demand