Quantitative Policy Evaluation of the Energy-Conservation Judgement Standards Regulations for Commercial Buildings under the Energy Conservation Act in Japan by Cost-benefit Analysis

Author Name KAINOU Kazunari  (Fellow, RIETI)
Creation Date/NO. October 2007 07-J-042
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One of the measures employed by the Ministry of Land, Infrastructure and Transport and the Ministry of Economy, Trade and Industry to address energy and environmental problems is to lay down, based on the Act Concerning the Rational Use of Energy (Energy Conservation Act), judgement standards for the energy consumption efficiency of buildings within Japan that are either newly built or renovated extensively, and implement regulations that obligate construction firms and others to conform those standards.

Although these standards regulations have not been backed by punitive provisions, conformity with the standards is currently at more than 70%, indicating a considerable degree of success in their implementation. There are problems, however, including the fact that there has been no quantitative measurement of the costs and benefits of the regulations, as there has been only evaluation of aspects such as the ratio of conformity with the standards and quantity of energy saved.

As one means of overcoming these problems, this paper examines buildings in the commercial sector, using official statistics such as Statistics on Building Construction Started and the General Energy Statistics to conduct a longitudinal analysis and the estimation of factors such as the floor areas of commercial-sector buildings classified by industry and use, the quantity of energy consumed, and the estimated outlay for new building work on particular floor areas. By making comparisons of energy-efficiency scenarios according to whether or not the relevant judgement standards regulations are in place, I make a quantitative policy evaluation by conducting a cost-benefit analysis of the judgment standards regulations for buildings under the Energy Conservation Act.

The findings of this cost-benefit analysis and estimation indicate that the costs exceed the benefits derived when the cost-benefit differential for the regulations is converted to present value at a discount rate of 2%-4%, and that as a result of a cost-benefit differential averaging approximately ¥300 billion (at a discount rate of 3%) per year, the new standards regulations brought into force in 1999 are achieving reductions in CO2 emissions of 9.5 Mt-CO2, and the cost-benefit effect is estimated to be approximately ¥32,000/ton CO2. I also make an evaluation after aggregating the second former standards regulations (implemented in 1993) and the new regulations, finding that as a result of a cost-benefit differential averaging approximately ¥80 billion (at a discount rate of 3%) per year, reductions in CO2 emissions of 21.9 Mt-CO2 are being achieved, and the cost-benefit effect is estimated at approximately ¥3,700/ton CO2.

I also conduct sensitivity analyses by changing the premises for these estimations, finding that the cost-benefit effect is stable in relation to changes in the real rate of economic growth. However, I observe that the results with regard to changes in energy prices, in particular as regards ratio assumptions and changes in areas of electric power consumption that are not affected by regulations, such as at-the-plug consumption, are highly unstable. This suggests the need for detailed official research into the energy consumption situation in the commercial sector, and for measures to promote energy conservation measures not only for new and renovated buildings, but also for existing buildings.