Assessment of Decarbonization Pathways of Japan

Abstract: Developing realistic pathways for decarbonization is crucial for the success of climate
change mitigation actions. To evaluate Japan’s pathways toward achieving carbon neutrality,
this study enhances the MIT Economic Projection and Policy Analysis (EPPA) model and
analyzes a suite of policy scenarios that combine domestic mitigation measures such as
emissions targets from the updated Japan’s Nationally Determined Contribution (NDC),
power mix goals, and availability of carbon capture and storage (CCS) with international
emissions trading. The impacts on CO2 emissions, GDP, consumption, carbon prices, and
sectoral output in Japan between 2030 and 2050 are assessed.

Under the baseline scenario, emissions over time remain flat at about 1,000 MtCO2e,
far exceeding the carbon neutrality goal. Even when Japan’s 2030 and 2040 NDC for CO2
and power mix targets are fully achieved, residual emissions of 100 – 200 MtCO2e remain,
which calls for a need of carbon offsets. Relying on domestic-only measures is costly for
Japan. In high-ambition domestic-only scenarios without CCS, carbon prices soar to over
$46,000/tCO2 by 2050, leading to GDP losses exceeding $1.5 trillion (23% of GDP) and
significant contractions in key sectors of the economy.

In contrast, scenarios incorporating international emissions trading enable Japan to
achieve comparable total emissions reductions by partially relying on imported carbon credits.
This mechanism significantly lowers marginal abatement costs, allowing carbon prices to
stabilize at $20 –$30/tCO2 and reducing GDP losses to about $100 billion (1.6% of GDP) by
2050.

Scenarios that emphasize domestic reductions while flexibly using international credits
emerge as manageable pathways. These scenarios achieve domestic emissions reductions
of 40 – 60% by 2050, with carbon prices ranging from $140 to $340/tCO2 and GDP losses
contained between $150 and $290 billion (2.3% and 4.3% of GDP). Importantly, these
scenarios incorporate the deployment of CCS, which plays a critical role in reducing marginal
costs and enabling deeper abatement in hard-to-decarbonize sectors. Most industrial sectors
maintain stable output, while carbon-intensive sectors undergo gradual structural transitions.

Overall, these findings suggest that Japan can achieve carbon neutrality through an
integrated strategy that combines strengthened domestic action, technological deployment,
and international cooperation. This study provides a robust quantitative foundation for
designing feasible, equitable, and cost-effective climate policies.