Twentieth Conference on Global Environmental Issues,
"A Proposal for the Century of the Environment:
How Corporations Should Approach Environmental Issues"

At the above conference, held on March 31, 1995, in hall No. 3 of the Japan Bicycle Conference Hall, Tadahiro Mitsuhashi, Senior Chief Editorial Writer at the Nihon Keizai Shimbun, Inc. delivered an address titled, "A Proposal for the Century of the Environment: How Corporations Should Approach Environmental Issues." Below is a transcript of this address.

1. Why Nihon Keizai Shimbun's Editorials Have Dealt with Environmental Issue

This year marks the 50th anniversary of the end of World War II, a juncture in history. Last autumn, the staff of Nihon Keizai Shimbun began discussing what kind of editorials to write concerning this juncture in Japan's history. After much debate, we concluded that the other major newspapers would most likely see the 50th anniversary of the War's end as a time to editorialize -- in general terms -- about what Japan should do over the next 50 or 100 years. And as we expected, most of these newspapers' New Year's Day editorials dealt with what Japan should do or how the Japanese should change from now on.

In contrast, our emphasis was on the question, What issues will become more and more newsworthy over the next 50 to 100 years? Many issues were cited, such as new relations between Japan and the U.S., Japan's role in Asia, and the aging of society. While each of these issues is extremely important in the context of Japan, we concluded that the issue that will become more and more important to every nation as the years go by is the environment. We then decided that, as it would be meaningless to deal with the issue on a one-time basis, we would launch an environmental campaign on a scale never before attempted on our pages. We felt that roughly 30 days of editorials on the environment would have a considerable impact on our readership in terms of how our newspaper views environmental issues and what it sees occurring in the 21st century.

From the perspective of human history, the 20th century has been a century of unprecedented economic development, and a century of the pursuit of material affluence through science and technology and the economic systems of mass production and mass consumption, particularly in recent years. This pursuit has achieved material affluence, but at a considerable price. In this respect, the 20th century has also been a century of environmental degradation, and to reflect this awareness, and our belief that the 21st century must be a century of repairing this environmental damage, we titled these editorials "A Proposal for the Century of the Environment." By "the century of the environment," we mean a century for repairing the damage that has been done to the global environment.

Before this, environmental issues had been written about by only two or three of the 30 editorial writers covering science, technology, and energy-related issues. In planning this series, however, we decided to involve as many editorial writers as possible so that the "Century of the Environment" campaign would involve the entire editorial staff. What we came to realize very acutely is that environmental issues are no longer the domain of a handful of specialists, but instead are issues that directly affect a wide range of people.

For an entire year last year, I was involved in drafting the Basic Plan for the Environment as a member of Central Council for Environment. What I found very distressing then was the lack of resolve toward environmental issues on the part of the representatives of industry. Although they demonstrated an understanding of the need for environmental measures, when it came to the adoption of economic measures, they seemed not to want us to write anything too concrete. I felt, however, that if the environment is something that we can ignore no longer, then procrastination and an evasive stance toward specific countermeasures would have a negative impact on Japanese industry.

Regarding corporate development, the private sector has, in response to the recession, repeatedly restructured and made daring innovations to survive. But such innovation does not occur when business is good. Environmental measures may represent higher costs to corporations, but in order to survive in the 21st century they must adopt a determined stance toward environmental issues.

Nihon Keizai Shimbun has grown along with Japan's corporations, yet today is discussing environmental issues head-on and in what is for the private sector a very harsh tone. This is because we believe that in the long run such a stance is in the private sector's best interest, and because current worldwide trends also suggest that corporate policies that ignore the environment will have a negative effect on the private sector.

Although many corporations expressed their bewilderment when we first began this series, today these same corporations are praising our project in positive terms, leaving us with the impression that taking up this issue was the right decision.

2. "Tax Breaks for the Good and Tax Hikes for the Bad"

Next I would like to discuss a proposal that we hope to bring to the public's attention in this series of editorials. The proposal we have conceived we refer to as "tax breaks for the good and tax hikes for the bad." This basically entails minimizing taxes on desirable behavior and taxing those activities that negatively affect the world or the environment.

The taxes that corporations and individuals pay are used for public projects, and paying taxes increases social capital. However, as tax rates rises, people begin to resent having to pay these higher taxes, even though they understand why these taxes are necessary. Therefore, our proposal is to raise taxes on undesirable behavior and lower taxes on income from working and on corporate income earned through unobjectionable business activities, for instance, so that total tax reductions are offset by corresponding tax hikes, for a net change of zero. This would be an effective means of incorporating environmental issues into the market economy. In retrospect, we see that various forms of pollution have occurred because the cost of environmental damage was not included in the market. This is said to be a failure of the market. Our proposal would be a concrete means of incorporating environmental costs into the market economy. For instance, activities that generated carbon dioxide and toxic waste would be taxed. Such tax hikes alone, however, would generate resentment among individuals and the business community, and so any increase in taxes on "bad" activities would be offset by an equal amount of tax reductions for "good" activities, resulting in zero net change.

We have estimated what effect a hypothetical carbon tax would have. Last year Japan's CO₂emissions totaled roughly 330 million tons. Let us see how high the carbon tax would have to be in order to keep CO₂emissions at this level for the next 10 years. Because a high initial tax would have too serious an impact on corporate operations, the tax would be set at 1,000 yen per ton (equivalent in oil) for the first year, 1995, and increased slightly over the next 10 years to 7,800 yen per ton by 2004. This would generate 2.6 trillion yen in tax revenues, which would be applied in entirety to reductions in corporate taxes, thereby ensuring a rate of economic growth that is nearly the same as it would be without the tax. We had assumed a price of oil of 23 to 24 dollars per barrel, but this has since risen to about 29 dollars. Until now, carbon tax has been debated as a tax increase, with the conclusion being that its one-sided assessment would be too disruptive to industry. However, industry should be able to handle the carbon tax if there were no net tax increase.

The Environment Agency, for instance, is of the opinion that a carbon tax should be treated as an object tax, but experience has taught that an object tax often remains in place even after the original objective has been achieved. A typical example is the gasoline tax, which was introduced after the War in order to finance road construction. Kept separate from the general account, this tax was used to construct what today is a substantially improved network of roads. Because the tax continues to be collected, however, even roads that are not needed end up getting built. Thus, once an object tax is created, it becomes entrenched in the bureaucratic departments that are put in charge of it. These departments fights to keep the tax, creating the potential of its wasteful or ineffective use. It must therefore be made clear that the objective of a carbon tax and other environmental taxes is to encourage structural changes in industry, to create an economic structure that conserves energy and resources, not to raise tax revenues.

At the level of the average person's daily life, the concept of tax breaks for the good and tax hikes for the bad could conceivably entail fees for garbage collecting. According to our theory, not only should fees be charged, but these fees should be high enough to reduce the amount of garbage generated. This is because too low a fee would reduce the incentive to conserve and to sort garbage by type.

Japan's tax system, however, is centralized. The fixed assets tax, for instance, is a local tax, but its rate of taxation is set by the central government. In America, where various countermeasures are funded primarily with fixed assets tax, the local tax revenue generated by fees for garbage collection could be used to lower fixed assets tax. Thus, to implement such a policy, decentralization would have to be initiated, or local governments would need the authority to collect revenues independently, so as to create a system in which any increase in tax revenues is returned to the local populace.

3. Environmental Issues and Changes in the Industrial Structure

When contemplating environmental issues and the future of Japanese industry, it seems inevitable that the industrial structure will have to be changed in a way that addresses problems concerning the environment. In other words, the time has come to approach this issue with great earnestness.

Much has been said concerning changing the industrial structure, including the "recycling economy" and other concepts. Another concept, which may seem completely idealistic to the private sector, is the zero emissions concept being promoting by United Nations University. This concept has as its aim the elimination of all waste, and comprises two general components. The first entails the establishment by each individual company of a system as close to zero emissions as possible. If a company's operations comprise a single factory, then such a system would be established within that factory. The second component is to establish a new industrial chain by encouraging corporations of disparate industries to cooperate in striving for zero waste. Many corporations are already actively searching for ways to actualize the first concept. The real challenge, however, is the second concept, as it entails establishing a flow whereby the waste generated by, say, Company A becomes the raw materials for the operations of Company B, whose waste in turns is used by Company C.

United Nations University is currently studying several possible applications of this concept. One would be a link between breweries and fish farms. Here, research is now under way to effectively couple these two types of operations to form a chain that would produce almost no waste. A similar movement is gaining momentum in industry as well. One example is the movement to collect the waste produced by automobile manufacturers, such as slag and foundry sand from the casting of engines and other parts, and sell it to cement companies as raw material for their operations. Until now companies gave little consideration to how the waste they produce could be used elsewhere. However, making it difficult to dispose of this waste will force companies to begin thinking about how this waste could be used. If this happens nationwide, although it may not be possible to achieve zero waste, it should be possible to minimize waste. This would also represent new business opportunities for the private sector.

One more thing I wish to point out regarding the private sector is the stance that banks have taken toward environmental conservation. Japan's banks played an important role in nurturing the country's corporations during the postwar period of reconstruction, but in the last 10 years bank executives have demonstrated a lack of vision. This may be because of the computerization of the financial sector, but in either case, banks should be more proactive and innovative toward companies that are trying to conserve the environment or develop new environmental technology. However, banks have adopted no such policy. If things continue the way they are, the 21st century may see both the public and the private sector turn their backs on banks.

4. Japan's Stance Toward Environmental Issues

Environmental problems cannot be solved by Japan alone, but instead require a global approach. But any attempt at such an approach result in a three-way impasse among Japan, the U.S. and Europe, in which, as in the case of carbon tax, each waits to see what the other two will do. The biggest problem is the U.S., which is the world's biggest polluter and which hasn't been very repentant. Keeping petroleum prices low, the U.S. gulps up petroleum and spews out carbon dioxide. This is one reason why an international approach has been so difficult. And if this three-way deadlock continues, nothing will be resolved.

After the War, Japan's economy grew thanks to open markets in Europe and the U.S., and to a significant extent Japan's development depended on trade with the rest of the world. In light of this fact, it would seem appropriate for Japan to take the initiative in solving environmental problems, even if doing so requires that Japan make considerable sacrifices.

Regarding the sustaining the forests, for instance, developing nations' standards of living will not improve as long as Japan continues to import low-priced lumber in the form of logs. Instead, the value-added of this lumber must be increased by importing it in the form of, say, housing materials and furniture. Doing so would raise cries of protest from Japan's lumber industry, which is one of the characteristics of environmental issues: something that benefits one side brings protests from another side. Consequently, some form of relief for affected industries is necessary, but a more innovative approach would be to teach our know-how to lumber-supplying nations by forming joint ventures there.

Because of the rapid rate of growth in East Asia, shortages of electric power have become the area's biggest problem. If, in response, Japan were to build a thermoelectric power plant, ideally it should also provide desulfurization equipment at the same time. In actuality, though, developing nations tell us that because they don't have the money, they want to purchase the two separately. In a market economy, a company that offers a thermoelectric power plant without desulfurization equipment will win out over a company that will only build thermoelectric power plants pre-equipped with desulfurization units. Therefore, not just Japan but other countries, including the U.S. and Europe, must adopt a common set of rules regarding such matters. This may seem unrealistic, but creating a set of rules would make it possible. Some may say that creating such rules is a complex process, but environmental issues are complex to begin with. Previously, this complexity has been used as an excuse for inaction, and this is a very vexing aspect of the problem. Nonetheless, present conditions compel us to do something, no matter how complex the problem; such is the nature of environmental problems. We don't know what kind of impact our proposal will have on industry, but we do intend to devote even more attention to such issues.

In running this series of editorials on the environmental, there is something I have sensed. That is a gradual loss of human dignity and pride amidst the material affluence around us.

When I lived in England as the head of the London bureau, there was an incident that made me think about human pride. It was the Prohyumu incident, which occurred around 1960. Prohyumu, who was then Prime Minister McMillan's Minister of War, was involved in a scandal and gave false testimony to Parliament. He retracted this false testimony immediately, but, unable to forgive himself, resigned his post as Minister of War and resolved to start his life over. This he did by doing volunteer work at a relief center in a London slum, where he started out washing dishes and cleaning toilets. When I went to London in 1985, he had been living this new life for roughly 20 years. When I was in London, he received a medal in recognition of his work, and had restored his honor. He was from an aristocratic family and could have lived his entire life in luxury, and so his decision to start over like that told me something about pride.

Because global environmental problems are long-term in nature, however, we cannot expect everyone to take such a stern approach, but lately I have come to feel that a good starting point for thinking about the global environment would be the realization that this kind of personal conviction embodies the essence of human dignity and pride.