ABSTRACTThis article discusses possible policies to realize a low‐carbon society at the local level, focusing on population, housing and transport in Shiga Prefecture, Japan. Within this context, in order to substantially reduce local demand for automobile based transport in the long term, it may be important both to influence commuting patterns and to increase the population density of the city. Compared with the price elasticity of gasoline consumption in overall Japan, Shiga's elasticity is high. Thus, revising the automobile fuel tax system in some areas can drastically reduce fuel consumption and alter travel patterns. Whilst this may limit travel demand through commuting, we also recognize that residents of densely populated areas are often dissatisfied with the limited living space and with the lack of contact with nature. Policies to attract and promote the construction of apartment houses with adequate living space and that have increased amenity access to the natural environment are therefore important. This is the case both from the perspective of reducing greenhouse gas emissions and from the perspective of securing the vitality of the city. Based on our estimation and analysis, Shiga prefectural government has been setting up several policy measures to promote the formation of a compact city, to provide for public transportation and to promote bicycle use. However, the momentum fuelling urban sprawl and an automobile‐dependent lifestyle are difficult to change in reality. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.