Japan GX-ETS

Japan combines several carbon pricing instruments to help meet net zero emissions by 2050: an existing carbon tax, a voluntary ETS (GX-ETS) that will evolve into a mandatory ETS from 2026, and a carbon levy (GX-Surcharge) to be introduced from 2028. Plans for this are outlined in the Basic Plan for the “Green Transformation (GX) Policy”, Japan’s ten-year decarbonization strategy.

The GX-ETS started as a voluntary baseline-and-credit system during its first phase 2024 to 2025. More than 700 companies, accounting for more than 50% of national emissions, participate. Under the GX-ETS, J-Credits (see below) are traded on the Tokyo Stock Exchange.

The GX-ETS is expected to transition to a mandatory ETS from FY2026 after its first compliance deadline. Upper and lower price limits are planned to be introduced. From FY2033, auctioning will be introduced for high-emitting entities in the power sector. A study group was established to clarify legal and regulatory aspects of the GX-ETS, including free allocation, auctioning, and cap setting.

Separately, a carbon levy (GX-Surcharge) will be introduced from FY2028 on fossil fuel importers and domestic fossil fuel extractors.

Japan is actively participating in international carbon markets. Its Joint Crediting Mechanism (JCM) is a bilateral scheme to incentivize decarbonizing technologies and mitigation actions in 28 partner countries. JCM credits will also be eligible for use in the GX-ETS. Separately, over 100 countries and organizations have joined Japan’s global capacity-building initiative, the Article 6 Implementation Partnership.