As of April 1, 2026, Japan’s Emissions Trading Scheme (GX-ETS), a mandatory scheme similar to the European Union Emissions Trading System (EU ETS), has been fully implemented. On March 30, 2026, the results of the public comments on the draft amendment to the Ordinance for Enforcement of the Act on Promotion of Smooth Transition to a Decarbonized Growth-Oriented Economic Structure, which sets out the detailed design of the GX-ETS, were published. The public comments and the results of the comments submission process are important for understanding the direction of the system’s practical implementation.

In response to comments calling for alignment with Japan’s Nationally Determined Contribution (NDC) and the 1.5°C goal under the Paris Agreement, Ministry of Economy, Trade and Industry (METI) adopted a cautious stance and did not accept the proposal. This reflects concerns that such alignment could trigger a wave of litigation and, consequently, undermine the credibility of the scheme.

Entities subject to the GX-ETS are business operators with direct CO2 emissions exceeding 100,000 tons (i.e., large emitters). According to METI’s response, a special purpose company (SPC) will be subject to the GX-ETS if it meets this threshold. Detailed methodologies for calculating direct CO2 emissions, along with related procedures, are available on METI’s website¹.

With respect to reducing CO2 emissions across the supply chain (Scope 3 emissions), METI acknowledged the limitations of addressing such reductions under the GX-ETS and indicated that such reductions will instead be promoted through the GX Future League, which is set to begin in April 2026.

Under the current GX-ETS framework, eligible carbon credits are limited to J-credits and the Joint Crediting Mechanism (JCM). One comment requested that Clean Gas Certificates also be made eligible. However, METI declined to permit the use of said certificates on the grounds that they are a private-sector voluntary initiative. At the same time, METI stated that it will continue to examine eligible credits in light of ongoing discussions regarding the Greenhouse Gas Emissions Accounting, Reporting and Disclosure System under the Act on Promotion of Global Warming Countermeasures.

Under the GX-ETS, the government sets both an upper and a lower price limit for allowance trading, with the aim of enhancing predictability. In relation to this mechanism, a comment noted that, for certain types of J-credits and the JCM, the upper price limit is lower than the market price of the credits, which could depress credit prices and, in turn, weaken incentives to generate credits. In response, METI stated that the upper price limit under the GX-ETS does not determine the trading price of J-credits or JCM, and that such credits may be traded at amounts exceeding the upper price limit for allowances.

¹ https://www.meti.go.jp/policy/energy_environment/global_warming/ets.html (In Japanese)