The Japanese government is set to allocate 20 trillion yen ($137.4 billion) towards decarbonization support, aiming to incentivize companies to actively participate in the emissions trading system (ETS), as reported by Nikkei. While ETS participation is currently voluntary, the government plans to make it a prerequisite for companies to qualify for financial support in their sustainability initiatives.
To enforce this shift, the government will establish industry-specific guidelines focused on reducing greenhouse gas emissions and setting targets. From fiscal 2026, when the ETS is expected to be fully operational, the government may provide guidance and recommendations to companies falling short of their emission reduction targets, based on the established guidelines.
Companies will have the flexibility to set their own reduction targets in accordance with ministry guidelines, and the appropriateness of these targets will be subject to certification by a third-party organization. The Ministry of Economy, Trade and Industry intends to present a draft amendment to the Green Transformation (GX) Promotion Act during the ordinary Diet session in 2025, incorporating these measures and guidelines to enhance the effectiveness of the system.
Although ETS participation will not be mandated by the ministry after fiscal 2026, a mechanism will be established to encourage companies to join the program. Notably, participation will become a prerequisite for accessing government support through GX Economic Transition Bonds, totaling 20 trillion yen, to be issued over the next decade.
The policy revision aims to invigorate emissions trading in Japan, positioning it more competitively on the global stage where it currently lags behind other regions like Europe. The December 2023 figures indicate that 568 companies, including major players like Nippon Steel, Hitachi, Toyota Motor, and Tokyo Electric Power Co. Holdings (TEPCO), are participating in the ETS, covering approximately 50% of domestic emissions.
Emissions trading has proven effective in reducing greenhouse gases, with the European Union, China, and several U.S. states already implementing such systems. The introduction of industry-specific guidelines recognizes the varying challenges industries face in achieving decarbonization, such as the steel industry, which has high emissions and is still developing its decarbonization technology.
