Summary

• In Japan, the declaration of carbon neutrality in 2050 by then Prime Minister Suga in October 2020 triggered a flurry of discussions on carbon pricing. In 2022, policies for realizing the Green Transformation (GX) of the industry structure toward carbon neutrality in each industry in Japan were discussed under the title of the GX Implementation Conference, and in February 2023, the Cabinet approved the "Basic Policy for Achieving GX" and the "Overall Roadmap for the Next 10 Years." At these assemblies, the "Growth-oriented carbon pricing initiative" was presented, which includes advance investment support using "GX Economic Transition Bonds," etc., incentives for GX investment through carbon pricing, and utilization of new financial methods. The "GX Promotion Bill" was enacted in May 2023, which summarizes related bills to realize the basic policy for realizing GX.
• In the past, the emission trading system in Japan had only been a trial system (Japan’s Voluntary Emissions Trading Scheme (JVETS)) run by the Ministry of the Environment and emission trading systems by local governments such as those run by Tokyo and Saitama, but these onlyplayed a limited role as carbon pricing due to its nature as a trial scheme, and also due to its limited emission coverage. However, in fiscal year 2023, the Phase 1 of GX-ETS, Japan‘s first nationwide emission trading system, was started as a trial and voluntary framework. The basic concept of GX-ETS is “pledge and review,” which is based on the disclosure of the the participants’ emission targets and the implicit governance from the financial and capital markets, in contrast to the conventional concept of compliance with government regulations. The GX-ETS is designed for gradual development beyond Phase 1, and it is stipulated that from Phase 3 (post-fiscal year 2033), a gradual introduction of an auction mechanism will be implemented for the power generation sector (i.e. phase out of the “free-allocation” will be implemented).
• In Japan, there are currently two regulated carbon credit systems operated by the national government: the Joint Crediting Mechanism (JCM) and the J-Credit Scheme. To increase the amount of credit generated in the future, JCM is expanding the number of partner countries and privately funded projects, and J-Credit is considering expanding its methodology and applying for CORISA eligibility.On the demand side, the use of credit by Japanese companies has been limited in the past, as the use of J-Credit is permitted under the national mandatory emission reporting system. However, it is expected that the use of credit will expand in the future, including the achievement of private initiatives such as CDP, SBT, and RE100, the means to achieve voluntary targets, and the provision of carbon offset products and services.On the supply side, there is a growing movement toward the establishment of exchanges and related services in anticipation of the future expansion of credit trading needs. The Japan Stock Exchange launched a carbon credit market for J-Credit in October 2023. It is expected to increase the volume and convenience of carbon credit transactions in Japan.

• Kazuki Tajima

  Nomura Research Institute

  Green Transformation Group

  Senior Consultant

• Yusuke Numata

  Nomura Research Institute

  Green Transformation Group

  Senior Consultant

• Sho Tsujimura

  Nomura Research Institute

  Green Transformation Group

  Chief Consultant

• Yoshihito Sato

  Nomura Research Institute

  Green Transformation Group

  Group Manager