The Japanese government announced Friday that it plans to require 300 to 400 large companies to participate in a comprehensive carbon emissions trading system launching in fiscal year 2026 (beginning April 2026).
The government stated that the participation threshold will be set at companies with annual carbon emissions of 100,000 tons or more, aligned with similar requirements in emission trading systems in the EU and South Korea.
The system will cover hundreds of companies across multiple sectors including power, steel, automotive, and aviation, expected to encompass approximately 60% of Japan’s domestic greenhouse gas emissions. Notably, Japan is the world’s fifth-largest carbon dioxide emitter.
Under this trading system, each company will receive freely allocated emission allowances. Companies exceeding their allowances must purchase additional credits in the market, while those with surplus allowances can sell them like stocks.
Key Points:
- Implementation: Fiscal Year 2026.
- Participating Companies: 300-400.
- Entry Criterion: Annual emissions of 100,000+ tons.
- Coverage: 60% of domestic greenhouse gas emissions.
- Major Sectors: Power, steel, automotive, aviation.
- Operating Mechanism: Allowance allocation and trading.
While this system is expected to promote emission reduction, companies may pass related costs on to consumers. This new policy demonstrates Japan’s concrete actions in addressing climate change and its policy choices in achieving carbon reduction goals. The establishment of this trading system marks a significant step in Japan’s carbon market development and will profoundly impact large domestic companies’ operations and emission reduction strategies.
