Japan became the first country in the world to accept the use of sustainable carbon dioxide removal in its national emissions trading system, the Green Transformation ETS (GX-ETS).
This move is a result of Asia’s growing national carbon mechanisms, which are working to create space for high-quality voluntary credits that will be used for compliance obligations. This is one of the few cases where a national government is so close to implementing sustainable carbon removal in a compliance market.
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The Green Transformation ETS is part of it Green Transformation Policy – a mix of budget and policy measures that outline a ten-year roadmap for an investment of 150 trillion yen (over US$1.1 trillion) to transform various industrial sectors to achieve carbon neutrality and contribute to Asia’s energy transition. The ETS was launched in 2023.
The first phase of Japan’s ETS is expected to last until the end of March 2026 and will involve voluntary participation of domestic companies in a basic and credit system. After 2026 it will transition to a mandatory ETS.
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The scheme is also based on the concept of ‘pledge and review’, which means that participants pledge their own ambitious reduction targets, which are announced to the capital markets and expected to be increased over time. The objectives will be reviewed and if participants do not achieve them, they will be required to explain the reasons. The announcement of their status encourages companies to make optimal efforts to achieve their objectives.
The ETS accepts two regulated carbon credit schemes managed by the national government: the Joint Crediting Mechanism (JCM) and the J-Credit Scheme. The carbon removal methods that will now be accepted include carbon capture and use (CCU), bioenergy with carbon capture and storage (BECCS), coastal blue carbon and direct air carbon capture and storage (DACCS) .
Other methods may be added in the future depending on the outcomes of government studies and council discussions, or as work progresses on other methodologies already under consideration.
