Japan's GX-ETS explained

Japan’s emissions trading system became a statutory obligation this year. The instrument is the GX Promotion Act as amended, running an annual cycle: notify a target, receive allowances, report actual emissions, hold them, have them retired. This explainer covers each step, whom the Act reaches and what a confirmation body checks.

What it is

The amending Act entered into force on 1 April 2026.¹ Before it, the first phase of GX-ETS ran inside the GX League as voluntary emissions trading, with pledges, base-year emissions, results reporting and third-party verification under GX League guidelines.²

The Act’s allowance is a quantity corresponding to the carbon dioxide emitted in an operator’s production, transport and other business activities, expressed in units representing one tonne of carbon dioxide.¹ Allocation is governed by an implementation guideline that METI sets under Article 32, covering the allocation rules, the method of evaluating reductions, the setting of target quantities and calculation of actual emissions, the investment being promoted, and matters such as international competitiveness by business field; when METI sets the guideline matters on the business activities whose reductions are especially effective for industrial competitiveness, it must consider using the rate of improvement in emissions per unit of output as the method of evaluating reductions, and before setting or amending the guideline it consults the sector ministers and, on actual emissions, the Minister of the Environment, hears the Industrial Structure Council and publishes it.¹

The cycle runs through Articles 33 to 37. An operator notifies its emission target quantity; METI allocates allowances free of charge where the notification is appropriate in light of the guideline, by recording an increase in the operator’s holding account, and may adjust the quantity where the facts behind an earlier notification have changed.¹ The operator then reports its actual emissions, METI notifies the corresponding quantity — or determines it on its own investigation where the report is inappropriate — the operator holds that quantity on 31 January of the following fiscal year, and METI retires it that day.¹ Allowances may be traded between holders and are not to be the object of speculative trading.¹

Price is bounded rather than fixed. METI sets a reference upper transaction price before each fiscal year begins, weighing the effect on industry and daily life, the state of the transition and consistency with energy policy, after hearing the Industrial Structure Council.¹ Where trading becomes impossible for a continuous period — cases the Cabinet Order defines by a sustained price above that reference, by a markedly small volume offered at or below it, or by disaster — METI may accept payment of the shortfall at that price and treat the operator as holding the allowances.¹³ Where the notified quantity is simply not retired, Article 41 has METI collect the un-retired quantity multiplied by the reference upper price and by 1.1, on or after 1 February of the following fiscal year.¹

Who it binds

The Act reaches an operator whose annual average CO2 emissions over the three preceding fiscal years reach the amount set by Cabinet Order, and allows the notification to be made jointly with closely related parties investing jointly with it.¹ METI’s briefing states that coverage is judged on an operator’s own annual average even where a joint notification is made, and that the emissions measured are direct CO2.⁴ The briefing expects 300 to 400 companies and close to 60% of Japan’s greenhouse-gas emissions.⁴

The same operators carry two further duties. Each submits a transition plan every fiscal year to METI and its sector minister, who publish it.¹ The penalties attach to the reporting steps rather than the emissions: up to 500,000 yen for failing to notify under Article 33 or to report under Article 35, or doing so falsely, and a non-penal fine of up to 200,000 yen for failing to submit a transition plan.¹

Dates

The GX Acceleration Agency’s portal sets out the first-year steps: a covered operator calculates its direct CO2 from 1 April 2026, notifies METI that it is covered by 30 September 2026 and submits its transition plan by 30 September 2026.⁵ METI’s briefing adds the exception that shapes the rest: target quantities for FY2026 and FY2027 are notified together in FY2027, with both years’ allowances allocated at the end of November 2027, and the FY2026 coverage test uses the mean of direct CO2 in FY2023, FY2024 and FY2025, which is not subject to confirmation-body confirmation.⁴ In the steady state the holding date is 31 January of the year after the allocation year and the levy runs from 1 February.¹ Registration applications for confirmation bodies opened on 5 January 2026, and the portal lists twelve bodies registered by 6 August 2026.⁵

Thresholds

The Cabinet Order sets the notification threshold at 100,000 tonnes.³ What is counted is prescribed rather than left open: each of the three preceding fiscal years’ emissions is the sum, for each emitting activity, of the activity-scale indicator multiplied by a METI-ordinance conversion coefficient, across prescribed categories of fuel and material use, production and transport of products, crude oil and steam, incineration and combustion, and well operations.³ Against the holding obligation, METI’s briefing states that J-Credit and JCM credits may offset up to 10% of an operator’s emissions and that surplus allowances may be carried over.⁴

Verification standard

Confirmation sits at both ends of the cycle: the target quantity under Article 33(2) and the actual emissions under Article 35 must each be confirmed in advance by a registered confirmation body.¹ A body is registered where it conforms to the ISO and IEC standards for conformity-assessment bodies or similar standards prescribed by METI ordinance, has qualified persons carry out confirmations, holds a sufficient financial basis and has arrangements ensuring fair implementation; registration is renewed at intervals set by Cabinet Order of between five and ten years, set at five years.¹³

The ordinance fixes the technical standard. A body must have experience verifying or assuring the CO2 emissions of a listed company in accordance with ISO 14064-3 or ISSA 5000 or a similar standard, and each confirmation must be carried out to those standards.⁶ The person who signs the result must have at least three years’ experience in such work, or ten or more engagements, or be a certified public accountant who is a partner of an audit corporation.⁶ The quantitative level for judging that nothing material contradicts the guideline method is 5 percent or less of the quantity confirmed, and a body that later finds a change of underlying facts beyond that level, or other material doubt, raises it with the operator, seeks correction and reports to METI if it is not remedied.⁶ A body asked to confirm does so without delay absent a justifiable reason, works fairly and by the prescribed method, and has the qualified person do the work;¹ METI publicly notifies each body’s name, address and registration date.⁶ Where METI itself confirms, a fee is payable to the State, set by Cabinet Order in three bands by annual average emissions.¹³

What an organisation on ESGOS can do

An organisation operating in Japan can find its listing in the directory and claim it from its profile page, or get listed and attach what this regime produces: the emissions accounting behind the annual average, the registered confirmation body’s report on the target quantity or actual emissions, and the published transition plan. The verifiers directory lists verification and confirmation bodies by standard, including ISO 14064-3, and the exposure check shows which regimes reach a product and market. None of this changes an organisation’s legal status; it records what has been confirmed, by whom, against which standard.

Footnotes

1. Act on Promotion of a Smooth Transition to a Decarbonised Growth-Oriented Economic Structure (GX Promotion Act), in-force text, e-Gov Law Search. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹ ↩¹² ↩¹³ ↩¹⁴ ↩¹⁵ ↩¹⁶ ↩¹⁷

2. GX-ETS (Emissions Trading System), GX League / Ministry of Economy, Trade and Industry. ↩

3. Cabinet Order for Enforcement of the GX Promotion Act, in-force text, e-Gov Law Search. ↩ ↩² ↩³ ↩⁴ ↩⁵

4. Briefing on the Emissions Trading System under the GX Promotion Act (explanatory meeting deck), Ministry of Economy, Trade and Industry. ↩ ↩² ↩³ ↩⁴

5. Emissions Trading System portal — About the system, GX Acceleration Agency. ↩ ↩²

6. Ministerial Ordinance on Registered Confirmation Bodies under the GX Promotion Act, e-Gov Law Search. ↩ ↩² ↩³ ↩⁴