Japan — the GX-ETS mandatory phase and CBAM exposure

Japan requires its large direct emitters to notify their emissions, hold allowances against them and submit a transition plan each fiscal year. The amended GX Promotion Act replaced the voluntary phase run inside the GX League with that statutory obligation. Separately, Japanese producers of steel, aluminium, cement, fertilisers and hydrogen who sell into the European Union now sit inside the definitive phase of the EU Carbon Border Adjustment Mechanism (CBAM).

What is in force

The Act amending the GX Promotion Act entered into force on 1 April 2026, opening the mandatory phase of the emissions trading system that METI and the GX Acceleration Agency call the “排出量取引制度” and that the registry lists as GX-ETS.¹ The first phase, run under the GX League, was voluntary: participants pledged targets, set base-year emissions, reported results and had them verified under GX League guidelines.²

Under Article 33 of the Act, an operator whose annual average CO2 emissions over the three preceding fiscal years reach the amount set by Cabinet Order must notify METI each fiscal year of that average and of its emission target quantity for the year.¹ The Cabinet Order sets that amount at 100,000 tonnes.³ The Act then has METI allocate allowances free of charge on the basis of the notified target quantity (Article 34). It requires the operator to hold allowances equal to its actual emissions on 31 January of the fiscal year following the allocation year (Article 36), and retires them on that day (Article 37).¹ Allowances may be traded between holders; the Act states they are not to be the object of speculative trading.¹

Each covered operator also prepares and submits a transition plan every fiscal year to METI and its sector minister, and the ministers publish it (Article 73).¹

For the first year the schedule is compressed. The GX Acceleration Agency’s portal states that 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 2026.⁴ METI’s April briefing adds that the FY2026 coverage test uses the mean of direct CO2 in FY2023, FY2024 and FY2025, and that this first notification is not subject to confirmation-body checking. As an exception, target quantities for FY2026 and FY2027 are notified together in FY2027, with both years’ allowances allocated at the end of November 2027.⁵

What is coming

The consequences of not holding enough allowances arrive with the first holding date. Article 41 has METI collect, from an operator whose notified quantity has not been retired, a levy equal to the shortfall multiplied by the reference upper transaction price and by 1.1; Article 39 has METI set that price each year by public notice.¹ The briefing also states that surplus allowances may be carried over, and that J-Credit and JCM credits may offset up to 10% of an operator’s emissions.⁵

On the EU side, Regulation (EU) 2023/956 moved from its reporting-only transitional period, which ran from 1 October 2023 to 31 December 2025, into the definitive regime. Under Article 36(2) as it now stands, applications for authorised CBAM declarant status opened on 31 December 2024. From 1 January 2026 goods may be imported into the customs territory of the Union only by an authorised CBAM declarant, and the annual declaration, certificate and penalty articles apply from that date. The quarterly certificate-holding requirement in Article 22(2) applies from 1 January 2027, and Article 20(1), (3), (4) and (5) from 1 February 2027.⁶ The amending Regulation (EU) 2025/2083, done at Strasbourg on 8 October 2025, sets the annual CBAM declaration deadline at 30 September of each year, for the first time in 2027 for the year 2026. From 2027 it also requires the declarant to hold, at the end of each quarter, certificates covering at least 50% of the embedded emissions in goods imported since the beginning of the calendar year.⁷

Who it binds

GX-ETS binds operators, judged entity by entity, whose three-year average of direct CO2 is at or above 100,000 tonnes.³⁵ Article 33(4) of the Act allows the notification to be made jointly with closely related parties where GX investment is carried out jointly with them.¹ METI’s briefing states that coverage is expected to reach 300 to 400 companies and close to 60% of Japan’s greenhouse-gas emissions.⁵ The penalty provisions reach the same operators. Article 143 sets a fine of up to 500,000 yen for failing to notify under Article 33 or to report under Article 35, or doing so falsely, and Article 148 a non-penal fine of up to 200,000 yen for failing to submit a transition plan.¹

CBAM binds the EU importer, not the Japanese producer, but it reaches Japanese goods: the Regulation applies to Annex I goods — cement, electricity, fertilisers, iron and steel, aluminium and hydrogen — originating in a third country when imported into the EU customs territory.⁸ Regulation (EU) 2025/2083 introduces a single mass-based threshold of 50 tonnes net mass per importer per calendar year, cumulative across iron and steel, aluminium, fertilisers and cement, and does not extend it to electricity or hydrogen.⁷ A Japanese producer’s exposure therefore turns on whether its EU customer clears that threshold and on the embedded-emissions data the customer needs from it.

Verification requirements

The Act builds third-party confirmation into both ends of the cycle. Article 33(2) requires the emission target quantity to be confirmed in advance by a registered confirmation body, and Article 35 requires actual emissions to be reported in the following fiscal year after the same prior confirmation.¹ The Ministerial Ordinance on registered confirmation bodies requires a body to have experience verifying or assuring a listed company’s CO2 emissions in accordance with ISO 14064-3 or ISSA 5000 or a similar standard. It requires each confirmation to be carried out to the same standards.⁹ Registration is valid for five years.³ The Agency’s portal states that registration applications opened on 5 January 2026 and lists twelve bodies registered by 6 August 2026.⁴

For CBAM, Article 8 of Regulation (EU) 2023/956, as amended, requires the authorised CBAM declarant to have the declared embedded emissions verified by a verifier accredited under Article 18 on the principles of Annex VI.⁶ A Japanese installation’s own emissions data is what that verifier tests.

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. It can then submit evidence of its emissions accounting and any confirmation-body report, so the registry reflects a verified position rather than a self-declaration. Producers of CBAM goods can add a compliance profile that records installation-level embedded-emissions data and the accredited verifier used — the data a verifier tests under Article 8. The verifiers directory lists verification and confirmation bodies by standard, including ISO 14064-3, and the exposure check tests whether a product line falls under CBAM’s Annex I sectors. None of this changes an organisation’s legal status; it records what has been verified, 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

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

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

6. Regulation (EU) 2023/956 — consolidated text 02023R0956-20251020, EUR-Lex. ↩ ↩²

7. Regulation (EU) 2025/2083 amending Regulation (EU) 2023/956, EUR-Lex. ↩ ↩²

8. Regulation (EU) 2023/956 establishing a carbon border adjustment mechanism, EUR-Lex. ↩

9. Ministerial Ordinance on Registered Confirmation Bodies under the GX Promotion Act, e-Gov Law Search. ↩