Japan Exchange Group (JPX) and Japan’s Ministry of Economy, Trade, and Industry (METI) will establish an experimental market for carbon dioxide (CO₂) emissions trading, marking the first of its kind in Japan, as reported by Nikkei Asia on May 13. The market will be set up inside the Tokyo Stock Exchange (TSE) and start operating as a technical demonstration project this September. Furthermore, it aims to come into full-scale operation in the fiscal year starting April 2023. Previously, METI launched a framework with companies committed to carbon neutrality called the Green Transformation (GX) League. A total of 440 companies agreed to join the GX league, and these firms are expected to participate in the upcoming carbon trading market.

The members of the GX League must abide by Japan’s carbon neutrality target for 2050. In addition, these enterprises shall release their own carbon reduction goals for 2030 and disclose the amount of CO₂ emissions in the processes ranging from manufacturing to disposal every year. Companies that accomplish their emission-reduction targets will be granted carbon credits by the government according to their surplus reductions. Meanwhile, companies that fail to meet their targets could purchase such credits in the carbon trading market to fill the gap. However, neither participation in the trading market nor penalty for failing to meet carbon-reduction goals has been mandatory. The mechanism differs from the EU’s carbon market, as the latter forces power plants and factories to buy emission allowances when they pollute and strictly controls the supply of permits.

Sources:

https://asia.nikkei.com/Spotlight/Environment/Climate-Change/Japan-to-launch-first-exchange-for-carbon-emissions-trading

https://www.jpx.co.jp/english/corporate/news/news-releases/0060/20220516-01.html

https://www.asahi.com/ajw/articles/14544468

https://www.reuters.com/business/sustainable-business/eu-lawmakers-clinch-compromises-carbon-market-overhaul-2022-05-11/