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The Japanese government will provide JPY20tr (USD137.4bn) in transition financing for enterprises seeking financial support for their decarbonization initiatives, as reported by Nikkei Asia on January 11. The substantial spending will be realized through Japan’s GX Economic Transition Bonds (GX Bonds), a financing instrument designed to support issuers in their transition towards net-zero emissions. To be eligible for the financing program, enterprises must participate in Japan’s voluntary emissions trading system (ETS), a market established on a voluntary basis in April 2023. The new requirement for bond issuance intends to encourage carbon emission trading in Japan, which lags behind Europe and other countries.
Japan plans to issue a total of JPY20tr in GX Bonds over the next ten years, marking the world’s first sovereign transition bond. Japan anticipates the GX bonds to catalyze public and private spending worth up to JPY150tr (USD1tr) on the deployment of decarbonization technologies, including hydrogen, carbon capture and utilization, and synthetic fuels. The new financing program is poised to bolster participation in Japan’s nascent carbon market. As of December 2023, the ETS already had 568 participating enterprises, representing about 50% of Japan’s domestic emissions. However, Japan’s ETS has relatively low liquidity compared with other mature carbon markets in Asia, such as those in South Korea and China. As part of Japan’s endeavors to achieve net-zero emissions, the carbon market could promote investments in clean technologies and enhance enterprises’ competitiveness in the global market.
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