The latest developments in the discussions regarding the "Japanese emission amount Trading Scheme (GX-ETS)" to begin in fiscal year 2026
GX-ETS (Green Transformation Emissions Trading System) is a greenhouse gas emission amount trading system introduced by the Japanese government to achieve carbon neutrality by 2050. Led by the Ministry of Economy, Industry , it will move to a mandatory phase from fiscal year 2026 after a trial period in the GX League. The system allocates emission allowances Settings by the government to companies, and encourages the reduction of direct CO2 emission amount through market mechanisms by allowing surpluses and deficits to be bought and sold on the market.
The emission amount Trading System (ETS) was the world's first fully implemented system for greenhouse gases (GHGs) in 2005 by the European Union (EU), and has since been introduced and expanded in countries such as South Korea (2015) and China (2021). These systems have been widely implemented internationally as market mechanisms that put a price on GHG emission amount and encourage reductions, and have become a standard method for global climate policy. In this context, the EU has introduced the Carbon Border Adjustment Mechanism (CBAM), establishing a system to impose an effective carbon price on imports from outside the EU.
GX-ETS aims to achieve both a decarbonized society and economic growth. As it moves from a trial phase in which companies participate voluntarily to a mandatory phase, active discussions are taking place regarding the companies that will be included, market operations, and ensuring effectiveness. The full introduction of the ETS system will be 20 years after Europe and 10 years after South Korea, but emphasis is being placed on system design that takes into account the experience and knowledge of advanced countries and changes in the international competitive environment. This article summarizes the basic scheme of GX-ETS, the companies that will be included, and current issues.
Current status of GX-ETS discussions
Basic Scheme
The GX League is a platform led by the Ministry of Economy, Industry and Industry (METI) that brings together industry, government and academia to bring about change in order to achieve carbon neutrality by 2050. The emission amount trading system that has been tested for implementation within the GX League is called GX-ETS. Under this system, the government Settings the total amount of GHGs that can be emitted over a certain period of time and allocates emission allowances to companies. Companies compare their actual emission amount with the allocated amount, and if their emission amount are below the allocated amount, they can sell the surplus, or if they exceed the allocated amount, they must purchase emission allowances from the market. This encourages efficient GHG reductions across the private sector through price formation via the market.
It will become mandatory from next fiscal year.
The first phase of GX-ETS (a trial period in which companies can participate voluntarily) began in fiscal year 2023. The system has been operated under a system in which companies voluntarily Settings and achieve their emission reduction targets, generating reduction credits (certifying that a company has reduced its GHG emission amount below a benchmark, which can be used to adjust emission amount).
From fiscal year 2026, the second phase will begin, when emission amount trading will become mandatory and fully operational. The government plans to amend the GX Promotion Act to require companies to formulate and submit plans that include emission reduction targets and other related matters aimed at achieving carbon neutrality by 2050. Companies will then be required to calculate and report GHG emission amount and retire emission allowances. *1)
What is the scope of emissions trading?
Target company criteria
The target companies are corporations that own business sites where direct CO2 emission amount from business activity average 100,000 tons or more over the past three years. These companies are mainly in large-scale emission sectors such as Manufacturing, power, chemicals, cement, petroleum, steel, and automobiles, and although a detailed list has not been made public, it is expected that approximately 300 to 400 companies will be targeted. It is estimated that companies of this size account for approximately 60% of the total emission amount in Japan *2) . Given that targeted corporations manage emission amount and make investment decisions on a group basis, parent companies and subsidiaries are permitted to jointly submit emission targets and other information.
Obligations of target companies
When reporting the emission targets and actual emissions amounts that form the basis of emission allowances, target companies are required to have their data verified by a nationally registered verification organization. With the launch of the system approaching, applications for registration by registered verification organizations have already begun. Target companies will need to proceed with contracts with registered verification organizations that will be announced by the Ministry of Economy, Trade and Industry in preparation for the launch of the system. *3)
System design and schedule
From fiscal year 2023
Phase 1 begins. A trial period with voluntary participation from companies. The creation and trading of reduction credits will be implemented.
FY2025-FY2026
The Ministry of Economy, Trade and Industry is sequentially publishing various guidelines regarding allocation and calculation methods.
FY2026
Phase 2 begins. Transition to mandatory implementation and full operation. This is the period for calculating your company's emission amount and other factors, which will form the basis for your quota application.
The first year's emissions quota allocation for fiscal year 2027 will be implemented. The trading market is also expected to open around autumn 2027.
From fiscal year 2029
Third-party verification is being gradually implemented in earnest for large-scale businesses.
Current discussion points
Range of credits handled
Eligible companies are obligated to retire an amount of emission allowances equal to their actual emission amount each fiscal year, including allowances allocated free of charge. Only when actual emission amount exceed the amount allocated free of charge do they need to procure emission allowances from the market to make up the shortfall. In such cases, they are permitted to use government-run J-Credits or JCM (Joint Crediting Mechanism) to cover part of the shortfall instead of emission allowances. In order to encourage pricing of emission allowances and ensure incentives for emission reductions for eligible companies, the amount of credits that can be used is capped at 10% of the actual emission amount for each fiscal year ( emission amount before deducting Invalid credits).
Price stabilization
Ensuring the stability of emission allowance prices and market liquidity are also important issues. The government plans to Settings upper and lower limits on transaction prices and indicate these price ranges in advance as a price stabilization measure, thereby increasing the predictability of transaction prices and promoting decarbonization investment. This means that if emission allowance prices soar, obligations can be fulfilled by paying a predetermined upper limit price, and if market transaction prices fall below the lower limit price for a certain period or longer, a reverse auction will be held to adjust the volume of emission allowances in circulation. December to an announcement by the Ministry of Economy , Trade and Industry on December 19, 2025, The reference upper limit trading price for fiscal year 2026 is expected to be around 4,300 yen/t-CO₂, and the adjusted benchmark trading price around 1,700 yen/t-CO₂. *4)
Trading market management system
In order to promote fair price formation in emissions trading, the government will entrust the operation of the emissions trading market to the GX Promotion Organization, which is responsible for running the system.In addition, from the perspective of balancing the vitalization of trading with the maintenance of trading order, the government plans to allow market participants who are not subject to the system to participate as long as they meet certain requirements, such as having a certain amount of trading experience.
Third-party verification
To ensure the effectiveness of the system, third-party verification of emission records will be made mandatory. Verification will be carried out by registered verification organizations approved by the GX League. However, since it will take some time for the third-party organizations conducting the verification and the businesses subject to the system to establish the necessary systems, the initial verification will be limited (for about 3 years), and from fiscal year 2029 onwards, verification at a reasonable level will be gradually required for large-scale businesses. Details regarding the guarantee standards will be considered separately from fiscal year 2026 onwards.
What companies should do now to prepare for GX-ETS compliance
While there appears to be ample time before mandatory emissions regulations are implemented, a considerable preparation period is necessary to improve the accuracy of emission amount calculations and establish internal systems. We particularly recommend starting work on the following three points as soon as possible.
Improving the accuracy of Scope 1 and 2 emission amount calculations.
Under the GX-ETS, the allocation and trading of emission allowances are based on a company's direct emission amount(Scope 1). However, companies are also required to disclose targets and actual figures for indirect emission amount(Scope 2), and proper data preparation is necessary from a regulatory compliance perspective. Companies that use calculation methods compliant with the GHG protocol but manage data using Excel or manual aggregation should consider improving data quality by migrating to dedicated tools.
Establish a data management system that can withstand third-party verification.
Third-party verification will become widespread from fiscal year 2029 onwards. By ensuring data traceability now, verification costs can be significantly reduced. Zeroboard is a platform that enables centralized calculation, management, and reporting of GHG emission amount in accordance with international disclosure standards (GHG Protocol, TCFD , etc.), and is being adopted primarily by major Manufacturing companies.
We will also take into account emission amount across the entire supply chain (Scope 3).
While GX-ETS deals with a company's direct emission amount(Scope 1), the disclosure of indirect emission amount(Scope 2) and requests from trading partners for information on Scope 3 are expected to increase further. A management system that takes into account compliance with global disclosure standards will lead to a competitive advantage in the future.
We will be closely monitoring the detailed information and rule changes that will be released by the Ministry of Economy, Trade and Industry as the system is set to begin, with the aim of building an effective emission amount trading market.
Frequently Asked Questions (FAQ)
Q. How are the companies eligible for GX-ETS determined?
This applies to corporations that own business sites where direct CO₂ emission amount from business activity average 100,000 tons or more over the past three years. Approximately 300 to 400 companies are expected to be affected, mainly in large-scale emission sectors such as Manufacturing, power generation, chemicals, steel, and automobiles, and these emission amount are estimated to account for about 60% of the total emissions in Japan.
Q. What are the differences between GX-ETS and EU-ETS?
The EU-ETS is the world's largest emission amount trading scheme, fully operational since 2005, and covers a wide range of sectors, including aviation and shipping. The GX-ETS is the Japanese version of the scheme, which will begin its mandatory phase in fiscal year 2026. Initially, it will focus on large-scale emitters (CO₂ emission amount of 100,000 tons or more), and there are differences in the maturity of the schemes in terms of market size, price levels, and scope of coverage.
Q. What are the upper and lower price limits for GX-ETS?
As of December 19, 2025, the Ministry of Economy, Trade and Industry announced that the Ministry of Economy, Trade and Industry's forecast for fiscal year 2026 is approximately 4,300 yen/t-CO₂ as the reference upper limit trading price and approximately 1,700 yen/t-CO₂ as the adjustment benchmark trading price. The government plans to allow obligations to be fulfilled at the upper limit price if the trading price exceeds the upper limit, and to adjust the supply through a reverse auction if the price remains below the lower limit for an extended period.
Q. What tools can be used to prepare for GX-ETS compatibility?
Zeroboard is a cloud platform that centralizes the calculation, management, and reporting of GHG emission amount in accordance with international disclosure standards such as the GHG Protocol and TCFD . From precise calculation of Scope 1 emissions to company-wide emission amount management including Scope 2 and 3 emissions, and the establishment of a governance system that can withstand third-party verification, it supports the development of a practical foundation for the mandatory GX-ETS.
throughout the supply chain
GHG emission amount calculation/visualization,
For centralized management of environmental items
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For detailed information and Contact us about the entire Service ,
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*1) Industry Structure Council emission amount Trading Scheme Subcommittee, "Interim Report (Draft) - Matters Concerning Implementation Guidelines for Allocation of Emission Allowances," Ministry of Economy, Industry and Industry, December 9, 2025 , www.meti.go.jp/shingikai/sankoshin/sangyo_gijutsu/emissions_trading/pdf/006_03_00.pdf
* 2) Cabinet Secretariat GX Promotion Office, "Summary of Issues Related to the emission amount Trading Scheme Contributing to the Realization of GX (Draft),"December 19, 2025
* 3) Ministry of Economy, Industry"emission amount Trading Scheme" website: www.meti.go.jp/policy/energy_environment/global_warming/ets.html
* 4) Industry GX Group, “Upper and Lower Price Limits in the emission amount Trading Scheme (Draft),”December 19, 2025, www.meti.go.jp/shingikai/sankoshin/sangyo_gijutsu/emissions_trading/pdf/007_03_00.pdf
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