Japan is gearing up towards launching the initial phase of its Emissions Trading System (ETS) in April with a 679 companies already pledging to pursue net zero targets under the carbon credits scheme.
This phase will run until 2026 and is seen as the first attempt at modifying corporate behavior and target setting in a market-driven way.
Economy, Trade and Industry Minister Yasutoshi Nishimura commented on the upcoming launch by saying: “We aim to launch a full-fledged ETS from around 2026 after deepening our consideration to develop a framework that is more fair and effective by building necessary data and expertise with companies.”
Those companies that have already endorsed the so-called GX League concept (an energy transition forum that brings together business, government, and universities) will be submitting participation papers until April 28 with two components.
The first one consists of their emission reduction targets, while the second is the baseline of all greenhouse gases that they forecast to emit.
Relevant: Japan Sets Carbon Capture Target Of 6 To 12 Million Tons By 2030
Within these steps, the companies will also make direct pledges to reduce Scope 1 and 2 emissions for the financial 2025-26 and 2030-31 years. Participating companies will also be expected to provide reports on their total emissions by the end of each October (reports due by March on the following year).
This market mechanism will come into effect when a company can’t reach its targets and have to procure carbon credits or alternatively provide reasons for the missing its goals to an official governing body in Japan.
As it stands, only Scope 1 emissions will be eligible for trading through the Japanese ETS but it is noteworthy that participating companies will be able to trade their greenhouse gas reductions if they exceed their targets.
This is a direct way to incentivize companies to lower their emissions and creates a mechanism that provides increasing rewards for those who achieve the targets, while essentially punishing with higher costs those who don’t.
Read more: New Report Finds Japan Must Increase Carbon Price To At Least $30/tonCO2
