Tokyo Stock Exchange (TSE) plans to establish a permanent carbon credit market, to be launched in October, following a successful demonstration project, which ran from September 2022 to January 2023, TSE’s owner, Japan Exchange Group, or JPX (TYO: 8697), said in June.
The trading system will be internet-based and separate from the other markets operated by TSE, according to the information on the JPX website.
TSE will start receiving applications for potential participants in the new carbon credit market in July, and plans to carry out system tests before the launch in October.
The move is part of the Japanese government’s efforts to meet its 2050 net zero target and also supports JPX’s Green Strategy, as set out in its medium-term management plan 2024.
The introduction of a carbon pricing system, including emissions trading, is one of the main features of the government’s Green Transformation (GX) plans led by the Ministry of Economy, Trade and Industry (METI).
In May 2022, following a call for tenders, TSE was commissioned by METI to carry out a technical demonstration project for a carbon credit market.
The trial resulted in the trading of a total 148,933 tons of carbon dioxide (CO2) thanks to the participation of 183 companies and the Japanese government, which joined in the later stages with its J-credits.
During the demonstration phase, prices for Energy Saving credits ranged from JPY 800 to JPY 1,600 (USD 5,58 to USD 11,16), Renewable Energy credits from JPY 1,300 to JPY 3,500 (USD 9,07 to USD 24,43), and Forest Sink credits from JPY 8,000 to JPY 16,000 (USD 55,83 to USD 111,67).
The permanent carbon market will have a largely similar rule framework to the one used during the trial, and products eligible for trading will initially be government-owned J-credits.
With expected relatively low levels of liquidity in the early stage, TSE plans to offer two call auctions per day – one in the morning and one in the afternoon, rather than continuous auction.
Trading will be executed using the local Itayose method, in which the time of order entry is not distinguished, and an opening price is derived on the principle of price priority.
Initially, there will be zero fees in order to encourage participants to join the market, and TSE then plans to expand the market depending on user demand.