Japan to allow businesses to trade CO2 emission allocations in 2023

Japanese business operators will be able to buy and sell unnecessary emission allocations of carbon dioxide (CO2) emissions starting in fiscal 2023 in a quest to reduce the nation's carbon footprint.

To start on a trial basis, the voluntary system will serve as a test of whether a full-fledged counterpart can be enacted someday.

Japan is considering imposing CO2 emission limits on individual enterprises in the future such as is being done in Europe.

The Ministry of Economy, Trade, and Industry on Feb. 1 unveiled the basic concept of the Green Transformation (GX) League, which will be composed of corporations aggressively seeking to decarbonize.

Under the initiative, member companies must approve of the government's goal of eliminating net-zero CO2 emissions by 2050. They are also required to submit their own carbon footprint reduction goals for fiscal 2030 as part of the program.

Businesses will be required to disclose the amounts of CO2 generated in a variety of processes, from product manufacturing to disposal. The league will issue an annual report on their emissions reduction efforts.

The economy ministry is currently considering giving financial aid to firms that are pursuing advanced projects, such as subsidies and other kinds, through the initiative.

In the period leading up to the implementation of the emission trading scheme, the carbon credit market will be established as part of the GX League.

Businesses that succeed in lowering their carbon footprints more drastically than planned will be eligible for government subsidies. Companies will buy credits to make up for missed targets if they do not achieve them.

In autumn 2022, a verification trial will begin, with the transaction system commencing operations in April 2023 at the earliest. According to the economy ministry, 500 large and other firms will participate.

As the emissions trading mechanism will almost certainly add to corporate expenses, businesses would be permitted to opt-out under the economy ministry's proposal.

According to a senior ministry official about its plan, a system to adjust emissions between companies is essential for realizing a carbon-free society and the initiation of emission transactions will become unavoidable at some point.

Should Tokyo take no action to address those changes, Japanese firms' competitiveness could be eroded. With this in mind, the ministry is working to speed up carbon decarbonization through planned actions.