Emissions trading was introduced at the prefectural level before national implementation, with Tokyo launching a "Cap & Trade System" in 2010 and Saitama starting a "Goal-Based Emissions Trading System" in April 2011. The Ministry of the Environment has been central in national discussions on emissions trading systems. For example, at the 7th Carbon Pricing Subcommittee meeting in March 2019, emissions trading was defined as "a system under which emission caps are set by the government and emitters covered by the scheme trade allowances on the market as required" with considerations for significant CO2 reductions. Discussions on emissions trading led by the Ministry of Economy, Trade and Industry (METI) began in February 2021. In August 2021, an interim report from the "Study Group on Economic Approaches for Realizing Global Carbon Neutrality" organized by METI, proposed the "Carbon Neutral Top League" the basis for the current GX League. Subsequently, the GX Promotion Law, enacted in May 2023, legally mandated the introduction of the GX Emissions Trading System (GX-ETS). However, the GX-ETS, introduced in FY2023, emphasizes corporate autonomy without the previously discussed caps or allocation limits.
GX-ETS
The GX-ETS is an emissions trading system conducted within the GX League, where companies participate voluntarily. The first phase began in FY2023. Companies participating in the GX League set their own emission targets and are required to calculate and report their actual emissions. If they fail to meet their self-set targets, they must achieve the targets by purchasing specified carbon credits or explain the reasons for their failure.
The second phase, scheduled to begin around FY2026, will see the full-scale operation of the GX-ETS, with details on participation, target setting, and target achievement still under consideration. From around FY2033, as a third phase, a phased introduction of paid auctions for the power generation sector is planned.
In a position paper on the fiscal 2023 tax reform, published on its website on September 29th, Japan Iron and Steel Federation (JISF) advocated against the carbon tax, Tax for Climate Change Mitigation, and emissions trading, while stating support for Japan’s 2050 carbon neutrality goal. It also advocated for tax exemptions for coking coal used in steel production and stated that thermal power generation “will continue to be necessary in the future.” Additionally, it requested increased financial support for technological development to decarbonize steel production, as well as “carbon-free electricity and hydrogen,” while supporting hydrogen reduction steelmaking, without specifying a position on its decarbonization.
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