Photo/Illutration The main building of the industry ministry in Tokyo’s Kasumigaseki district of Chiyoda Ward (Asahi Shimbun file photo)

Japanese companies that emit more than 100,000 tons of carbon dioxide annually will be tapped to participate in the government’s carbon emissions trading system, set to take effect in fiscal 2026, the industry ministry said.

The program is expected to apply to between 300 and 400 companies, mainly in the steel, electricity, aviation, logistics and food manufacturing sectors.

Under the system, each company will be assigned an emissions quota, with penalties liable when those limits are exceeded. 

Emissions trading, a type of “carbon pricing” which charges companies based on their CO2 emissions, has been adopted worldwide as a measure to help reduce global warming.

In Japan, the system has been implemented on a trial basis since fiscal 2023 through the Green Transformation (GX) League, but participation so far has been limited to a small number of companies joining voluntarily.

The government plans to submit a bill to revise relevant laws during next year’s regular Diet session to make participation mandatory in fiscal 2026. Full-scale trading is expected to begin in fiscal 2027.

The requirement will apply to companies whose average emissions over three years exceed 100,000 tons per year.

The government will set emission quotas each fiscal year and allocate them to companies.

Companies that emit less than their assigned quota will be allowed to sell surplus allowances to others.

Those exceeding their limits will need to purchase additional allowances to cover the excess.

If emissions still exceed the quota after purchasing allowances, financial charges or other penalties will come into play.

Details on how quotas will be calculated are expected to be finalized in the coming months.

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