Our attorneys, in collaboration with leading transatlantic firm A&O Shearman and the innovative South Korean firm Yulchon, were commissioned by Japan’s Ministry of Economy, Trade and Industry (METI) to write this pioneering report as part of Japan’s commitment to green transformation (GX) through the GX League framework to reduce emissions and establish an emissions trading system.

In response to the global momentum towards decarbonization, Japan has declared its aim to achieve carbon neutrality by 2050. In 2022, the GX Execution Council was established to discuss various policies to realize a complete social green transformation in Japan. By February 2023, the GX Basic Policy, which consolidates the council’s discussions, was officially approved and published. Subsequently, laws including the GX Promotion Act were enacted to give effect to the policy’s principles.

Our examination encompassed a detailed study of both the domestic and international legal aspects of introducing an emissions trading system from a practical perspective in Japan, as planned under the aforementioned policy and law. The Japanese government is poised to present a bill for an emissions trading scheme during the regular session of the Diet in 2025. This initiative is set to establish a mandatory emissions trading system that will come into effect in 2026. Our report will lay the groundwork for the forthcoming discussions pertaining to this new legislation. Unlike other regions where emissions trading systems are well-established, Japan has not previously implemented a nationwide statutory emissions trading system. However, voluntary systems like the J-Credit system and the GX emissions trading scheme (ETS), which started in April 2023, have since been put into place.

Takeshi Mukawa, one of the firm’s infrastructure and energy partners in charge of the report, remarked, “We are honored to have collaborated with A&O Shearman and Yulchon to provide this report to METI, which we hope will serve as a stepping stone in the greater process of helping Japan to keep moving toward the goal of carbon neutrality.”