The government has recently approved a bill that mandates companies emitting 100,000 tons or more of carbon dioxide each year to participate in a carbon emissions trading system. Under this new regime, companies that overstep their emissions limits will either need to purchase additional allowances from those emitting below their quotas or face financial penalties if they cannot cover their excess emissions.
The bill, which revises the law on promoting green transformation, will be presented to the Diet session with the goal of initiating the trading system in fiscal 2027. The initiative is expected to impact between 300 and 400 companies, sectors responsible for roughly 60 percent of Japan's total greenhouse gas emissions, making it a pivotal part of the country's environmental strategy.
Each fiscal year, the government will allocate emission allowances to these companies. Firms that manage to keep their emissions under the given allocation will have the opportunity to sell their surplus allowances to others that need them. Conversely, companies surpassing their assigned limits must acquire additional allowances or incur a penalty, creating a financial incentive to control emissions.
Additional measures in the government's broader climate policy include plans to levy a surcharge on fossil fuel importers starting in fiscal 2028 and to commence auctioning emission allowances to power companies in fiscal 2033. Moreover, in a related development, the Cabinet has approved a bill that requires companies involved in the production or sale of plastic-based products to incorporate recycled materials from fiscal 2026, further underlining the commitment to environmental sustainability.
Industry Minister Yoji Muto emphasized the importance of transparency in corporate emissions and the need for greater understanding from companies to ensure the new systems are implemented smoothly. The method for calculating the exact emission allowances is scheduled to be finalized in fiscal 2025, setting the stage for the system's rollout in the following years.