JP GX-ETS — Phase 2 Full Operation
ENFORCEMENT TIMELINE
Full operation starting April 2026 (Mandatory compliance under Phase 2)
Overview
This is the full operational phase (Phase 2) of GX-ETS, the emissions trading system operated by Japan's GX Promotion Organization. Following Phase 1, a demonstration period running from fiscal 2023 to fiscal 2025 based on voluntary participation, participation becomes mandatory for businesses whose direct and indirect greenhouse gas emissions exceed a certain scale. The system functions as a market mechanism in which businesses that exceed the government-set emissions baseline trade credits with businesses that emit below it.
Enforcement Timeline
April 2023: GX-ETS Phase 1 (the trial period) begins, with voluntary target-setting and the start of trading.
Fiscal 2024: The emissions trading platform is fully built out and trial trading is conducted.
Fiscal 2025: The detailed design of Phase 2 and participation criteria are finalized.
Fiscal 2026: Phase 2 moves into full operation, making it mandatory for participating businesses to meet emissions reduction targets and undergo third-party verification.
Fiscal 2028: Paid auctioning of emission allowances for the power generation sector begins to be introduced in stages.
Business Impact
Large manufacturers and energy companies subject to GX-ETS will face strong pressure to reduce emissions not only across their own Scope 1 and Scope 2 emissions, but across their entire supply chain (Scope 3). Manufacturing suppliers will face stricter requirements to calculate and disclose their emissions data, such as carbon footprints, and to implement concrete reduction measures. As carbon pricing is effectively introduced, the cost of fossil fuel-derived electricity and raw materials is expected to rise, weakening the price competitiveness of businesses that neglect decarbonization. Suppliers that continue to provide carbon-inefficient parts and materials face a practical risk of being excluded from the supply chains of businesses participating in GX-ETS.