Japan’s GX-ETS transitioned to mandatory participation in 2026 and was designed to cover most domestic emissions. Based on comparative analysis of World Bank data, the article examines Japan’s current position relative to major markets.
Japan’s carbon-pricing regime reached a major turning point in 2026, as the GX Emissions Trading Scheme transitioned from voluntary participation to mandatory participation. Japan also came to be classified on the World Bank’s map as a country with a fully fledged nationwide ETS, with its market infrastructure seen as having advanced relative to that of other countries.
A distinguishing feature of GX-ETS is that initial allocations will be made entirely free of charge from fiscal 2026 through fiscal 2032. Covered entities include power generation, steel, chemicals, cement and paper manufacturing, as well as freight transport, domestic shipping and aviation. Companies will need to purchase allowances from the market only when their emissions exceed their free allocations.
According to World Bank data, GX-ETS covers approximately 60% of Japan’s domestic greenhouse gas emissions, although the coverage rate under the system and the actual market burden may differ. Compared with major markets such as the EU-ETS, China and South Korea, the effective cost is influenced not only by price levels but also by the proportion of free allocations and whether auctions are held.
Market prices are still developing shortly after mandatory participation began. The indicative upper trading price has been set at ¥4,300 and the adjusted benchmark trading price at ¥1,700, with an adjustment mechanism designed for situations in which prices remain above or below either level. In relation to CBAM, domestic prices alone do not automatically generate a deduction, making the effective carbon burden in the domestic market crucial.
While auction revenues are substantial in international markets such as the EU-ETS, Japan’s initial free allocations mean that government revenues will be limited for the time being. The start of paid auctions from fiscal 2033 and the expansion of the fossil-fuel levy are expected to mark turning points for public finances and transition investment.