Tokyo Stock Exchange kicks off domestic carbon credits trading

Tokyo Stock Exchange kicked off trading of domestic carbon credits Oct. 11, which is expected to boost liquidity and enable price discovery in this nascent market, TSE said in a statement.

This move allows the Ministry of Economy, Trade and Industry to establish a carbon pricing mechanism that encourages companies to actively work towards cutting emissions. The government has committed to be carbon neutral by 2050, by slashing 46% of emissions by fiscal year 2030-31 (April-March).

The J-Credit scheme was established in 2008. Under this scheme, the Japanese government certifies the amount of greenhouse gas emissions reduced and removed in the country. Before introducing an exchange-based marketplace, J-Credits were traded over the counter or through government auctions, with limited price transparency.

"The use of carbon credits will be extremely effective for drawing GX [green transformation] investments from private companies while effectively cutting emissions in society as a whole," METI minister Yasutoshi Nishimura said in the statement.

"By pricing the value of reducing carbon [emissions] through the [carbon] credit trades, it is hoped that it will not only increase predictability of investment for decarbonization but also accelerate corporate efforts toward GX."

The first day of trading saw 3,689 mtCO2e of J-Credits traded, among which 96.56% were generated from renewable electricity projects, according to a follow-up statement from TSE.

The prices of J-Credits were in a range of Yen 2,480-9,900/mtCO2e ($16.68-$66.57/mtCO2e) range, depending on project types. The most expensive J-credits were generated from forest sink projects, in a range of Yen 7,000-9,900/mtCO2e.

Platts, part of S&P Global Commodity Insights, assessed nature-based avoidance credit at $5.15/mtCO2e on Oct. 10.

Overall, prices of J-Credits are significantly higher than credits generated from projects in other countries, especially developing countries, which also reflects the high costs of project development in Japan.

First-day trade volumes and traded prices of J-Credits

Note:

*There are two call auctions in a day at 11:30 am and 3 pm.

**J-VER credits will eventually be transferred to the J-Credit scheme.

J-Credits are currently allowed to be used both as voluntary carbon offsets and under the country's newly launched compliance emission trading scheme.

During Phase 1 of the Japanese ETS that will end in March 2026, companies are allowed to voluntarily set their emission reduction targets, S&P Global reported earlier(opens in a new tab). In countries with more mature ETS, such as the EU, South Korea and China, companies have to follow compulsory targets set by the government.

Besides J-Credits, futher environmental products are expected to be listed on this exchange-based marketplace.

Starting with the listing of J-Credits, Nishimura said in the statement that he hopes the carbon credit market will develop into "an important infrastructure" that advances GX investments "by trading various environmental values" in the future.