Japan's GX-ETS to accept international removal voluntary credits for compliance obligations

The Japanese government will accept the use of durable carbon dioxide removal (CDR) voluntary carbon credits in its national emissions trading system, the Green Transformation (GX) ETS, it said April 22.

The move came amid growing national carbon mechanisms in Asia that are working on creating space for high-quality voluntary credits to be used for compliance obligations.

Based on the GX plan's 10-year road map, the first phase of the ETS is set to last until the end of March 2026 and involve voluntary participation from domestic companies in a baseline-and-crediting type system. It will transition to a more traditional ETS, in which participation is compulsory, after 2026.

The ETS previously announced the acceptance of J-credits and Joint Credit Mechanism (JCM) offsets, both of which are national programs under the government.

According to Tokyo Stock Exchange prices, J-credits from energy conservation projects were priced at Yen 1,609/mtCO2e ($10.4/mtCO2e), while those from renewable electricity generation were at Yen 2,799/mtCO2e.

Projects under these national systems were restricted due to the lack of established technologies and monitoring methods for carbon absorption and removal credits to be generated.

Following the announcement, Japanese companies can choose between any combination of the accepted credits to fulfill their compliance obligations.

In addition to fulfilling nationally determined contribution targets, the usage of CDR voluntary credits in the ETS is also expected to enhance the competitiveness of Japanese companies in the relevant technological fields which could lead to the acquisition of new markets.

Removal methodologies accepted

Tentatively, the methodologies that will be accepted include carbon capture and utilization (CCU), bioenergy with carbon capture and storage (BECCS), coastal blue carbon, and direct air carbon capture and storage (DACCS).

Platts assessed the price of Tech Carbon Capture at $114/mtCO2e on April 19, while Blue Carbon was assessed at $27.60/mtCO2e on the same day.

Other methods may be added to this list in the future depending on the outcomes of government studies and council discussions, or if progress has been made in the formulation of other methodologies being considered.

Projects that are set to be implemented in Japan can be carried out anywhere throughout the country, however projects that are to be developed outside of Japan must be those that would be difficult to be carried out under the JCM or partner countries due to technical reasons.

The GX-ETS was launched in April 2023 as part of Japan's GX plan which is a core policy that outlines regulatory, financing, and technology development priorities for greening industries and covers roughly 600 million mt/year of emissions.