Japan emission trading system begins

Under the system, launched at the start of fiscal 2026 on Wednesday, such companies are allocated emission allowances for free by the government and are allowed to sell their surpluses if they emit less than their quotas.

Actual trading is expected to begin next year.

The system is aimed at curbing CO2 emissions to within allocated limits to achieve a decarbonized society.

Companies that have emitted an average of more than 100,000 tons of CO2 over the past three years are obliged to take part in the system.

Some 300 to 400 companies, such as steelmakers, power suppliers and automakers, are expected to participate, accounting for nearly 60 pct of all domestic greenhouse gas emissions.

Companies are allocated emission allowances based on their past emission amounts, and those that emit CO2 in excess of their quotas must buy surplus allowances from other participants to make up for their shortfalls in allowances.

Meanwhile, businesses with emissions below their allocated levels can sell their leftover allowances or use them at a later time.

This fiscal year, the government will have companies calculate their CO2 emissions and set their emission reduction targets for the period ending in fiscal 2030.

Allowances will be allocated in November 2027, after which actual trading will begin.

The trading system is seen increasing costs for some businesses.

But it is also expected to promote the use of fuels with low CO2 emissions and reduce reliance on fossil fuels, for which Japan relies heavily on imports.