JAPAN Trends and Developments Contributed by: Takahiro Kobayashi, Shigeki Okatani, Yusuke Murakami and Hirohiko Tanaka, Mori Hamada
Green Transformation or GX Policy Policy trends
contributions. For these bonds, which are individually issued as “Japan Climate Transition Bonds”, the oper- ational framework was revised in June 2025, and the corresponding second-party opinions and allocation/ impact reporting were subsequently updated in 2026. Hydrogen strategy The Japanese government regards both hydrogen and ammonia as indispensable alternative energy resourc- es to achieve carbon neutrality. In the Hydrogen Basic Strategy revised in 2023, the target for hydrogen and ammonia implementation in 2040 is set at approxi- mately 12 million tonnes per year and this target is reaffirmed in the Seventh Strategic Energy Plan. The “Hydrogen Society Promotion Act”, which came into force on 23 October 2024, created two support mechanisms: • a 15-year CfD scheme that pays producers and importers the gap between their cost and a bench- mark fossil-fuel price (with a budget of up to JPY3 trillion); and • capital grants for hydrogen supply-chain infra- structure, including a front-end engineering design (FEED)-stage subsidy for hydrogen hub projects, launched in March 2025. In the first round of applications for the CfD scheme, which closed on 31 March 2025, the government received 27 business plan submissions, six of which had been certified by March 2026. Regarding the infrastructure capital grants, 12 applications for hydrogen hub projects were submitted by the 30 June 2025 deadline, with two plans officially certified on 27 March 2026. The enforcement regulation under the act codifies a carbon intensity threshold of 3.4 kg-CO₂e per kg-H₂, thereby aligning Japan’s standard with emerging inter- national benchmarks and ensuring that public finan- cial support is directed exclusively towards genuinely low-carbon hydrogen. Carbon capture and storage The government considers carbon capture and stor- age (CCS) indispensable for achieving carbon neu- trality. A study group established by METI set the fol-
The Japanese government is promoting its “Green Transformation” (GX) policy, with a carbon pricing mechanism serving as a pivotal measure. Following the cabinet approval of the “Basic Policy for Imple- menting GX” in February 2023 and the enactment of the “GX Promotion Act” in May 2023, the govern- ment established the “GX Promotion Strategy” in July 2023, which has since been updated as the “GX 2040 Vision”. To stipulate the concrete legal mechanisms for carbon emissions trading, the GX Promotion Act was amended in May 2026. The emissions trading system, which entered full-scale operation in FY 2026, applies to businesses whose average direct energy-related CO₂ emissions over the preceding three fiscal years are at least 100,000 tonnes. Under government guidelines that reflect sec- tor-specific characteristics, emissions allowances are initially allocated to these covered participants free of charge. Each fiscal year, participants must submit emissions reports verified by registered verification bodies, and hold allowances equivalent to their actual emissions by the statutory deadline. To facilitate this, the govern- ment provides a regulated emissions trading market where participants can trade surplus or deficit allow- ances. Furthermore, a price-collar (price-stabilisation) mechanism has been introduced to maintain market stability; for FY 2026, the reference upper trading price (“ceiling”) is set at JPY4,300 per t-CO₂ and the adjust- ment benchmark trading price (“floor”) at JPY1,700 per t-CO₂. Under the broader GX roadmap, additional carbon pricing measures will be phased in, including a fossil- fuel surcharge on fossil-fuel importers scheduled to begin in FY 2028, followed by the introduction of an allowance auction scheme for electricity producers in FY 2033. Furthermore, GX Economy Transition Bonds are to be issued on a scale of approximately JPY20 trillion over a ten-year period from FY 2023, with full redemp- tion planned by FY 2050, using revenues from the fossil-fuel surcharge and specified business operator
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