Policy and institutions · Japan

METI proposes letting GX-ETS firms bank surplus allowances up to 15% of a year's allocation

On 27 October 2026, METI proposed that companies in the GX-ETS keep banked surplus only up to 15% of their allocation two years earlier.

Surplus above that line that is not sold on the government allowance market by the end of August would be deducted from a later allocation.

The first deduction would be calculated in FY2029, two years after the market opens around autumn FY2027.

27 Oct 2026Policy and institutionsJapanPublished 12 Nov 2026
Tokyo, Minato City skyline with Tokyo Tower in evening light
Tokyo, Minato City skyline with Tokyo Tower in evening light. Photo: David Kernan, CC BY 4.0, source. Resized only; no other change.
Report

What happened

The METI secretariat presented a 47-page paper on banking rules and on publishing allocation data to the tenth meeting of the emissions trading subcommittee on 27 October 2026. The paper is a draft for discussion; the panel plans to compile its conclusions around the end of 2026 and then revise ministerial ordinances and notices.

The draft keeps banking but caps how much surplus a company can hold without selling. The deduction for year T would equal the cumulative surplus up to year T-2 (total allocation minus total verified emissions), minus net sales, minus a threshold of 15% of the T-2 allocation; a negative result means no deduction. Net sales count only allowances sold on the allowance market run by the GX Promotion Organization, including sales into its reverse auctions, minus everything bought on or off the market, measured up to the end of August of year T. The 15% figure reflects the largest two-year shortfall a firm could face when its activity grows by just under the 7.5% level that would trigger an allocation adjustment.

In a worked example in the paper, a firm whose cumulative allocation is 3.0 Mt and cumulative emissions 2.6 Mt has 0.4 Mt of surplus; with a T-2 allocation of 1.0 Mt, its threshold is 0.15 Mt; if it has sold 0.2 Mt by the prior August, selling another 0.05 Mt avoids any deduction. Because FY2026 and FY2027 allowances are both allocated in autumn FY2027, the first deduction would be calculated in FY2029. The paper also asks members to choose how allocations should be published: by company or by sector, and soon after each compliance cycle or in a batch years later. It proposes publishing each company's emissions after its compliance cycle ends.

Context

Background

Japan's mandatory ETS took effect in FY2026 with free allocation based on sector benchmarks and grandfathering, and paid auctioning is set to start only for power generators from FY2033. The FY2026 price band runs from JPY 1,700 to JPY 4,300 per tonne. Because the ceiling was set from current fuel-switching costs, the secretariat argues that unlimited banking could build expectations of tighter post-2030 rules into today's prices and hold back supply.

The paper cites Korea's experience: the K-ETS introduced market makers and a banking limit together in Phase 2 to push surplus into the market, then let securities firms join and added more market makers in Phase 3. Korea's Phase 4 now relies on an 85 Mt market stability reserve and an effective auction share of 11.0% to manage supply, tools Japan does not yet have.

Data

How it compares

Supply levers in Japan's and Korea's emissions trading schemes

Source: METI; e-Gov (Digital Agency); METI (Industrial Structure Council); Ministry of Climate, Energy and Environment (MCEE), published on korea.kr; Korea Ministry of Government Legislation, National Law Information Center (law.go.kr). Checked 2026-11-12. Japan's banking threshold of 15% is an October 2026 secretariat proposal, not a final rule.

Table of the same figures
LeverJapan GX-ETSKorea K-ETS (Phase 4)
AllocationFree allocation by sector guidelinesEffective auction share of 11.0%
Paid auctioningPower generators from FY2033Power sector 15% in 2026 rising to 50% in 2030
Reserve inside the capNone; floor held by GX Promotion Organization buy-backs85 Mt market stability reserve
Offset credit limit10% of each year's emissionsUp to 10% of surrender obligation
Ahead

What is next

  • 2028-01-31: First surrender deadline, covering FY2026 emissions.
Record

Sources

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