Policy and institutions · Japan

Japan's ETS panel weighs a three-month trigger for its allowance price ceiling and floor

On 25 September 2026, METI put a draft design for the GX-ETS price ceiling and floor measures to its emissions trading subcommittee.

Under the draft, either measure would start when the monthly average market price stays above the ceiling, or below the floor, for three months in a row; the FY2026 bounds are JPY 4,300 and JPY 1,700 per tonne, and later years are indexed.

The floor would be defended through single-price reverse auctions run by the GX Promotion Organization, outside the exchange.

25 Sep 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

At the ninth meeting of the Industrial Structure Council's emissions trading subcommittee on 25 September 2026, the METI secretariat (GX Group, Environmental Economy Office) tabled a 37-page paper on how the statutory price corridor of Japan's mandatory GX-ETS should work in practice. The paper is a proposal for discussion, not a final rule.

For the ceiling, the GX Promotion Act already lets companies that are short of allowances pay a charge equal to the reference ceiling price and be treated as holding the matching volume. The draft defines when that option opens. The reference price would be the simple average of daily contract prices on the allowance market in a calendar month, counted only if trades were made on at least 70% of that month's trading days. A price test would be met if this monthly average exceeds the ceiling for three consecutive months, the shortest period the paper found among overseas schemes. Testing for year T obligations would run from April of year T+1 to the January surrender deadline, against the year T+1 ceiling. A volume test would also apply from December: one month or more with no sell orders at or below the ceiling, or with buy orders left unfilled after all such sell orders are matched.

For the floor, the same three-month test would apply in reverse, at any time of the year. The GX Promotion Organization would then buy allowances in a reverse auction held off-exchange, open to the same participants as the allowance market. Winning offers would all receive one clearing price. The purchase formula and a maximum purchase price, set below the floor, would not be disclosed. Allowances bought this way would later be sold back in several rounds when the one-month average price nears the ceiling.

Context

Background

Japan's mandatory scheme took effect in FY2026 for companies emitting 100,000 t-CO2 or more a year. METI notified on 30 March 2026 a FY2026 reference ceiling of JPY 4,300 and an adjustment reference price (floor) of JPY 1,700 per tonne. From FY2027 each bound is the prior-year price multiplied by 1.03 plus projected corporate goods price inflation. A company that fails to surrender pays JPY 4,730 per missing tonne, or 1.1 times the ceiling.

Allowances for FY2026 are allocated free of charge in FY2027, and the government allowance market is planned to open around autumn FY2027. Paid auctioning starts only for power generators from FY2033, which is why Japan needs a buy-back tool rather than an auction reserve price to hold the floor in the meantime.

Data

How it compares

How Japan and Korea keep allowance prices in a range

Source: METI; 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 trigger is a September 2026 secretariat proposal, not a final rule.

Table of the same figures
ItemJapan GX-ETS (FY2026)Korea K-ETS (Phase 4)
Upper price toolPay JPY 4,300 per tonne short and be deemed to hold the allowanceRelease from an 85 Mt market stability reserve inside the cap
Lower price toolGX Promotion Organization buys allowances when prices fall below JPY 1,700Auction supply held back when the auction price drops below a set level
Trigger basisProposed: monthly average beyond the bound for 3 months in a rowAuction price outside a pre-set range
Penalty for shortfallJPY 4,730 per tonne (ceiling x 1.1)Up to 3 times the year's average market price
Ahead

What is next

  • 2027-03-31: METI must fix the FY2027 ceiling and floor before the fiscal year starts on 1 April 2027.
  • 2028-01-31: First surrender deadline, covering FY2026 emissions.
Record

Sources

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