Japan

This Country Framework is part of the Regulatory Frameworks for Project-Based Carbon Credit Markets. To learn more click here.

Overview

Japan’s project-based carbon credit market (PCCM) is characterized by a sophisticated, multitiered regulatory structure supporting its climate ambitions and net-zero by 2050 commitment. Grounded in the GX Promotion Act¹―passed in May 2023 and revised in May 2025―and the Act on Promotion of Global Warming Countermeasures,² Japan’s system integrates mandatory and voluntary components,³ robust supply standards, and market infrastructure, with full international cooperation under Article 6 of the Paris Agreement.

Japan’s PCCM integrates three principal components:

GX-ETS (Green Transformation Emissions Trading Scheme), which began as voluntary in 2023, became mandatory in April 2026 for large emitters—exceeding 100,000 tons of carbon dioxide equivalent (tCO₂e) per year—and is enforced for 300–400 entities;
J-Credit Scheme, whichcovers domestic offset credits for voluntary and compliance use jointly managed by the Ministry of Economy, Trade and Industry (METI), Ministry of Environment (MOE), and Ministry of Agriculture, Forestry and Fisheries (MAFF), covering renewable energy, energy efficiency, waste management, agriculture, forestry, mineralization, and biochar;⁴ and
Joint Crediting Mechanism (JCM), whichis a bilateral international crediting program, with 31 partner nations, that is Article 6.2 compliant.⁵

These mechanisms are supported by a national registry infrastructure; mandatory third-party measurement, reporting, and verification (MRV) standards (ISO 14064 and 14065); and public transparency through the Japan Exchange Group (JPX) Carbon Credit Market, which launched in October 2023 to facilitate spot trading of J-Credits and JCM credits.

The GX Promotion Act also introduced GX economy transition bonds worth ¥20 trillion (approximately US$130 billion)⁶ over 10 years⁷ to mobilize ¥150 trillion (approximately US$960 billion) in green investment by 2032,⁸ integrating carbon markets with national fiscal policy. The bond proceeds fund infrastructure for domestic J-Credit projects and bilateral JCM programs, including technology development in hydrogen, ammonia, carbon capture and storage (CCUS), direct air capture (DAC), and other emerging decarbonization pathways. This creates the supply of carbon credits that will circulate through the market.⁹

The legal framework is based on statutory requirements and entails binding compliance from 2026 onward for high-emission sectors, supported by mandatory third-party verification, public registries, and robust enforcement protocols.

I. Supply-Side Regulations

Japan operates a multitiered, statute-anchored PCCM comprising a national emissions trading scheme (GX-ETS), a domestic crediting system (J-Credit), and the bilateral JCM, all embedded in Japan’s broader net-zero strategy and Article 6 cooperation. The GX Promotion Act provides the legal backbone for carbon pricing mechanisms (ETS and related surcharges) and financing instruments (GX transition bonds), while implementation details are carried through METI and MOE ordinances, covering program rules, registry, and market infrastructure.

A. Regulatory Framework

Market Classification: Hybrid (compliance and voluntary):

Compliance: GX-ETS¹⁰ transitioned from a voluntary phase to mandatory coverage in April 2026 for large emitters; regulated entities may use approved credits (J-Credit and JCM credits) to offset up to 10 percent of their annual emissions for compliance purposes.
Voluntary: The J-Credit Scheme¹¹ issues domestic credits for emission reductions and removals across energy, industrial, and land-use sectors; credits can be voluntarily retired or used (within limits) for GX-ETS compliance.
International (Article 6.2):JCM¹² generates credits from bilateral projects with 31 partner countries as of August 2025. JCM credits are tracked with corresponding adjustments under Article 6.2 of the Paris Agreement and can be used toward both Japan’s and partner countries’ nationally determined contributions (NDCs).

Regulatory Status: The GX Promotion Act¹³ provides statutory authority for GX-ETS, carbon pricing, and the legal mandate to link compliance with voluntary carbon credits. The Act on Promotion of Global Warming Countermeasures¹⁴ sets obligations for government climate planning, monitoring, and reporting. The J-Credit Scheme is jointly administered by METI, MOE, and MAFF,¹⁵ while JCM is governed by MOE, METI, the Ministry of Foreign Affairs(MOFA), MAFF, and the Ministry of Land, Infrastructure, Transport and Tourism through the JCM Promotion and Utilization Council.¹⁶ Binding compliance for GX-ETS begins April 2026.
Key Authorities:
METI: Leads overall GX strategy and GX-ETS design, co-administers J-Credit, and coordinates JCM implementation.¹⁷
MOE: Co-administers J-Credit and JCM, and oversees climate planning and environmental policy.¹⁸
MAFF: Co-administers J-Credit for forestry and land-use sectors.¹⁹
Ministry of Land, Infrastructure, Transport and Tourism: Supports JCM projects in the transport and infrastructure sectors.²⁰
MOFA: Manages bilateral negotiations and agreements for JCM partner countries.²¹
JCM Promotion and Utilization Council: Consists of METI, MOE, MOFA, MAFF, and MLTI.²²
Sanctions: In the J-Credit and JCM schemes, fraud, double counting, or non-conformance with MRV requirements can lead to credit cancellation or revocation and public notification in the relevant registries under the applicable ministerial rules.²³

B. Credit Generation Standards

Eligible Activities:
J-Credit: Activities include renewable power generation (solar, wind, hydro, geothermal, and biomass), energy efficiency improvements (in industries and buildings), fuel switching where applicable, methane abatement and waste management, forestry and land-use activities (afforestation and improved forest management), and emerging carbon dioxide removal (CDR) pathways as methodologies are updated.

Biochar application to agricultural soils: Japan’s first biochar-based J-Credit was certified in June 2022.²⁴
Concrete mineralization (CO₂-absorbing concrete): This is a process in which CO₂ is chemically captured and permanently stored within concrete materials during production. The J-Credit methodology IN-006 was approved in August 2025 for this purpose.²⁵
Direct air capture: As of late 2024, a methodology for DAC projects is under development for the J-Credit Scheme.²⁶
JCM: This includes technology-transfer projects across 32 partner countries (as of April 2026)²⁷ spanning electricity supply; industrial efficiency; transport; waste; agriculture, forestry, and other land use (AFOLU); and process emissions.
Methodology Framework:

J-Credit: Methodologies are developed and approved by the J-Credit Scheme Committee under the joint administration of METI, MOE, and MAFF. Methodologies are periodically revised to strengthen environmental integrity, including revisions in 2025 to tighten baselines, emission factors, and monitoring requirements.
JCM: Methodologies are developed and approved by each bilateral joint committee, which consists of representatives from Japan and the partner country. All methodologies must be aligned with Article 6.2 of the Paris Agreement, incorporating principles such as additionality verification, conservative baselines, leakage treatment, and corresponding adjustment requirements to prevent double counting.²⁸

MRV Requirements: Independent validation and verification are mandatory (ISO 14064 or 14065 aligned) and must be performed by third-party entities designated by the bilateral joint committee. JCM and J-Credit suppliers must use accredited designated operational entities (e.g., Japan Quality Assurance Organization²⁹) under published validation and verification guidelines. Verification frequency and data-quality tests are specified at the methodology level.
Registry System: J-Credit and JCM maintain publicly searchable life cycle registries³⁰ tracking issuance, transfer, retirement, and cancellation of each uniquely serialized credit.³¹ JCM registries implement Article 6.2 corresponding adjustments to prevent double counting across countries’ NDCs.

C. Integrity Principles

Additionality Tests: Projects must demonstrate that emission reductions or removals exceed the business-as-usual baseline scenario and that the activity would not occur in the absence of carbon credit revenue. J-Credit methodologies specify project-specific additionality tests that may include assessment of financial viability, regulatory barriers, or common practice analysis.³² JCM projects must pass additionality tests aligned with Article 6.2 requirements,³³ including demonstration that the activity is not legally required, meets financial or technical barrier tests, and involves multi-year financial projections reviewed during validation.
Permanence Safeguards:
J-Credit and JCM AFOLU: Forest and land-use projects require ongoing monitoring and reversal compensation. The specific permanence monitoring period is not uniformly specified in J-Credit program rules; however, JCM AFOLU projects typically follow Clean Development Mechanism–equivalent standards with monitoring requirements every two to five years. Reversal risk is managed through project-specific risk assessments and buffer account contributions at the methodology level.
GX-ETS CDR eligibility: For CDR credits to be eligible in GX-ETS compliance, projects must demonstrate permanence typically over 100 years and robust MRV processes. Eligible CDR project types include direct air capture and storage, bioenergy with carbon capture and storage, coastal blue carbon, and CCUS. Buffer and reversal mechanisms are embedded in the respective CDR methodology standards.³⁴
Quantification Standards: Quantification uses conservative baselines below business-as-usual scenarios, with documented leakage accounting and uncertainty management through sampling plans and confidence intervals. Transparent emission factors follow Intergovernmental Panel on Climate Change guidelines. JCM methodologies are publicly posted and approved by bilateral joint committees. J-Credit methodologies are periodically refined, with multiple updates in 2024 and 2025 to strengthen baseline rigor and monitoring.³⁵
Double-Counting Prevention: Unique serialization and single-program registration rules apply. For Article 6.2, corresponding adjustments are applied on international transfers (Japan filed its initial report in October 2025 detailing accounting).

D. Sustainable Development

Co-Benefits: J-Credit and JCM projects often demonstrate sustainable development goals co-benefits (energy access, air quality, biodiversity, local jobs, tech transfer); while encouraged and reported, co-benefit delivery is not a universal eligibility precondition outside AFOLU safeguards.
Net-Zero Compatibility: The market is explicitly aligned with 2050 net-zero target, 2030 NDC (46 percent lower emissions vs. 2013, efforts toward 50 percent), and new interim milestones (60 percent emission reduction by 2035; 73 percent by 2040); durable CDR pathways are being integrated for long-term balancing.

II. Demand-Side Regulations

A. Use Authorization Framework

Applications Allowed:
Voluntary claims: Japan allows project-based credits (J-Credit,³⁶ JCM credits) to be purchased and retired by corporations, municipalities, and individuals for purposes such as voluntary carbon neutrality; environmental, social, and governance (ESG); corporate social responsibility (CSR) reporting; and other sustainability goals. These claims are supported by the public J-Credit registry and the JCM registry.
Compliance integration: Covered entities in the national GX-ETS must surrender GX allowances for Scope 1 emissions. Up to 10 percent of obligations may be met using approved project-based credits (J-Credit, JCM, and removals), with mandatory compliance starting in April 2026.³⁷
NDC alignment: JCM credits (used by Japan and partner countries) and J-Credits officially count toward Japan’s Paris Agreement NDC targets. International transfers are only permitted with corresponding adjustments under Article 6 rules.³⁸
Regulatory Status: Legal authorization for credit use stems from the GX Promotion Act and the Act on Promotion of Global Warming Countermeasures. The GX-ETS operational guidelines and ministerial rules define surrender limits, registry procedures, and verification cycles for compliance use. Covered entities may use approved credits (J-Credit and JCM) to offset up to 10 percent of their annual Scope 1 emissions. For voluntary credits, usage is governed by J-Credit and JCM program manuals.
Oversight Bodies:
METI leads overall GX strategy and GX-ETS design, co-administers J-Credit, and coordinates JCM implementation.³⁹
MOE co-administers J-Credit and JCM, co-administers NDC alignment, and oversees climate planning and environmental policy.⁴⁰
GX Acceleration Agency (GXA) oversees GX-ETS registry operation, allowance allocation, enforcement of compliance obligations, and administration of the GX surcharge (from FY2028).⁴¹
Standards Integration: For compliance use under the GX-ETS, credits must be issued under government-approved systems (J-Credit or JCM) and must comply with each program’s government-issued MRV guidelines. J-Credit and JCM methodologies incorporate principles consistent with ISO 14064-1 (greenhouse gas [GHG] quantification) and ISO 14065 (verification and validation), although these ISO standards are not legally mandated for all credit users.³ Japan has not formally adopted the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles for compliance or voluntary use; instead, credit quality is determined by national program rules. For internationally transferred JCM credits, accounting follows Article 6.2 requirements, including authorization, corresponding adjustments, and reporting under Japan’s initial report and biennial transparency reports.⁴²
Enforcement Mechanisms:

Compliance: Under the GX-ETS, non-compliance is governed by the amended GX Promotion Act (revised May 2025). Covered entities must surrender allowances equal to their verified emissions. If allowances are insufficient, METI cancels available allowances and imposes a statutory unredeemed-equivalent charge on the remaining shortfall.⁴³
Voluntary: Retirement of credits is recorded in public registries with unique identification numbers and publicly available transaction records, ensuring transparency and preventing double counting. Marketing claims related to voluntary carbon offsets are subject to the Act Against Unjustifiable Premiums and Misleading Representations enforced by the Consumer Affairs Agency. False, unsubstantiated, or materially misleading offset claims may trigger administrative cease-and-desist orders under the Consumer Affairs Agency’s authority.⁴⁴

B. Corporate Use Requirements

Mitigation Hierarchy: Japan’s official guidelines on the approach to carbon offsetting⁴⁵ set out a clear “measure-reduce-offset” sequence for all actors undertaking carbon offsetting. Entities are expected first to recognize their own GHG emissions and implement emission-reduction measures to the greatest extent possible, and the guidelines explicitly state that carbon offsetting must not be used to justify not reducing one’s own emissions. For carbon-neutral claims, entities must set targets and plans to minimize emissions and continuously reduce them, and only then use credits to compensate for the remaining, hard-to-abate portion. These principles shape Japan’s broader guidance on voluntary credit use and inform the policy context for how credits complement, rather than substitute for, real-economy decarbonization.
Scope Coverage: The GX-ETS mandates coverage of Scope 1 emissions only for companies emitting more than 100,000 tCO₂e per year (April 2026 onward).⁴⁶ Scope 2 and Scope 3 emissions are not covered under mandatory GX-ETS compliance. However, companies may voluntarily report and offset Scope 2 and Scope 3 emissions using J-Credits and JCM credits as part of voluntary climate commitments, ESG reporting, or science-based targets (SBTs) frameworks, with restrictions on credit-usage ratios per SBT guidelines.
Quality Standards: Only government-approved credits (J-Credit, JCM, removals, concrete mineralization) can be surrendered; credits must meet system MRV and verification requirements.
Accounting Treatment: Credit use is officially tracked in public registries operated by the Ministry of the Environment (J-Credit registry),⁴⁷ the Global Environment Centre Foundation (JCM registry), and the Japan Exchange Group (JPX Carbon Credit Market registry).⁴⁸ All retirements and cancellations are recorded with unique serial numbers and made publicly available. Companies using credits must align their internal accounting records with registry records to ensure accuracy and prevent double counting. For GX-ETS compliance, covered entities must submit verified annual emissions reports to the GX Acceleration Agency, documenting allowance holdings, surrenders, and any credits used to meet compliance obligations of up to 10 percent of annual Scope 1 emissions.

C. Transparency and Assurance

Public Reporting: GX-ETS participants must publicly disclose annual Scope 1 emissions, allowance holdings, compliance status, and any credits used toward the 10 percent offset limit. GX League members must report emission-reduction targets and progress through the GX League platform. J-Credit⁴⁹ and JCM registries⁵⁰ publish project-level data, including methodology, issuance volume, retirement records, and project participants, accessible via public databases. The JPX Carbon Credit Market publishes real-time trading data, including daily price movements and transaction volumes.⁵¹
Third-Party Verification: J-Credit and JCM credits must undergo independent validation and verification by government-approved third-party entities accredited under each program’s MRV guidelines—for example, Japan Quality Assurance Organization and other accredited validators or verifiers designated by MOE and METI. Under the GX-ETS, corporate emissions reports must be verified by accredited GHG verification bodies, while voluntary corporate offset disclosures may be subject to external assurance in line with GX League or corporate ESG reporting practices.
Science-Based Targets: Adoption of SBTs and alignment with Japan’s national net-zero pathway are encouraged under the voluntary GX League framework but not required by law. Participation in GX League involves setting medium- to long-term emissions-reduction targets consistent with Japan’s 2050 net-zero goal, and many Japanese corporations voluntarily adopt SBTs or equivalent decarbonization pathways, although this remains outside formal GX-ETS compliance obligations.
Policy Advocacy: Corporate buyers are expected to disclose voluntary offset use and engage in policy dialogues through the GX League and Japan Climate Leaders’ Partnership.

D. Market Integrity Protection

Anti-Greenwashing: Registry serialization and public retirement data prevent double claims. Misrepresentation may trigger revocation or consumer protection scrutiny.
Co-Benefits Delivery: While not a legal requirement for buyers, J-Credit and JCM projects must document sustainable development goals co-benefits during validation, which buyers can reference in voluntary claims.

III. Market-Side Regulations

A. Infrastructure Framework

Market Structure: Japan operates an exchange-based spot market for carbon credits as non-financial environmental instruments through the JPX Carbon Credit Market launched on October 11, 2023.⁵² JPX lists eligible units, primarily J-Credits, as non-security commodities, with trades executed via call auctions and settled on a T+5 basis (five business days after trade date) through registry-linked delivery.⁵³ Regional ETS programs (Tokyo and Saitama) continue to operate in parallel and interact with national crediting systems where permitted.
Market-side rules: Market rules govern participant eligibility (corporations, governments, local governments, and voluntary organizations meeting financial stability and creditworthiness criteria), registry integration for trade settlement (linking J-Credit and GX registries to the JPX trading system for T+5 delivery),⁵⁴ price discovery through call auction mechanisms,⁵⁵ price limits (plus or minus 90 percent from base price), order types, compliance monitoring, and trade reporting transparency. Block trades are not currently available on the JPX Carbon Credit Market, though they may be introduced in future phases.³ Spot trading is governed by JPX operating protocols, Tokyo Stock Exchange Carbon Credit Market Participation Terms and Conditions, and oversight from the Financial Services Agency (FSA), METI, and MOE.

Registry Operations: Japan operates public life cycle registries for its two major project-based crediting systems: the J-Credit registry for domestic credits and the JCM registry System, which is jointly managed by Japan and each partner country for bilateral credits. The JCM registry assigns unique identifiers to all units and records issuance, authorization for Article 6 use, first transfer, subsequent transfers, acquisition, cancellation, and retirement. Japan’s Article 6.2 initial report sets out how corresponding adjustments and international transfer records are tracked to ensure compliance with Paris Agreement rules.
Data Standards: Market and registry documentation requires unique serialization of each credit unit (with distinct serial numbers preventing double issuance), publicly searchable credit records in government-operated registries (J-Credit registry, JCM registry), and registry-based settlement and retirement with permanent electronic recording. METI’s GX League framework and related GX-ETS design documents (developed through the Legal Issues Study Group and GX Implementation Council) establish how credits circulate through the GX Dashboard (for GX League member disclosure), the JPX Carbon Credit Market (for spot trading and price discovery), and integrated registries, ensuring data integrity and transparency.⁵⁶

B. Trading and Participation

Eligibility Rules: Participation in the JPX Carbon Credit Market requires registration with JPX and compliance with JPX participation terms and conditions.⁵⁷ Eligible participants include corporations, financial institutions, government agencies, local governments, and qualified voluntary organizations meeting JPX creditworthiness and financial stability standards.⁵⁸ Project-based credits must be issued under an eligible scheme (J-Credit or JCM) and recorded in the respective registry (J-Credit registry or JCM registry) before they can be traded on JPX. Credits must be in the registry participant’s account to be offered for sale. Covered entities participating in mandatory compliance programs, the national GX-ETS (mandatory from April 2026 for emitters exceeding 100,000 tCO₂e annually), and regional schemes (Tokyo Metropolitan Government, Saitama Prefecture) must transact in accordance with their respective participation rules, reporting requirements, and surrender deadlines. GX League participants (voluntary corporate coalitions) may also purchase and retire credits on the JPX market, provided they comply with GX League disclosure standards and data-reporting requirements.⁵
Trading Mechanisms: JPX operates the Carbon Credit Market using a call-auction system with two daily sessions: morning session (8:00 a.m. to 11:30 a.m., with auction execution at 11:30 a.m.) and afternoon session (12:30 p.m. to 3:00 p.m., with auction execution at 3:00 p.m.).⁵⁹ Trading follows order-book matching rules with a standardized tick size (minimum price increment) and price-limit bands of plus or minus 90 percent from the reference price to prevent excessive volatility. Settlement occurs on a T+5 basis, with simultaneous registry-linked delivery: Credits are transferred from the seller’s J-Credit or GX registry account to the buyer’s account upon payment confirmation, ensuring settlement and preventing delivery failure.⁶⁰ JCM credits are managed through bilateral registry systems (Japan registry and partner-country registries) and are traded internationally with corresponding adjustment recording to comply with Article 6.2 requirements. Direct JPX trading of JCM credits is not available; instead, JCM credits are used for international offsetting or converted to domestic instruments under specific bilateral agreements.
Settlement Systems: Trades executed on JPX settle on the sixth business day (T+5)⁶¹ with registry-linked delivery to ensure that only credited units change hands and that retirements or cancellations are reflected in the registry of record.
Price Discovery: Price discovery is through exchange auctions and continuous quotes per market rules; the government strategy documents emphasize public price discovery to improve transparency of carbon signals across the economy.
Oversight Authority: The national GX-ETS is administered by the government through METI and the GX decarbonization promotion agency, which oversee target-setting, compliance, credit-use rules, and reporting. The JPX Carbon Credit Market is operated by the Tokyo Stock Exchange group under its own exchange rules, with market conduct and operational oversight falling under JPX and, at the regulatory perimeter level, the FSA’s guidelines for non-securities environmental instruments.
Legal Classification:
Assigned emission allowances: Under Japanese law, GX-ETS allowances and most project-based credits (J-Credits and JCM credits) fall within the statutory category of “assigned emission allowances” as defined in Article 2(7)⁶² of the Act on Promotion of Global Warming Countermeasures and referenced in the Cabinet Office Ordinance on Financial Instruments Business.⁶³ These units exist only as electronic entries in government-operated registries (GX , J-Credit, and JCM), each corresponding to 1 tCO₂e of permitted emission (GX allowances) or certified emission reduction or removal (J-Credits and JCM credits).⁶⁴ Rights and obligations for allocation, holding, transfer, cancellation, retirement, and compliance use are established under the GX Promotion Act, the Act on Promotion of Global Warming Countermeasures, and ministerial scheme rules.⁶⁵ Credits do not become “financial securities” under the Financial Instruments and Exchange Act (FIEA); instead, under FSA guidance,⁶⁶ J-Credits, JCM credits, and certain high-integrity voluntary credits are treated as “assigned emission allowances or similar instruments” for the limited purpose of allowing financial institutions to broker or intermediate them.⁶⁷ Notably, there is no comprehensive legislation in Japan that specifically regulates carbon credit transactions; in principle, carbon credits can be freely traded within Japan.⁶⁸ The Tokyo Stock Exchange’s Carbon Credit Market operates as a market separate from its financial instruments markets, even though assigned emission allowances are recognized as a specific category under financial sector regulations.⁶⁹
Inventory: If J-Credits, JCM credits, or GX-ETS allowances are held for resale (e.g., by traders, brokers, or project aggregators) or to be consumed in producing other goods or services, they are treated as inventory and measured at the lower of cost or net-realizable value.⁷⁰
Intangible assets or other fixed assets: If J-Credits, JCM credits, or GX-ETS allowances are held for the entity’s own use to offset its emissions as part of a long-term decarbonization strategy (rather than for trading), they meet the definition of an intangible asset or other fixed asset (identifiable, nonmonetary, without physical substance, from which future economic benefits are expected). These are measured at cost, subject to review for impairment.⁷¹
Expense recognition: When credits or allowances are purchased and immediately surrendered to offset current-period emissions, entities may recognize them as an expense when surrendered, particularly where they do not meet asset-recognition thresholds due to immateriality or where they are acquired solely for immediate compliance use.⁷²

C. Market Integrity Safeguards

Anti-Manipulation and Fraud Prevention: JPX exchange rules prohibit short selling of credits entirely; participants may only sell credits they hold in their registry accounts, preventing naked short positions.⁷³ Serial-numbered issuance and publicly searchable J-Credit and JCM registries reduce the risk of double counting or double selling. FSA investigates market manipulation and insider trading under securities law; the JPX conducts surveillance of trading conduct and can impose trading halts or participant sanctions; MOE oversees credit scheme integrity and can revoke credit validation or cancel credits for fraudulent project documentation or verification failure; and GXA enforces GX-ETS compliance with statutory penalties for non-compliance.
Transparency and Reporting Requirements: JPX publishes market information and specifications; JCM and government Article 6 filings show public project information and transfers, retirements, and corresponding adjustment accounting.⁷⁴

D. Financial and Cross-Border Integration

Financial Regulation Integration: The JPX Carbon Credit Market operates within the Tokyo Stock Exchange group’s established market infrastructure and regulatory framework, including standardized trading rules, participant eligibility vetting, real-time market surveillance, and public disclosure requirements. However, carbon credits are not classified as financial securities under the FIEA; instead, they are treated as “assigned emission allowances”⁷⁵ under FSA guidance, subject to exchange rules rather than securities law.
Cross-Border Trading Framework: The JCM is implemented as a bilateral crediting mechanism under Article 6.2 of the Paris Agreement, establishing cooperative approaches between Japan and 31 partner countries⁷⁶ for international transfer of mitigation outcomes. Under Article 6.2, both Japan and the partner country authorize JCM credits and apply corresponding adjustments, an accounting mechanism that adds emissions to the partner country’s NDC inventory and subtracts equivalent emissions from Japan’s NDC inventory to prevent double counting when credits are transferred internationally and used toward Japan’s NDC. These procedures are detailed in Japan’s initial report and the official JCM program documentation issued by MOE, METI, and MOFA.⁷⁷

E. Regulatory Advancement Development Road Map

Infrastructure Plans: Government road maps for GX-ETS and METI’s carbon credit system call for continued registry upgrades, digital MRV experimentation, and expansion of JPX credit products as the market develops.

International Cooperation: Japan expands JCM partner countries and operationalizes Article 6 through reporting and bilateral committees anchoring cross-border project crediting and transfers.⁷⁸
Regulatory Evolution: JPX and regulators (FSA, METI, and MOE) are considering future enhancements to the Carbon Credit Market, including potential derivatives products (futures, options), expanded auction mechanisms, and standardized over-the-counter trading infrastructure; however, no official timeline or confirmed road map has been published as of November 2025.
Enforcement Enhancement: METI, MOE, and JPX are strengthening surveillance, compliance auditing, and market integrity measures in line with global best practice.

References

Cabinet Secretariat, Government of Japan, The Basic Policy for the Realization of GX, February 2023, https://www.cas.go.jp/jp/seisaku/gx_jikkou_kaigi/pdf/kihon_en.pdf. ↩
Government of Japan, “Act on Promotion of Global Warming Countermeasures” (“Act No. 117” of 1998, as amended), Ministry of the Environment English translation, 2023, https://www.japaneselawtranslation.go.jp/en/laws/view/4479/en. ↩
Kenji Miyagawa, Ryotaro Kagawa, Takao Oshima, So Kamimura et al., Recent Developments in Japanese and Global Climate Change and Carbon-Credit Regulations, Anderson Mōri & Tomotsune, March 2025, https://www.amt-law.com/asset/pdf/bulletins12_pdf/250319_en.pdf. ↩
Ministry of the Environment, Japan, “J-Credit Scheme,” 2023, https://japancredit.go.jp/english/. ↩
Ministry of Foreign Affairs of Japan, “Joint Crediting Mechanism (JCM): Partner Countries and Cooperative Approaches,” September 1, 2025, https://www.mofa.go.jp/ic/ch/page1we_000105.html. ↩
Currency conversion based on the exchange rate of ¥156.58 equal to US as of November 21, 2025. Source: Board of Governors of the Federal Reserve System, “Foreign Exchange Rates—H.10 Release: Japanese Yen to U.S. Dollar Spot Exchange Rate,” Federal Reserve Economic Data, November 21, 2025, https://fred.stlouisfed.org/series/DEXJPUS. ↩
Ministry of Economy, Trade and Industry, “GX Promotion Act: Market and Policy Statement,” 2024, https://www.enecho.meti.go.jp/en/category/special/article/detail_204.html. ↩
Cabinet Office, Government of Japan, The Government of Japan Climate Transition Bond Framework, June 2025, https://www.cas.go.jp/jp/seisaku/gx_jikkou_kaigi/ikousai/pdf/climate_transition_bond_spo_en_dvn.pdf. ↩
Government of Japan, “Climate Transition Bonds Show Japan’s Commitment to Carbon Neutrality,” September 27, 2024, https://www.japan.go.jp/kizuna/2024/09/climate_transition_bonds.html. ↩
Ministry of Economy, Trade and Industry, “Revision of Sector-Specific Investment Strategies as Effort for Specifying Investment Promotion Measures for the Realization of GX,” December 27, 2024, https://www.meti.go.jp/english/press/2024/1227_001.html. ↩
Ministry of the Environment, Japan, “J-Credit Scheme,” 2023, https://japancredit.go.jp/english/. ↩
Ministry of Foreign Affairs of Japan, “Joint Crediting Mechanism (JCM): Partner Countries and Cooperative Approaches,” September 1, 2025, https://www.mofa.go.jp/ic/ch/page1we_000105.html. ↩
Yasunori Iwanaga, “Japan Green Transformation: A Bold Ambition to Speed-Up the Transition in Asia,” Responsible Investment Pulse, Amundi Asset Management, July 2025, https://research-center.amundi.com/article/japan-green-transformation-bold-ambition-speed-transition-asia. ↩
Government of Japan, “Act on Promotion of Global Warming Countermeasures,” (“Act No. 117” of 1998, last amended 2023), https://www.japaneselawtranslation.go.jp/en/laws/view/4479/en. ↩
Ministry of Economy, Trade and Industry, Ministry of the Environment, and Ministry of Agriculture, Forestry and Fisheries, “J-Credit Scheme,” accessed April 6, 2026, https://japancredit.go.jp/english/. ↩
Ministry of Economy, Trade and Industry, “Recent Developments of the Joint Crediting Mechanism,” May 2024, https://www.meti.go.jp/policy/energy_environment/global_warming/jcm/pdf/en_Recent_Development_of_JCM_202405.pdf. ↩
Ministry of Economy, Trade and Industry, “Sector-Specific Investment Strategy Ver. 2.0,” December 27, 2024, https://www.meti.go.jp/english/press/2023/1222_002.html. ↩
Ministry of Economy, Trade and Industry, “Recent Development of the Joint Crediting Mechanism (JCM),” May 2024, https://www.meti.go.jp/policy/energy_environment/global_warming/jcm/pdf/en_Recent_Development_of_JCM_202405.pdf. ↩
Ministry of Economy, Trade and Industry, Ministry of the Environment, and Ministry of Agriculture, Forestry and Fisheries, “J-Credit Scheme,” accessed April 6, 2026, https://japancredit.go.jp/english/. ↩
Ministry of Economy, Trade and Industry, “Recent Developments of the Joint Crediting Mechanism,” May 2024, https://www.meti.go.jp/policy/energy_environment/global_warming/jcm/pdf/en_Recent_Development_of_JCM_202405.pdf. ↩
Ibid. ↩
Ministry of the Environment, Ministry of Economy, Trade and Industry, Ministry of Foreign Affairs, Ministry of Agriculture, Forestry and Fisheries, and Ministry of Land, Infrastructure, Transport and Tourism, Establishment of the JCM Promotion and Utilization Council, January 11, 2022, revised May 1, 2022, https://www.env.go.jp/content/000060591.pdf. ↩
Ministry of Economy, Trade and Industry, “Recent Developments of the Joint Crediting Mechanism,” May 2024, https://www.meti.go.jp/policy/energy_environment/global_warming/jcm/pdf/en_Recent_Development_of_JCM_202405.pdf. ↩
Honda Trading Corporation, “Decarbonization Project Through Biochar Application to Farmland Certified by J-Credit Certification Committee,” September 30, 2025, https://www.hondatrading.com/en/news/2025/10/5094574be1803d2fd3bbda1c32ee2a033a118fdb.html. ↩
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Quantum Commodity Intelligence, “Japan Approves Two J-Credit Protocols, Updates Two Others,” August 7, 2025, https://www.qcintel.com/carbon/article/japan-approves-two-j-credit-protocols-updates-two-others-46356.html. ↩
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Ministry of Economy, Trade and Industry, “Sector-Specific Investment Strategy Ver. 2.0,” December 27, 2024, https://www.meti.go.jp/english/press/2023/1222_002.html. ↩
Ministry of Economy, Trade and Industry, “Recent Development of the Joint Crediting Mechanism (JCM),” May 2024, https://www.meti.go.jp/policy/energy_environment/global_warming/jcm/pdf/en_Recent_Development_of_JCM_202405.pdf. ↩
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MSCI ESG Research, “What Japan’s GX-ETS Launch Could Mean for Corporate Earnings,” October 13, 2025, https://www.msci.com/research-and-insights/blog-post/what-japans-gx-ets-launch-could-mean-for-corporate-earnings. ↩
Ministry of the Environment, Japan, “J-Credit Registry,” accessed April 6, 2026, https://j-creditregistry.go.jp/toppage.html. ↩
Japan Exchange Group, “Carbon Credit Overview,” last updated December 30, 2025, https://www.jpx.co.jp/english/equities/carbon-credit/overview/index.html. ↩
Ministry of the Environment, Japan, “J-Credit Registry,” accessed April 6, 2026, https://j-creditregistry.go.jp/toppage.html. ↩
Ministry of Economy, Trade and Industry, Japan and Ministry of the Environment, Japan, “JCM Registry,” https://www.jcm.go.jp/. ↩
Japan Exchange Group, “Carbon Credit Overview,” https://www.jpx.co.jp/english/equities/carbon-credit/overview/index.html. ↩
Japan Exchange Group, “The Opening Date of the Carbon Credit Market,” September 22, 2023, https://www.jpx.co.jp/english/news/2040/20230922-01.html. ↩
Japan Exchange Group, Overview of Carbon Credit Market: Market System Specifications, T+5 Settlement, Auction Times, August 2025, https://www.jpx.co.jp/equities/carbon-credit/market-system/nlsgeu000006f14i-att/aocfb400000032ew.pdf. ↩
Japan Exchange Group, Overview of Carbon Credit Market: Market System Specifications, August 2025, https://www.jpx.co.jp/equities/carbon-credit/market-system/nlsgeu000006f14i-att/aocfb400000032ew.pdf. ↩
Japan Exchange Group, Carbon Credit Market Participation Terms and Conditions, November 6, 2025, https://www.jpx.co.jp/english/equities/carbon-credit/regulations/uorii50000001050-att/sjcobq0000029hn2.pdf. ↩
Japan Exchange Group, Overview of Carbon Credit Market: Market System Specifications, T+5 Settlement, Auction Times, August 2025, https://www.jpx.co.jp/equities/carbon-credit/market-system/nlsgeu000006f14i-att/aocfb400000032ew.pdf. ↩
Japan Exchange Group, Carbon Credit Market Participation Terms and Conditions, November 6, 2025, https://www.jpx.co.jp/english/equities/carbon-credit/regulations/uorii50000001050-att/sjcobq0000029hn2.pdf. ↩
Japan Exchange Group, Overview of Carbon Credit Market: Participant Eligibility, August 2025, https://www.jpx.co.jp/equities/carbon-credit/market-system/nlsgeu000006f14i-att/aocfb400000032ew.pdf. ↩
Ibid. ↩
Tokyo Stock Exchange, Inc., Outline of Specifications for the Carbon Credit Market, June 9, 2023, https://www.jpx.co.jp/rules-participants/public-comment/detail/d8/cg27su0000007ogz-att/cg27su0000007ojn.pdf. ↩
Japan Exchange Group, Overview of Carbon Credit Market: Market System Specifications, T+5 Settlement, Auction Times, August 2025, https://www.jpx.co.jp/equities/carbon-credit/market-system/nlsgeu000006f14i-att/aocfb400000032ew.pdf. ↩
Satoshi Nomura and Ryuichi Ito, “Overview of Carbon Credits (Part 2)—Legal Framework Governing Carbon Credit Transactions,” ZeLo Law Square, June 17, 2024, updated July 3, 2025, https://zelojapan.com/en/lawsquare/58306. ↩
Government of Japan, “Cabinet Office Ordinance on Financial Instruments Business,” Article 68, Items 16–17; Financial Services Agency, “Q&A on the Treatment of Carbon Credits,” December 26, 2022, https://www.fsa.go.jp/news/r4/sonota/20221226/01.pdf. ↩
Government of Japan, “Act on Promotion of Global Warming Countermeasures,” (“Act No. 117” of 1998, as amended), Article 2(7), https://www.japaneselawtranslation.go.jp/en/laws/view/4479/en. ↩
Government of Japan, “Act on Promotion of a Smooth Transition to a Decarbonized Growth-Oriented Economic Structure,” (“Act No. 32” of 2023, enacted May 2023), revised May 2025; see Cabinet Secretariat, Government of Japan, The Basic Policy for the Realization of GX, February 2023, https://www.cas.go.jp/jp/seisaku/gx_jikkou_kaigi/pdf/kihon_en.pdf. ↩
Financial Services Agency, Japan, Q&A on the Treatment of Carbon Credits, December 26, 2022, https://www.fsa.go.jp/news/r4/sonota/20221226/01.pdf. ↩
Satoshi Nomura and Ryuichi Ito, “Overview of Carbon Credits (Part 2)—Legal Framework and Key Considerations,” ZeLo Law Square, June 17, 2024, updated July 3, 2025, https://zelojapan.com/en/lawsquare/58306. ↩
Ibid. ↩
Japan Exchange Group, “Carbon Credit Overview,” accessed April 6, 2026, https://www.jpx.co.jp/english/equities/carbon-credit/overview/index.html. ↩
Accounting Standards Board of Japan, Emission-Related Schemes and Related Accounting Guidance in Japan, December 4, 2014, 7, https://www.asb-j.jp/en/wp-content/uploads/sites/5/20141204_e.pdf. ↩
Ibid. ↩
Ibid. ↩
Japan Exchange Group, Carbon Credit Market Participation Terms and Conditions, November 6, 2025, https://www.jpx.co.jp/english/equities/carbon-credit/regulations/uorii50000001050-att/sjcobq0000029hn2.pdf. ↩
Government of Japan, “Initial Report: Japan (Article 6.2),” UNFCCC, October 15, 2025, https://www4.unfccc.int/sites/SubmissionsStaging/Documents/202510150746—Initial_Report_Japan.pdf. ↩
Satoshi Nomura and Ryuichi Ito, “Overview of Carbon Credits (Part 2)—Legal Framework and Key Considerations,” ZeLo Law Square, June 17, 2024, https://zelojapan.com/en/lawsquare/58306. ↩
Ministry of Foreign Affairs of Japan, “Joint Crediting Mechanism (JCM): Partner Countries and Cooperative Approaches,” September 1, 2025, https://www.mofa.go.jp/ic/ch/page1we_000105.html. ↩
Government of Japan, “Initial Report: Matters Relating to Cooperative Approaches Referred to in Article 6 of the Paris Agreement (Article 6.2),” UNFCCC, October 15, 2025, https://www4.unfccc.int/sites/SubmissionsStaging/Documents/202510150746—Initial_Report_Japan.pdf. ↩
Ministry of Foreign Affairs, Japan, “Joint Crediting Mechanism (JCM),” September 1, 2025, https://www.mofa.go.jp/ic/ch/page1we_000105.html. ↩