In late September, the Tokyo Stock Exchange (TSE) launched a trial run of Japan’s first nationwide carbon credit trading system. The mechanism, based around voluntary credits, is still quite new and trying to find the right balance between stringent application and optimal terms that will attract a wide swathe of corporates in Japan.

Even at this stage, however, one thing seems clear. The start of carbon trading in Japan will open up a number of opportunities for overseas companies.

As the world’s No. 3 economy, with a strong manufacturing base and deep pockets, Japan offers a highly attractive market. Unlike most of the 100-plus nations that announced net-zero pledges and ambitious targets to reduce emissions, Japan baked its commitments into law. Domestic companies are also major players in western tech supply chains and conscious of the stringent climate targets that they’ll need to adopt to retain their positions.

Currently, the potential to generate carbon credits in Japan is limited; a domestic-only focus for credits would make the TSE market too expensive and illiquid. This is why the government has signaled that over time carbon credits forged overseas must play a significant role on the TSE trading platform. Should foreign companies and project developers be optimistic about accessing the Japanese market to sell their credits? In my view, the answer is yes, and the situation will only get better in time.