BY AGLAÉ BANGE
Japan’s carbon pricing landscape is entering a new stage. Recent reforms to Non-Fossil Certificates (NFCs) – including revisions to the floor price and caps – coincide with the GX Emissions Trading System (GX-ETS) entering its mandatory phase this month. Both are intended to strengthen carbon price signals.
Yet the two systems operate differently. The GX-ETS targets direct emissions, while NFCs operate through power markets, shaping how companies source and account for low-carbon electricity. While together they’re meant to drive low-carbon procurement, the link between them remains weak.
The reforms come at a difficult time for global energy markets. The Iran war and the resulting disruptions to LNG supply chains have put energy security back at the center of policy concerns, raising the risk that governments may slow the use of climate-related tools such as carbon pricing.
Yet this is precisely where Japan’s persistence with carbon pricing – even if imperfect at first – could prove valuable. A more robust framework, involving NFCs and the GX-ETS, would help create stronger signals for developers to invest in low-carbon generation. This is key for Japan, which remains dependent on fossil fuels and is already facing a tightening power supply.
How, then, is Japan’s carbon pricing architecture evolving, and what price signals are likely to emerge across its different mechanisms?