What is the price of emitting CO2 in Japan? We’re about to find out. After years of rehearsal under the voluntary GX League program, the Green Transformation Emissions Trading Scheme (GX-ETS) will become a mandatory national carbon market in fiscal 2026. For the first time, large emitters will face binding limits on their CO2 output. The aim is not only to help Japan meet its climate targets, but to hard-wire carbon costs into the energy system and investment calculus.
For the power industry, this marks a structural break. Once trading begins, carbon will become a line item in dispatch models and long-term financial plans. Coal and inefficient gas plants will face thinner margins, while renewables, hydrogen and storage should gain ground. Assumptions about returns and risk will need a rethink as the system gradually tightens caps and shifts from free allocations to auctions.
The shift comes as the ongoing COP30 in Belém, Brazil cements global rules for carbon-market cooperation. Japan, which hosted the Article 6 Implementation Partnership meeting at the COP, is aligning its domestic policies with those international standards. It is also plugging the ETS into a broader Green Transformation (GX) financing drive that links emissions trading, fiscal policy and industrial strategy. In short: taxing emissions to pay for state-led GX investments – with the ETS serving as a live marketplace to referee the price.
The challenge will be execution. Japan is due to set a fossil-fuel levy from fiscal 2028, high enough to fund GX investments backed by state bond issuances. Yet industry pushback will likely be fierce. Officials have yet to clarify how fossil-levy revenues will be recycled in a way that maintains incentives to cut emissions. Detailed ETS design guidelines are to be disclosed next month.
None of this means carbon prices will leap overnight. Electricity bills won’t spike on April 1 like an April Fool’s joke. But the change locks in progress: Japan will finally have an enforceable carbon price that grows over time. As the government finalizes the rulebook, Japan NRG examines how the GX-ETS evolved, what it means for the power industry, and – drawing on our own analysis – what trajectory carbon prices may follow in the years ahead.