Japan’s GX-ETS: Who Is Covered and How to Comply

Your Japanese subsidiary runs a plant with large boilers, and someone at headquarters asks whether it falls under Japan's new carbon market. Or a Japanese customer suddenly wants your energy and CO2 data and mentions "GX-ETS." Most of the official guidance is in Japanese, and the first filing deadline has already passed.

The short answer: GX-ETS applies to any business in Japan whose direct CO2 emissions average 100,000 metric tons or more over the previous three fiscal years. (That is about 110,000 US short tons.) Nobody notifies you. Each legal entity tests itself, every year, and there is no group-wide consolidation.

This guide explains the test, separates the dates that have passed from the ones still ahead, and shows how allocation and shortfall costs work. It then covers what overseas parent companies tend to miss, how the scheme compares with the EU ETS, and a checklist you can use. Information is current as of November 1, 2026, and this is general information, not legal advice.

What Is Japan's GX-ETS?

GX-ETS is Japan's emissions trading scheme under the GX Promotion Act (the Act on Promotion of Smooth Transition to a Decarbonized Growth-Oriented Economic Structure). "GX" stands for green transformation, and the Ministry of Economy, Trade and Industry (METI) oversees the scheme. The mandatory phase began in fiscal year (FY) 2026, on April 1, 2026.

Covered companies must hold allowances (haishutsu-waku, 排出枠) equal to their actual direct CO2 emissions each year. One allowance covers one metric ton of CO2. The government hands out allowances free of charge, and companies can sell a surplus or buy to cover a shortfall.

The scheme grew out of the GX League, a voluntary program that started in 2023 and drew more than 700 companies. The mandatory phase is much narrower. METI expects about 300 to 400 companies, covering nearly 60% of Japan's greenhouse gas emissions.

Unlike the GX League, the scheme has no opt-in for companies below the threshold and no opt-out for companies above it. Paid auctions of allowances for power generators are planned to be phased in from FY2033.

Who Is Covered: The 100,000-Ton Test

METI does not identify covered companies and send them notices. Its setup manual says each business must make its own determination by September 30 every year. So "we never received a letter" tells you nothing about whether your entity is covered.

Four things decide the result: which emissions count, which 12-month period applies, which legal entity is tested, and how the average is calculated.

Count Direct CO2 (Scope 1) Only

The test covers direct CO2: fuel burned on site and CO2 released from raw materials or reducing agents in the process. Purchased electricity and steam (Scope 2) count neither for the test nor for the obligation. A power-hungry plant that burns little fuel can therefore stay out of the scheme.

Small sources are not excluded. Boilers and furnaces are obvious, but emergency generators, forklifts on site, and water heaters count too. Your maintenance and general affairs teams may know about sources that the environmental team has never listed.

Use April to March, Not Your Accounting Year

The test uses April 1 to March 31, whatever your accounting year is. A company that closes its books in December cannot use its year-end totals as they stand. Its monthly fuel data has to be re-cut into April–March periods.

Test Each Legal Entity Separately

The unit is the legal entity, and METI treats subsidiaries and affiliates as separate businesses. If a group has two Japanese companies at 60,000 tons each, neither is covered, even though the group total is 120,000 tons (a fictional example). Likewise, one entity with a 70,000-ton plant and a 40,000-ton plant is over the line, because its sites add together.

The materials we reviewed do not describe a special rule for foreign-owned companies. A kabushiki kaisha (stock company) or godo kaisha (similar to an LLC) set up in Japan appears to be tested like any other Japanese company. If your operation is a branch of a foreign company, ask a Japanese adviser or the GXA inquiry desk how it is treated.

Retest Every Year, With No Adjustments

The FY2026 test uses the average of FY2023, FY2024, and FY2025. A company that started operating more recently averages the years it has: FY2024 and FY2025, or FY2025 alone. Because the window rolls forward, a company near the line can move in and out of the scheme, as METI's example in Figure 3 shows.

For the coverage test, the manual excerpts we reviewed show no correction for unusual years. A disaster, a statutory inspection, or a plant shutdown that cuts emissions gets no adjustment, and neither does a one-off spike.

We also found no adjustment for mergers or business transfers within the three years. Allocation base emissions have their own adjustment rules, so check METI's manual for those.

Credits do not lower the test figure either.

The materials we reviewed describe no filing duty for an entity under 100,000 tons, not even a statement that it is out of scope. Keep the calculation on file anyway, because you will need it again next year. A company just under the line may cross it after adding capacity or a new plant.

Key Dates: What Has Passed and What Comes Next

FY2026 was a special first year: companies filed basic data and a transition plan only, and allocation moved to FY2027. Figure 4 therefore differs from the normal cycle in Figure 1. It shows the dates for a company covered from FY2026.

The September 30, 2026 Deadline Has Passed

Companies covered for FY2026 had to file their average emissions and submit a transition plan by September 30, 2026. Where you stand now depends on which of these situations applies:

• You filed on time. Confirm that ERMS, the government's filing system, shows the filing as accepted and the plan as received. Then turn to verification and FY2026 data.
• You were under 100,000 tons. You had nothing to file. Keep the calculation, and run the FY2027 test once FY2026 closes on March 31, 2027.
• You have only now found that you were covered and did not file. See below.

The materials we reviewed describe no grace period or late-filing procedure for the 2026 deadline. One secondary source reports a fine of up to JPY 500,000 for failing to file or for filing falsely, and we could not confirm the exact provision or who it applies to. Do not assume that a missed filing ended your later duties, because nothing we reviewed says so.

A company in this position should promptly contact the inquiry desk through the GXA portal and bring in Japanese legal counsel, who can advise on the exposure. Meanwhile, keep collecting evidence for emissions since April 1, 2026, since that data would be needed for a later verified report.

September 30, 2027 Carries a Double Load

Most of the real work lands here. Companies covered in both years report verified FY2026 emissions, file verified target emissions for FY2026 and FY2027, and submit the FY2027 transition plan. METI's manuals tell companies to plan for two fiscal years of procedures running side by side.

The verification body sets the practical timetable. Its work runs from contract and business review through risk assessment, planning, site checks, and a report. METI warns that bodies may run short of capacity if everyone starts at once, which is why it recommends contracting during FY2026.

If You First Become Covered in FY2027

FY2027 coverage uses the average of FY2024, FY2025, and FY2026. A company that first qualifies then must act by September 30, 2027, and the first-year simplification no longer applies. It files verified target emissions along with its average, so verification still has to be arranged in advance.

Benchmark vs. Grandfathering: How Allocation Works

Allocation starts from "target emissions" (haishutsu mokuhyo-ryo, 排出目標量), which each company calculates and has verified. Two formulas are used, and the activity decides which applies. A single plant can use both, so emissions must be tracked separately by allocation category.

Under grandfathering, the rate is 1.7% per year for energy-related CO2 and 0.3% per year for raw-material and by-product fuel CO2. Base emissions are the FY2023–FY2025 average. The formula multiplies the rate by years elapsed, so the allocation shrinks steadily if nothing else changes.

Under benchmarks, the Research Institute of Economy, Trade and Industry (RIETI) describes a starting level at the top 50% of efficiency in an industry, tightening to the top 32.5% over five years. Details vary by activity, so check METI's benchmark manual for yours.

The 1,500 kL line is the same figure used under Japan's Energy Conservation Act, so your plant may already know which side of it you are on.

METI also adds allowances in three situations. Check whether any of them apply before you estimate a shortfall:

• Carbon leakage risk: extra allowances for designated industries when allowance costs exceed a set share of earnings
• GX-related R&D: extra allowances linked to the prior year's R&D spending, up to the shortfall, applied from FY2027
• Early reductions: reductions made before the scheme, beyond the standard rate, are added to base emissions

What a Shortfall Costs

Under the FY2026 price levels set by the government, the FY2026 reference ceiling price is JPY 4,300 per ton and the adjustment reference price, which acts as a floor, is JPY 1,700 per ton. ICAP, the international carbon market partnership, converts JPY 4,300 to about USD 29. The market itself is expected to open around fall 2027, according to commentary from RIETI and others.

Figure 6 works through a fictional case to show the order of magnitude. It assumes grandfathering only, energy-related emissions only, and no extra allowances.

The charge in step 4 is called mishokyaku soto futankin (未償却相当負担金), and the formula is shortfall × ceiling price × 1.1. METI's briefing separately says that if high prices make compliance difficult, a company can pay the ceiling price and be treated as having met the holding obligation for the shortfall. Check the manuals for the conditions and the procedure.

Also confirm which year's ceiling applies to the January 2028 settlement. METI's notice sets FY2026 values, and at least one outside summary lists the JPY 4,300 ceiling under FY2027. Ask your adviser or GXA before you put a number in a budget.

Credits can reduce the figure you report. J-Credits (Japan's domestic credit program) and Joint Crediting Mechanism (JCM) credits can offset up to 10% of actual emissions.

METI's briefing says only credits canceled by the end of June of the reporting year are reflected, which points to June 30, 2027 for FY2026. Confirm the cutoff in the manual.

What Overseas Parent Companies Should Watch

Five points are easy to miss from outside Japan. None of them show up in a global emissions dashboard, so ask about them directly.

No Consolidation, and Limited Joint Filing

Your group total does not decide coverage, and neither do overseas plants. Companies may file jointly with "closely related" entities (a parent, subsidiary, affiliate, or sister company) that invest together in GX projects. But each partner must itself be a covered entity, so a joint filing cannot bring in a parent or sister company that is not covered.

Joint filing also does not change who is covered, because each company is still tested alone. Once formed, the group cannot change until that year's surrender is complete, so think it through before you start. Partners register by Japanese corporate number (hojin bango, 法人番号) and need their own system accounts.

Japanese-Language Systems: ERMS and gBizID

Filings, transition plans, emissions reports, and allowance holdings all run through ERMS (haishutsu-ryo torihiki kanri shisutemu, 排出量取引管理システム). The portal and manuals we reviewed are in Japanese, and we did not find an English version.

Allowances are held in an account tied to ERMS, and one ERMS account can have several users. We did not confirm whether paper submission is available if ERMS filing is not possible, so ask the GXA inquiry desk.

An ERMS account requires a gBizID (GビズID) Prime or Member login, the Japanese government's business ID. Prime is tied to the company's representative, and applications may require a My Number card (Japan's resident ID card) or a seal certificate. If your representative director lives abroad, confirm early how this works for your company.

Registration also asks for your main business, the minister overseeing it, the articles of incorporation, a certificate of registered matters, and primary and secondary contacts. Name a backup contact in Japan, because one expatriate manager's rotation can otherwise leave nobody with access.

Registered Verification Bodies

From FY2027 filings onward, target and actual emissions need checking by a registered verification body (toroku kakunin kikan, 登録確認機関). The portal listed 15 as of October 13, 2026, including Japanese organizations and audit firms and the Japanese arms of SGS, BSI, Intertek, and SOCOTEC. If your group already uses one of these, ask whether its Japan unit is the registered one.

Expect a paper trail that traces each number back to source documents. METI's manual points to these examples of what verification may ask for, and many of them will be in Japanese:

• Site maps, process flow diagrams, and equipment lists
• The organization chart for emissions accounting, and how sources were identified
• Fuel delivery slips and other purchasing records, plus measured data
• Sources for emission factors

Do Not Reuse Your Other Reports

Numbers from your Japanese SHK filing (the mandatory greenhouse gas reporting program under the Act on Promotion of Global Warming Countermeasures) are a starting point only. Numbers from a global GHG inventory may differ even more. Compared with SHK, GX-ETS counts only direct CO2, but it also includes emissions tied to electricity and heat supplied to others, and it has no small-source cutoff.

GX-ETS also asks for details that SHK does not, such as meter accuracy, unless you rely on purchase slips. If you use a different fuel figure or boundary at headquarters, write down how the two connect, so that the difference can be explained when someone asks.

Part of the Transition Plan Becomes Public

Covered companies submit a transition plan (iko keikaku, 移行計画) every year, and METI and the ministry overseeing the business publish parts of it company by company. Figure 7 separates the two. The plan also includes Scope 2 emissions, even though they are outside the surrender obligation.

ERMS calculates reduction rates automatically against the year before a company first became covered, so FY2025 stays the baseline for companies covered from FY2026. The plan needs no third-party verification or formal internal resolution. It can be submitted only after the filing shows as filed in ERMS, and METI warns that an incomplete plan may not count as submitted.

This is where a foreign parent can get caught off guard. If the Japanese entity has no plan of its own, it cites the parent's group-wide plan. Your global sustainability report may then be referenced in a Japanese government filing, next to a published FY2030 figure for the Japanese entity.

Before each submission, compare that figure with your sustainability report and investor materials. Investment plans can include projects not yet formally approved, as long as they are planned as a way to reach the target. We did not confirm when METI publishes each year's plans, so ask your Japan team to check whether yours is already online.

If a Japanese Customer Asks for Your Emissions Data

A supplier below the threshold has no obligation under GX-ETS, and neither does an exporter with no covered entity in Japan. Your customer's surrender obligation counts its own direct CO2, not your emissions.

So why are you getting the request? Covered companies must now publish targets and show a reduction plan each year, and large manufacturers are also working to understand the emissions in what they buy.

According to the law firm Anderson Mori & Tomotsune, METI says supply chain reductions will be promoted through the GX Future League, not GX-ETS. A request is therefore more likely to reflect your customer's own targets or expectations than a GX-ETS duty on you.

Before you answer, ask what the customer actually needs. These questions help narrow it down:

• Do you need company-level emissions, or a product carbon footprint for specific part numbers?
• Which scopes, which gases, and which 12-month period should the data cover?
• Do you have a required calculation method, template, or emission factor source?
• Do you require third-party verification, or is a self-declared value acceptable?
• How will you use the data, and will it be shared outside your company?

GX-ETS vs. EU ETS: Key Differences

If you know the EU system, do not assume the same logic carries over. The biggest difference is the point of regulation: the EU regulates installations, while Japan regulates companies. The table compares the two on the points most likely to affect your work.

ICAP also reports that GX-ETS will not be linked with other systems. Allowances in one system therefore cannot simply be used in the other, and Japan's prices will not simply follow the EU's. Keep the two regimes separate in your compliance calendar, because an EU team's experience will only partly apply to Japan.

Checklist: Is Our Japanese Entity Covered, and Are We Ready?

Use this list with your Japan team and advisers. The work usually touches plant, finance, purchasing, and planning staff as well as the environmental team, and the list finds gaps but does not replace a legal determination.

• Entity: List each Japanese legal entity separately, along with every site, including its branches and sales offices.
• Period: Re-cut emissions data into April–March for FY2023, FY2024, and FY2025 (and FY2026 after it closes).
• Scope: Include direct CO2 from fuel, raw materials, and reducing agents. Exclude Scope 2 and non-CO2 gases. Do not subtract credits.
• Small sources: Check emergency generators, forklifts, water heaters, and any transport categories.
• Result: Record the average, who calculated it, and who reviewed it.
• 2026 status: If covered, confirm that the filing and transition plan were accepted in ERMS. If not filed, escalate to counsel now.
• Access: Confirm who holds the gBizID and ERMS logins, and name a backup.
• Verification: Confirm that a registered body is contracted or in discussion, and in which language it works.
• Data trail: Confirm that FY2026 data since April 1, 2026 can be traced from slips and meters to the calculation.
• Allocation: Identify which activities use benchmarks and which use grandfathering at each site.
• Budget: Estimate the shortfall for January 2028, and ask your accountants how to treat allowances and charges.
• Consistency: Compare the published FY2030 figure with parent-company targets and reports.

Sample Email to Your Japan Team

Headquarters staff can adapt this email to start the conversation. Replace the bracketed items and add your own deadline.

Limits of This Guide

• This is a general overview, not legal, tax, or accounting advice. Your Japanese counsel, verification body, and the GXA inquiry desk are the right places to confirm how the rules apply to your entity.
• Official rules are in Japanese, and manuals are updated. The Japanese text and the current METI and GXA materials take precedence over this summary.
• Terms such as "reference ceiling price" and "shortfall charge" are our English descriptions, and official English terms may differ.
• Benchmark details, allowance market rules, and price-control procedures are still being developed or vary by activity. METI has said further details on the market and price controls would follow.
• Fuel surcharges (the GX-Surcharge planned from FY2028), other carbon pricing, and local schemes in Tokyo and Saitama are not covered here.

FAQ

Does GX-ETS Apply to a Foreign-Owned Company in Japan?

If the entity meets the 100,000-ton test, foreign ownership does not appear to change the result. We found no separate rule for foreign-owned Japanese companies, and METI tests each business separately. For a branch of a foreign company, confirm the treatment with counsel or the GXA inquiry desk.

What Happens If a Company Missed the September 30, 2026 Deadline?

The materials we reviewed describe no grace period. One secondary source reports a fine of up to JPY 500,000 for failing to file or for filing falsely, but we could not check the statute text, so ask counsel how it applies. A company in this position should promptly contact the inquiry desk through the GXA portal and legal counsel, and keep collecting its FY2026 emissions data.

When Do Companies Actually Have to Hold Allowances?

The first date is January 31, 2028, for FY2026 emissions. Allowances for FY2026 and FY2027 are allocated at the end of November 2027. Companies have about two months after that allocation to close any gap before the surrender date.

Is Scope 2 Included in GX-ETS?

Scope 2 is not included in the coverage test or the surrender obligation. The transition plan does ask for indirect emissions alongside direct emissions, and the prior-year figure and FY2030 target are published.

What Is the Difference Between Benchmark and Grandfathering in Japan's ETS?

Benchmark allocation multiplies a company's base activity level by a target emissions intensity, and it covers 20 designated activities. Grandfathering starts from past emissions and reduces them by 1.7% per year for energy-related CO2 and 0.3% per year for raw-material and by-product fuel CO2.

Sources

• Scheme overview, schedule, first-year exception, transition plan items, SHK comparison, credits, verification points, inquiry desk: METI, FY2026 briefing on the GX Promotion Act emissions trading scheme, April 2026 (Japanese)
• Coverage, first-year actions, ERMS, gBizID, and registered verification bodies: GX Acceleration Agency, Emissions Trading System Portal (Japanese)
• Scheme overview and manuals: METI, "Emissions Trading Scheme" (Japanese)
• First-year actions: METI, FY2026 leaflet (Japanese)
• Coverage test, joint filing, schedule, charge, and penalties: METI, Setup Manual, June 1, 2026 (Japanese)
• Transition plan items and publication: METI, Transition Plan Manual, June 1, 2026 (Japanese)
• Benchmark, grandfathering, and reduction rates: METI, Filing and Target Calculation Manual, June 1, 2026 (Japanese)
• Reference ceiling and floor prices: METI, government notice on reference prices, FY2026 (Japanese)
• GX League background: METI Journal Online, Q&A on the emissions trading scheme (Japanese)
• Legal framework, price limits, charge formula, and adjustments: Anderson Mori & Tomotsune, bulletin, January 2026; Scope 3 and credits: Anderson Mori & Tomotsune, May 2026
• Grandfathering rates: Institute of Energy Economics, Japan, Chairman's Message, April 2026
• Benchmark tightening and market timing: RIETI, Toshihide Arimura; Renewable Energy Institute, February 2026
• Entity-level assessment: EY Japan, GX-ETS Phase 2 (Japanese)
• Japan factsheet, linking, and USD conversion: ICAP, Japan GX-ETS
• EU ETS design: ICAP, EU ETS; ICAP, Compare ETS
• EU surrender deadline: European Commission, changes to the ETS and MRV applying from January 1, 2024
• gBizID: Digital Agency, gBizID (Japanese)