A&O Shearman helps pave the way towards a mandatory emissions trading scheme in Japan

The report, commissioned by the Japanese Ministry of Economy, Trade and Industry (METI), examines the legal implications of the full-scale implementation of Japan’s emissions trading scheme (GX-ETS), a key pillar of METI’s Green Transformation (GX) strategy and a cornerstone of Japan’s strategy to decarbonize and combat climate change

The GX League, an initiative encouraging Japanese companies to set greenhouse gas reduction targets, has seen over half of Japan's corporate GHG emissions represented through its membership. The objective of the Japanese government is to turn what is currently a voluntary emissions trading scheme into a mandatory scheme in the coming years as part of the GX strategy, through passing a series of new legislations.

Drawing on ETS frameworks from the EU, U.K. and U.S., A&O Shearman's analysis provides insights from these jurisdictions for how Japan's legal structure may look to regulate the GX ETS, going to the following core aspects:

• The constitutional foundation for the establishment of the GX ETS;
• The legal nature of carbon credit;
• The introduction of measures to regulate the trading of carbon credit and any derivative value or instruments deriving from carbon credit; and
• The interplay between the permitting regime and the registration of trades in allowances.

Matt Townsend, global co-head of environmental and climate law commented: "Our work on this report underscores the importance of a legally sound and effective ETS for Japan's green transformation. By establishing a robust legal framework for emissions trading, Japan is poised to create an effective market mechanism that incentivizes reductions in greenhouse gas emissions across various industries.”

Hitomi Komachi, A&O Shearman partner added: “The detailed report sets out key considerations to align with global best practices and is crucial for understanding how Japan might shape its own ETS in the context of the Japanese legal framework. We are delighted to contribute to this significant work that not only impacts Japan but sets a precedent for emission trading schemes in the wider Asia-Pacific region and beyond. "

The A&O Shearman team was led by Matt Townsend, Hitomi Komachi, Ken Rivlin, Udo Olgemoeller and Goran Galic, supported by Tom D’Ardenne, Stefanie Günther, Jacob Ely, Gemma Witt, Alexander Kardos-Nyheim, Ming Zee Tee, Claire Anderson, Jackson Allen and Sakshi Gandhi.