Carbon offset in Japan

Carbon offsetting is a mechanism that allows individuals, companies, or governments to compensate for their greenhouse gas (GHG) emissions by funding projects that reduce or remove an equivalent amount of carbon dioxide from the atmosphere elsewhere. For example, a reduction in emissions in a reforestation project in Hokkaido offsetting emissions produced in a factory in Tokyo.

In Japan, there are several major schemes that facilitate carbon offsets.

J-Credit Scheme

Domestically, the J-Credit Scheme is the most prominent carbon offset program. It was created in 2013 by merging two older systems: the “Domestic Credit Scheme” and the “J-VER (Japan Verified Emission Reduction) Scheme.” The Japanese government certifies the amount of GHG emissions reduced or removed through activities like energy-saving equipment (LEDs, high-efficiency boilers), renewable energy use, and sustainable forest management.

Participants include small and medium-sized enterprises (SMEs), local governments, and forest owners typically “create” the credits, while large corporations buy them to meet their sustainability goals or CSR targets.

Joint Crediting Mechanism (JCM)

The JCM is a bilateral system established by the Japanese government to facilitate the spread of low-carbon technologies in developing countries. Japan partners with other nations (currently over 30 countries, including Vietnam, Indonesia, and Thailand). Japanese companies provide advanced decarbonization technology and infrastructure to these countries. The resulting emission reductions are then shared between Japan and the partner country as carbon credits.

GX-ETS (Green Transformation Emissions Trading Scheme)

The GX-ETS was launched in April 2023 as part of Japan’s GX (Green Transformation) strategy. Participating companies set their own emission reduction targets. If they exceed their targets, they can sell the surplus; if they fall short, they can buy J-Credits or “allowances” to bridge the gap.

It is currently a voluntary trading scheme, but the Japanese government plans to transition this into a mandatory compliance system by 2026, and make it a core of Japan’s carbon pricing strategy.