Publication date: Dec 30, 2025
Government Sets Upper and Lower Price Limits for FY2026 GX-ETS
The Ministry of Economy, Trade and Industry (METI)’s expert meeting discussed the upper and lower price limits for FY2026 emissions allowances and obtained approval from its members, completing discussions on the core pillars of the GX-ETS (Emissions Trading System). After releasing the implementation guidelines for allocation and conducting a public consultation process, the government will formally decide the framework within the current fiscal year.
The expert meeting set the price floor for FY2026 at JPY 1,700 per ton of CO₂. It based this level on energy-efficiency abatement costs, specifically referencing prices in the energy-efficiency J-Credit market. Because J-Credit prices have surged since October 2024 and no longer reflect actual abatement costs, the government instead referred to the pre-surge average price of around JPY 1,620. The upper price ceiling was set at JPY 4,300 per ton of CO₂. It defined the “fuel-switching cost” as the difference in operating costs between coal-fired power generation (with 40% efficiency) and LNG-fired generation (with 54.9% efficiency), and took into account that the median fuel-switching cost over the past ten years stands at JPY 4,370.
In the meeting, METI also presented an outlook for price ranges from FY2027 onward. It expects the upper limit to reach JPY 4,840 and the lower JPY 1,913 by FY2030. It will determine the actual upper and lower levels on a year-by-year basis from FY2027 onward. Moving forward, the government will move to the detailed design of the emissions allowance trading market which it plans to open around autumn FY2027. Key discussion points include measures to prevent excessive hoarding of allowances.
Shulman Commentary: As the price floor and price ceiling have been set alongside the benchmarks for allocating allowances to companies, firms can now better anticipate the impact of the GX-ETS on their businesses and adjust their investment plans and strategies accordingly. However, several design elements remain unresolved, such as how the cost of procuring allowances will be passed through to wholesale and retail electricity prices, which can have significant implications for companies’ planning as well as the consumer side.