Publication date: Nov 9, 2026
GX-ETS Update: METI Plans 15% Cap on Allowance Banking
At an expert committee that discusses the emissions trading system (GX-ETS), the Ministry of Economy, Trade and Industry (METI) secretariat proposed capping the surplus allowances that companies covered by GX-ETS can retain for future use, known as “banking,” at 15% of each company’s allocationfor the fiscal year, two years prior. Banking could reduce allowance procurement costs, but excessive holdings could reduce market liquidity and drive up trading prices. METI intends banking to hedge against future allowance shortfalls.
Meanwhile, surplus allowances exceeding the banking cap will be deducted from future allocations, with these deductions first reflected in FY2029 allocations. METI plans to exclude allowances sold in the market before the deduction is calculated.
Under the GX-ETS, allowance allocations are adjusted when reference activity levels, such as electricity generation or production volumes, change by more than a specified threshold. Because allocations are not adjusted for changes of less than 7.5% over the two most recent fiscal years, METI estimates that the maximum net allowance shortfall over two years would be just under 15% of the allocation. It explained that this estimate forms the basis for the proposed banking cap. No expiration date for banked allowances is currently envisaged, although the arrangement appears to be designed with the period through FY2030 in mind and banking rules could change from FY2031.
The meeting also addressed disclosure of company-level allowance allocations. METI’s position is that each company’s CO₂ emissions and allowance allocation should, in principle, be made public to maintain confidence in the system and ensure transparency. Discussions on how to disclose allocations will continue, taking into account potential effects on companies’ international competitiveness and access to financing.
🔍 Shulman Commentary:
Power generators that reduce emissions through fuel switching or other decarbonization investments may accumulate surplus allowances, but the proposed 15% cap would limit their ability to retain these for future use. While this could improve market liquidity, it may also reduce the financial incentives for early decarbonization investment. Generators will therefore need to balance the sale of surplus allowances against retaining them for future compliance, particularly as banking rules could change from FY2031.
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