GX-ETS Emissions Calculation and Reporting in Practice — A Preparation Guide for the First Year of Mandatory Compliance (FY2026)

In 2025, the Japanese government formally enacted legislation mandating participation in the GX Emissions Trading Scheme (GX-ETS). The mandatory scheme will begin operation in April 2026, targeting companies that participate in the GX League and emit more than 100,000 tonnes of CO₂ annually (approximately 300–400 companies). Phase 1 through March 2025 operated on a "voluntary participation, baseline & credit" basis, but Phase 2 introduces a cap allocation approach, requiring companies that exceed their emission allowances to purchase credits on the market. Looking further ahead, paid auctions for the power sector (scheduled to begin in 2033) are also on the horizon, bringing the scheme progressively closer to the EU ETS.

Fundamental Structure of the Mandatory Scheme

The government sets sector-specific emission caps and allocates allowances to companies. When actual emissions exceed allocated allowances, the shortfall must be covered through market transactions. GX League participants emitting more than 100,000 tonnes of CO₂ per year are subject to mandatory requirements, with reporting obligations imposed under the GX Promotion Act.

Step 1 — Inventorying Emission Sources

For each facility and process, list the target GHGs—CO₂, CH₄, N₂O, and others—and identify all emission sources. The foundation is consumption records by energy source (fuel type, electricity, heat) rather than by factory unit. Completeness of emission sources is the first item examined during third-party verification; any omissions constitute a significant finding.

Step 2 — Selecting the Calculation Method

Use the emission factors from the GHG Calculation and Reporting Manual defined by METI (aligned with the Act on Promotion of Global Warming Countermeasures). There are three calculation methods; "Method 1"—activity data × emission factor—is the baseline approach. Where measured values from combustion equipment are available, the higher-accuracy "Method 2" or "Method 3" may be applied. Documenting the rationale for method selection and applying the same method consistently each year is a prerequisite for passing verification.

Step 3 — Data Collection and Quality Control

Collect energy purchase records, meter readings, and fuel purchase receipts for each facility on a monthly basis, and enter them into calculation software or an in-house spreadsheet. Establishing and documenting in advance a procedure for handling data gaps (missing records) is critical during third-party verification. Data that varies significantly from the previous year (±10% or more) should be accompanied by an explanation of the cause.

Step 4 — Internal Review and Approval Workflow

Establish a process in which the finance and legal departments review calculation results and management approves them before submitting the report. Preparing calculation procedure manuals and handover documentation to guard against staff turnover risk is also important over the medium to long term.

Step 5 — Third-Party Verification

GX-ETS reports require verification by an accredited third-party body. Engage an accredited verification organization conforming to ISO 14064-3 to obtain a Reasonable Assurance or Limited Assurance report. Since verification lead times run several months, engaging verifiers three to four months before fiscal year-end is realistic. As verifiers become heavily booked toward year-end, early contact with candidate organizations is strongly recommended.

Report Submission Deadlines and Mandatory Obligations

Companies subject to GX-ETS mandatory requirements must submit the prior fiscal year's emissions report to the competent ministry by approximately the end of June each year (linked to periodic reporting under the Act on Promotion of Global Warming Countermeasures). Settlement of allowance surpluses and shortfalls is carried out after the report is accepted. Penalties are stipulated for non-submission and false reporting.

Integrated Management with SSBJ Disclosure

The Sustainability Standards Board of Japan (SSBJ) published its climate-related disclosure standards in March 2025 and released a revised version in March 2026 (addressing alignment with IFRS). Prime-listed companies will be subject to mandatory disclosure obligations from the fiscal year ending March 2027. The data required by GX-ETS and SSBJ disclosure—facility-level Scope 1, electricity Scope 2, and Scope 3 by category—overlap substantially, and integrating the emissions management system into a unified design can significantly reduce duplicate management costs.

Setting Response Priorities

Conclusion

The mandatory GX-ETS is not merely "a problem for companies with legal obligations." As SSBJ disclosure and EU regulations (CBAM and CSRD) converge, accurate GHG quantification and disclosure are rapidly becoming a competitive baseline for Japan's manufacturing sector as a whole. Companies subject to mandatory requirements should prioritize early selection of a third-party verification body, while companies outside scope should begin building the quantification infrastructure needed for 2026–2027 without delay. Designing the emissions management system with integrated compliance for all three frameworks—GX-ETS, SSBJ, and EU regulations—is the most effective strategy for minimizing future duplicate compliance costs.