On April 1, 2026, GX-ETS (the Green Transformation Emissions Trading System) entered its second phase. The direct scope covers approximately 300–400 large-scale businesses consuming more than 1,500 kl of energy per year. As this phase marks the start of genuine emissions allowance allocation and trading, mid-tier and small manufacturers that fall outside the direct scope must not misjudge the impact on them.
How GX-ETS Phase 2 Works — What Has Changed
GX-ETS Phase 1 (2023–2025) functioned as a preparation phase with voluntary participation and free allowance allocation. Phase 2, effective April 2026, adds meaningful enforcement in the following ways.
In Phase 1, allowance allocation and trading remained limited to voluntary participants. In Phase 2, allowance allocation to large-scale businesses now carries a legal basis, and companies exceeding their allowances face effective economic pressure to purchase credits. While carbon prices are determined by market trading, many private-sector forecasts project GX-ETS prices in the 5,000–15,000 JPY/tCO2 range during the 2026–2028 phase-in period.
Why Companies Outside the Scope Are Affected
The mechanism is straightforward. Large manufacturers participating in GX-ETS — automotive OEMs, chemical companies, steel and aluminum producers — have an incentive to reduce the carbon footprint of their entire supply chain while managing their allowance surplus or deficit in the market. Reducing Scope 3 (value chain emissions) has limits when confined to the company's own operations alone, and it inevitably translates into supplier engagement: formally requesting emissions data and action from procurement partners.
OEMs and Large Manufacturers (Directly Regulated)
Allocated emissions allowances under GX-ETS, with Scope 3 (value chain emissions) reduction becoming a response target. Supplier questionnaires sent to procurement partners are the primary execution mechanism, with data on Categories 1 and 11 being the main request.
Tier 1 Suppliers (Middle Layer)
As they organize their own emissions data to respond to requests from large customers, a natural structure emerges where they re-request data from Tier 2 and Tier 3 suppliers. The granularity of these requests is coarser than from large customers, but the format is increasingly standardized around industry association templates.
Mid-Tier and Small Manufacturers (Tier 2/3)
Requests arrive in the form of providing activity data as Scope 3 Category 1 (purchased products and services) data. Industry associations such as JAMA and JEITA are advancing standardized ESG data collection formats, and requests are expected to accelerate and become more uniform.
In practice, these requests arrive as supplier questionnaires (ESG surveys), requests for Scope 3 Category 11 (use of sold products) data, and Category 1 (purchased products and services) data submissions. The cascade of Tier 1 companies re-requesting this data from Tier 2 and Tier 3 is expected to accelerate after the enforcement of GX-ETS.
Real Requests Already Reaching Mid-Tier Companies
Requests from automotive OEMs had already begun before GX-ETS directly triggered them. Yorozu Corporation (roughly ¥120 billion in revenue, automotive parts) has been responding to CO2 emissions data submission requests from the Toyota Group and Nissan by increasing the granularity of its energy data on a factory-by-factory basis. Daido Steel (roughly ¥550 billion in revenue, specialty steel), as an electric arc furnace producer, is most focused on Scope 2 (purchased electricity) reduction, with concrete planning underway for a transition to renewable electricity procurement via open access.
In the chemicals and materials sector, DIC Corporation (just under ¥1 trillion in revenue, printing inks) has been expanding its Scope 3 tracking scope as part of CSRD compliance through its European operations, and is beginning to request activity data from smaller domestic suppliers as well.
The Reality for Small Manufacturers — Waiting for Requests Is Too Late
The problem is the pattern in which many small manufacturers think "GX-ETS is a large-company issue" — and then customer requests suddenly become concrete.
Okawa Printing (small printing company, Kanagawa Prefecture) proactively positioned itself as an SDG role model and shared information early, earning recognition from customer companies as "a supplier that's easy to choose" — a case that has been highlighted by industry associations. Early disclosure translated into a sales advantage. Kyohatsu Industries (small metal press manufacturer, automotive Tier 2/3) has begun setting CO2 reduction targets by leveraging SBTi's Small Business program. These small-company efforts are increasingly supported by standardized procedures developed by industry associations (Keidanren, JAMA, etc.), lowering the resource barrier compared to before.
GX and Energy Efficiency Subsidies — Know What You Can Use
In parallel with GX-ETS, the Ministry of Economy, Trade and Industry (METI) and the Ministry of the Environment maintain multiple subsidy schemes. Key programs include the "Energy Efficiency Investment Promotion and Demand Restructuring Support Subsidy" and the "GX Support for SMEs," among others. Application requirements, eligible equipment, and subsidy rates are revised annually, so confirming the latest solicitation guidelines is a prerequisite.
A common requirement for mid-tier company subsidies is "submission of an energy efficiency plan" and "involvement of an energy manager." Conversely, this means that organizing Scope 1 and 2 tracking and preparing subsidy applications are essentially the same process. Designing a program that simultaneously addresses regulatory compliance costs and subsidy application preparation is the efficient approach.
Energy Efficiency Equipment Subsidies (for SMEs)
Multiple schemes exist offering subsidy rates of approximately 1/2 to 2/3 for upgrades to high-efficiency air conditioning, compressors, boilers, transformers, and lighting equipment. Having an organized Scope 1 and 2 tracking system clarifies energy savings calculations and simplifies subsidy application documentation.
Renewable Energy Introduction Support (Net Zero Acceleration)
Subsidies and low-interest loans for solar, storage batteries, and PPAs are available from multiple ministries. As rising GX-ETS carbon prices improve the ROI on renewable energy investment, advancing plans before application competition intensifies is advantageous.
GX Promotion Subsidy (Equipment Upgrades and Process Reform)
A subsidy targeting large equipment investments for decarbonizing production processes (electrification, energy efficiency improvement). Primarily applicable to furnaces, heating equipment, and process changes that directly reduce Scope 1 emissions. Applications require quantified emissions reduction calculations and technical explanations.
What to Act On This Quarter
Mid-tier and small manufacturers whose primary customers are in automotive, electronic components, chemicals, or materials should prioritize confirming the following three points.
Review Customer ESG Questionnaires
If you have already received one, assess the accuracy of the factory-level energy consumption data and CO2 emission factor calculations needed to respond. Even if none have arrived yet, investigating your major customers' GX-ETS participation status in advance allows you to anticipate the content of future requests.
Document the Basis for Scope 1 and 2 Calculations
Assuming you will eventually undergo third-party assurance, begin recording calculation bases, boundary definitions, and emission factor sources now. Embedding record-keeping into your routine calculation process from the start reduces workload substantially compared to reconstructing records retroactively.
Check Industry Association Common Formats
Major industry associations such as JAMA and JEITA publish ESG data collection formats. Familiarizing yourself with the format for your sector in advance makes it much easier to handle requests from multiple customers through a single unified response.
GX-ETS will not end as "a cost problem for large companies." The wave of supply chain requests will reach a broader range of companies within 1–2 years of the system's enforcement. Companies that begin moving only after requests arrive will find their data organization and system-building lagging behind competitors. Organizing a Scope 1 and 2 tracking system is an investment that simultaneously fulfills three purposes: subsidy applications, ESG questionnaire responses, and future third-party assurance.