On September 25, 2026, Japan's Ministry of Economy, Trade and Industry (METI) presented a secretariat proposal on when the price ceiling and price floor measures of its emissions trading system (GX-ETS) would be triggered, at the 9th meeting of the Emissions Trading System Subcommittee of the Industrial Structure Council. The FY2026 price band has already been published at a ceiling of JPY 4,300 and a floor of JPY 1,700 (both per tonne of CO2). The new proposal fills in the detailed design of the mechanism that defends that band.
The core of the proposal is a symmetric requirement: both measures trigger when the monthly average trading price stays outside the band for three consecutive months. The subcommittee aims to finalise its conclusions around the end of the year, after which the related ministerial ordinances and notices will be prepared.
The price band: rising 3% a year
From FY2027, the ceiling and floor will be set each fiscal year by applying 3% plus the expected inflation rate to the previous year's prices. In reference values that METI calculated mechanically using only the 3% increase, the ceiling reaches JPY 4,840 and the floor JPY 1,913 in FY2030. The actual published prices will add inflation on top.
The ceiling: "deemed holding" by payment
The monthly average is calculated only for months in which trades were concluded on at least 70% of market days. For obligations relating to a given fiscal year (FY T), the assessment period runs from April of the following year (FY T+1) to January, the deadline for holding allowances. The comparison uses the FY T+1 ceiling price. The assessment is timed to coincide with the period when emissions are finalised and companies buy up any shortfall.
The volume requirement is meant to catch situations in which allowances cannot be bought because no price forms. It is met if, from December onward after obligation volumes are notified, there are no sell orders at or below the ceiling, or buy orders remain even after all sell orders at or below the ceiling are filled, for one month or more.
The proposal says that once the requirements are met, the measure triggers in principle without the government judging the causes of the price spike case by case. If triggering were left to government discretion, the ceiling would no longer work as a safety valve. Triggering will be monitored after the system starts and reviewed, including possible tightening or relaxing of the requirements.
The floor: reverse auctions by the GX Promotion Organization
The floor requirement mirrors the ceiling: it triggers when the monthly average trading price falls below the floor for three consecutive months. The assessment period is not limited and can span fiscal years.
Purchase method
The GX Promotion Organization runs a reverse auction outside the allowance market. Single-price format, with a common price applied to all winning bidders.
Undisclosed elements
The purchase volume formula and the purchase cap price, set at or above the market price and below the floor, are not disclosed. This prevents bids from clustering near the floor.
Participants
The same range as allowance market participants (covered entities and businesses with a certain track record and organisation).
Resale
When the most recent one-month average price nears the ceiling, purchased allowances are sold in several stages. Detailed requirements are not disclosed.
The design uses purchased allowances as a source of supply when prices spike, so a single inventory serves stabilisation in both directions. If prices remain weak even after reverse auctions, tighter allocation benchmarks will also be considered. From FY2033, when paid government auctions begin, reverse auctions will end and be replaced by a minimum bid price in the auctions.
Comparison with other systems: the shortest test period
| System | Trigger test |
|---|---|
| Japan (proposal) | Monthly average exceeds the ceiling (absolute price) for 3 consecutive months |
| EU | Average auction price over the last 6 months exceeds 2.4 times the average of the preceding 2 years |
| UK | Monthly average exceeds 3 times the past 2-year average for 6 consecutive months (3 months in the early phase) |
| South Korea | Monthly average exceeds 3 times the past 2-year average for 6 consecutive months, among others |
| California / New Zealand | Assessed on quarterly auction prices |
- Trigger test
- Monthly average exceeds the ceiling (absolute price) for 3 consecutive months
- Trigger test
- Average auction price over the last 6 months exceeds 2.4 times the average of the preceding 2 years
- Trigger test
- Monthly average exceeds 3 times the past 2-year average for 6 consecutive months (3 months in the early phase)
- Trigger test
- Monthly average exceeds 3 times the past 2-year average for 6 consecutive months, among others
- Trigger test
- Assessed on quarterly auction prices
METI explains that it adopted three months, the shortest among overseas examples, to respond quickly to price spikes. The European approach tests a multiple of past averages, while Japan's proposal compares against a published absolute price. From a company's perspective, the ceiling can be read directly as a cap on carbon costs.
What it means for corporate carbon cost management
- The ceiling can be used as a planning figure: because triggering is in principle automatic once the requirements are met, it becomes easier to put JPY 4,300 (FY2026) into business plans and internal carbon prices as the upper bound for allowance costs. However, triggering requires three months of persistence, during which allowances may have to be bought above the ceiling
- Undisclosed elements on the floor side: the purchase cap price and volume formula are not published. Selling at the floor is not guaranteed, which affects revenue expectations for companies holding surplus allowances
- If your customers are covered entities: covered GX-ETS companies are asking suppliers for reductions and data, as discussed in our piece on the knock-on effects for mid-sized suppliers. Firming up the price band and triggers gives a benchmark for comparing the cost-effectiveness of emission reductions
- Next topics: upcoming meetings will discuss measures to manage banking (carrying over allowances) and the publication of allocation volumes. The allowance market is scheduled to open around autumn of FY2027