Carbon Pricing In Japan: How to Determine the Right Carbon Price

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Japan is getting ready to implement carbon pricing starting from FY2026 as part of its efforts to achieve net-zero emissions by 2050. Establishing a stable carbon price would bring several important benefits in terms of reaching the Japanese government’s goals for reducing carbon emissions through energy transition and using market mechanisms to drive long-term economic growth.

One of these benefits is ensuring accountability to the Japanese public and the international community. Although Japan doesn't have a government-operated emissions trading market, the most commonly mentioned carbon price is a government carbon tax of JPY289 (equivalent to USD 1.89) per ton of CO2.

When setting carbon prices, two important factors to consider are:

1. National and global decarbonization targets: The carbon price should be in line with the decarbonization targets set by the government at that time.

2. Carbon budget: The carbon price should also consider the carbon budget, which refers to the total amount of CO2 that can be emitted until 2050 while keeping global warming within acceptable limits.

Read more from Junko Ishikawa

The introduction of the new NISAs (Nippon Individual Savings Accounts) has significantly impacted Japan’s investment trust market. Investment trusts eligible to be held in NISAs have captured a large share of asset inflows in the first three months after their introduction. This indicates that NISA-eligibility is influencing investors' fund selection decisions, even for funds that will not be held in a NISA.

In the first quarter of 2024, net inflows to NISA-eligible investment trusts were significantly higher than their quarterly averages in 2023. Funds purchasable in both tsumitate(savings) and growth NISAs attracted over JPY 2.3 trillion of net inflows in the first quarter. Net inflows to funds purchasable in growth NISAs but not tsumitate NISAs were more than six times greater than their 2023 average. On the other hand, NISA-ineligible funds experienced net outflows in the first quarter.

Read more from Hisashi Kaneko

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