The Carbon Trading
Marketplace in JapanTokyo Stock Exchange
March 26, 2024

© 2024 Japan Exchange Group, Inc., and/or its af f iliates

Establishment of Carbon Credit Market⚫ Based on the knowledge and market operation experience gained from the “Technical Demonstration Project for
Carbon Credit Market” commissioned by the Ministry of Economy, Trade and Industry (METI) in FY2022, TSE
opened the carbon credit market and began trading in October 2023.
Gov.
Feb. 2022

Feb. 2023“GX League Basic Concept”“Japan’s Energy Policy toward Achieving GX”

Establishment of Carbon
Credit MarketEstablishment of Carbon
Credit Market in 2023

Explore thepossibility ofexpanding productline-up (e.g. excess
emission Reduction
from GX-ETS, JCM
credits, overseas
voluntary credits, andderivatives.

TSESep. 2022 – Jan. 2023

Jul. 2023

Oct. 2023

Nov. 2023

Technical Demonstration
Project for Carbon Credit
MarketPublished Rules
Accepting Participants

Establishment ofCarbon Credit
MarketMarket Maker
Scheme (trial)＜ Japan’s Energy Policy toward Achieving GX – Roadmap for next 10 years – ＞
1st Phase

2nd Phase

3rd Phase

Source: METI, “The Basic Policy for the Realization of GX : Reference document”, February 10, 2023
© 2024 Japan Exchange Group, Inc., and/or its af f iliates

1Relations between GX League and Carbon Credit Market⚫ GX League initiates the establishment of carbon credit market in which GX League participants can trade excess
reduction credits of GX-ETS or other credits available to achieve their own reduction targets of GHG emission.

GX League

Company B

Reduction target

Reduction target

Company A

Excess reduction
amount can besold to the others.

Excess emission canbe offset by creditsbought from the othersCarbon Credit Market (TSE)
Excess Reduction by GX League Participants

J-Credits (Energy saving, Forest sink, etc.)
JCM (Japanese company’s overseas reduction) etc.

Non-participants of GX
League may also tradethese credits

Publication of traded price (Carbon Pricing)(Source) METI、” The Direction of Emissions Trading in the GX League, which will be fully operational from the next fiscal year”,
https://gx-league.go.jp/aboutgxleague/document/02_来年度から本格稼働するGXリーグにおける排出量取引の考え方について.pdf© 2024 Japan Exchange Group, Inc., and/or its af f iliates2Outline of J-Credit
Methodologies（ 6 Types）

Individual Methodologies（ 70 Types）※ Examples

Energy Saving

Introduction of high efficiency boilers,
Introduction of high efficiency air
conditioning facilities, Introduction ofhigh efficiency lighting facilities

Renewable
EnergyIntroduction of solar power
generation, Introduction ofhydroelectric power generation

Industrial
Process

Switch cover gas in casting
magnesium from SF6 to lower GWP
gases

Agriculture

Conversion of disposal management
system for livestock excreta, Biochar
addition to mineral soil incropland/grassland

Waste

Reduction of fossil fuel forincineration by reducing volume ofsludge utilizing microbially-activatedsolvent

Forest Sink

Forest management activity,
Afforestation activity

Source: J-Credit Scheme, https://japancredit.go.jp/english/pdf/credit_english_001_41.pdf© 2024 Japan Exchange Group, Inc., and/or its af f iliates

3Overview of Carbon Credit Market Specifications
Overview
Items Eligible for Trading

J-Credit

Trading Method

Call auction
11:30 a.m. and 15:00 p.m.
(based on price priority)

Order Acceptance Hours

9:00 – 11:29 / 12:30 – 14:59

Trading Categories

6 categories sorted by project type（for J-Credits）

Tick SizeJPY 1Trading Unit

1t-CO2

Settlement Date

Fifth business
day from day of execution (T+5)

Settlement

Transfer of cash and credits between buyer and seller

Please see the following link for the detailed rules.
https://www.jpx.co.jp/equities/carbon-credit/market-system/nlsgeu000006f14i -att/market-system_appendix_e.pdf© 2024 Japan Exchange Group, Inc., and/or its af f iliates

4Structure of Carbon Credit Market (Flow of Trading)
Trading
Buy
Order

Carbon Credit
Market SystemSell
OrderSeller(Participant)

Buyer(Participant)Price Display

Execution- Displayed on CarbonCredit Market System- Published on JPX website

Cash Settlement (Bank)

Seller❸Payment
T+5
11:00~TSE BankAccount❷Payment
T+5~11:00

Prices are available via
information vendors- Bloomberg, QUICK andothers

Credit Transfer (J-Credit Registry)

Buyer

Seller❶Transfer
T+4~11:00

TSEAccount❹Transfer
T+5
11:00~

Buyer

Timing of Fund and Credit Transfers© 2024 Japan Exchange Group, Inc., and/or its af f iliates❶T+4 by 11:00

Seller transfers credits to TSE❷T+5 by 11:00

Buyer transfers funds to TSE❸❹T+5 after 11:00

TSE pays funds to seller
TSE transfers credits to buyer

5Overview of Market Participants•Companies directly participate in the carbon credit market. (No brokers)•265 participants registered, surpassing the number of demonstration participants (183)•

5 participants (Sumitomo Corporation, Daiwa Securities, Marubeni, Mizuho Bank, MITSUI & CO.,LTD.) were registered as market makers under a scheme we operated commissioned by METI
from Nov. 2023 to Feb. 2024.
＜Participants by Business Category＞
Business Category

DemoPCPs

PCPs±Governments（National/Local)

43+1

Agriculture/Forestry/Fishery

1310+3Mining

110Construction

11110

Manufacturing

29290

Electricity/ Gas

52

22+30

Transport/ Telecommunication

1617-1Commerce

3725+12Finance/ Insurance

3720+17Real Estate

53+2Service Industry

38

31+7Others

22

11+11Total

265

183+82(as of Mar. 2024)© 2024 Japan Exchange Group, Inc., and/or its af f iliates

6Traded Price and Volume (from Oct. 11 to Mar. 19)
Traded Price（JPY）
Type of Credit

Weighted Average
Price

Average Daily
Trading Volume（t-CO2）

Trading Volume（t-CO2）

Low～High

J-Credit Energy Saving

1,660

1,510~2,850

68,941

650

J-Credit Renewable Energy(Electric power)

3,022

2,000~3,900

138,873

1,310

J-Credit Renewable Energy(Heat)

2,282

2,000~2,480

122

1J-Credit Forest Sink

8,095

6,046~9,900

64

1

J-VER (not yet transferred) forest
sink

8,450

8,450~8,450

52

1208,052

1,963

Total

© 2024 Japan Exchange Group, Inc., and/or its af f iliates—

7

Development of Carbon Credit System
Requirements for the system development
・Short system development timeline - 3.5 months
・Required high quality expectations for a core trading system in the carbon credit market
・Quick adaptation of system requirements and changes due to simultaneous formulation of market rules
・Compliance with JPX's system security policy

Utilization of AWS

Adoption ofMicroservice Architecture

Adoption of Incremental
Development Model☞Formulating rules previously forsafe utilization of public cloud under
JPX management☞Implementing loose coupling ofcomponents to minimize impact on others
even if there were changes☞Adopting incremental development
model for functions with fixed
requirements☞Using “J-WS”(JPX`s-maintainedAWS), as the common systeminfrastructure☞Flexibility to handle future market
expansion with additional systemchanges☞Shorter development period due tothis model☞Meeting internal security policy
with J-WS☞Starting development with thismodel while simultaneously
formulating rules☞Leveraging preexisting AWS parts/functions for infrastructure, allowing
focus on application development© 2024 Japan Exchange Group, Inc., and/or its af f iliates8(reference) Trading Categories in J-Credit⚫ TSE provides standardized trading categories for J-Credit.

First layer (Scheme)

Second layer (Main Category)
Energy saving

Renewable energy (electricity)
Renewable energy (heat)

J-Credit
Renewable energy (mixed electricity and heat)
Forest sink
Other
Transferred from
Domestic Credit Scheme

Transferred from J-VER
SchemeRegional J-Credits, JVERs (not yet transferred),regional J-VERs (not yettransferred), domesticcredits (not yettransferred)© 2024 Japan Exchange Group, Inc., and/or its af f iliates

Domestic credits
J-VER (forest sink)
J-VER (other)

Regional J-Credits
J-VER (not yet transferred) forest sink
J-VERs (not yet transferred) otherRegional J-VERs (not yet transferred)
Domestic credits (not yet transferred)

9(reference) Registration Requirements⚫ Applicants must meet the following a. through f. to register as a Participant.
Registration Requirements (cited from Outline of Specifications)aBeing a corporation, government or local government, or nin-i dantai (voluntary organization)b

Having a system in place to ensure stable operationsc

Having sound management, including having sufficient social credibility to be a TSE trading participant and not being subject to thecontrol or influence of any party lacking social credibility or any other party considered inappropriate in light of the objectives of TSE andits operation of the marketsdNot being insolvent

eHaving established a bank account and a J-Credit Scheme Registry account in the applicant’s own name and being registered as aqualified invoice issuer (see next page for details)
Not having representatives, directors, or important employees that fall under any of the following items:

f(a) A person who does not have the appropriate recognition, judgement, or two-way communication abilities that are needed to carryout their business due to a mental disorder;(b) A person for whom a decision of commencement of bankruptcy proceedings has been made and who has not obtained restorationof rights, or a person who is treated in the same manner under foreign laws and regulations; or(c) A person who has been sentenced to a punishment at least as severe as imprisonment (including equivalent punishment under
foreign laws and regulations), or fines under the provisions of the Commodity Derivatives Transaction Act or equivalent foreign laws andregulations (including equivalent punishment under foreign laws and regulations), where less than five years have passed sinc e thedate of completion or cancellation of said punishment.

© 2024 Japan Exchange Group, Inc., and/or its af f iliates

10(reference) Effects of Implementing a Market Maker Scheme•

A trial market maker scheme for J-Credit commissioned by METI increased the market volume.
＜Energy Saving＞
Traded Price（JPY）

Term

Weighted
Average Price

Low～High

Trading Volume（t-CO2）Average Daily
Trading Volume（t-CO2）Whole Term（10/11～2/29）

1,665

1,510~2,850

62,898676

Before MM（10/11～11/24）

1,642

1,510~2,850

10,682345

After MM（ 11/27～ 2/29）

1,670

1,597~1,700

52,216842×2.4＜Renewable Energy (Electricity)＞
Traded Price（JPY）

Term

Weighted
Average Price

Low～High

Trading Volume（t-CO2）Average Daily
Trading Volume（t-CO2）Whole Term（10/11～2/29）

3,032

2,601~3,900

136,068

1,463

Before MM（10/11～11/24）

3,031

2,601~3,900

10,535340

After MM（ 11/27～ 2/29）

3,032

2,910~3,159

125,533

2,058×6※ Trading volume after the introduction of MM includes non-MM transactions.

© 2024 Japan Exchange Group, Inc., and/or its af f iliates

11Disclaimer

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