JAPAN’S
GREEN TRANSFORMATION (GX) PLANS- UPDATES January 2024
GR Japan
Government Relations, Expertly Handled

ContentsThis report summarises the key developments in 2023 relating to Japan’s Green
Transformation (GX) Basic Plan. It builds on a previous report by GR Japan on GX
published in January 2023. The content of the report is as follows:
Timeline of major GX developments in 2023

p.2

Key components of Japan’s GX Promotion Strategy

p.3

Investment Promotion Measures using Japan Climate Transition Bonds

p.4

Growth-oriented Carbon Pricing

p.5

GX Promotion Organisation

p.5

GX Leaguep.6

New proposal on Tax Credits

p.7

Support measures for SMEs and Startups

p.7

Final remarks

p.8

Annex:
Investment Promotion Measures using Japan Climate Transition Bonds(METI draft, December 2023)

p.10-141

Timeline of major GX developments in 2023
Since January 2023, there have been several noteworthy developments in relation tolegislation, policies, carbon pricing, and GX Economic Transition Bonds.
February

AprilMayJuly

OctoberNovember

December• Basic Policy • Launched• Enacted the • GX
• Establishedfor Realising
the firstGXPromotion
a GX ExpertGX isphase of GXPromotion
Strategy is
Workingapproved byETSAct
approved byGroupthe Cabinet(Emissionthe CabinetTrading• Enacted the• LaunchedScheme)
GX
the carbon
Decarboncredit
ised Powermarket at
Supply Law
the Tokyo
Stock
Exchange• Publicationof the Japan
ClimateTransition
BondFramework• Released
draft
Investment
Promotion
Measuresusing GX
EconomicTransition
Bonds

2

Key components of Japan’s GX Promotion Strategy• Throughout 2023 the government has focused on two key pillars to achieve its GX plans:
1. Issuing Japan Climate Transition Bonds (previously called ‘GX Economic Transition Bonds’)
2. Introduction of Growth-Oriented Carbon Pricing• The combined aim of these two pillars is that the resources obtained through carbon pricing
schemes will serve to repay the bonds. The revenue raised by the bonds will be invested into GX
products and services to create a level playing field for next-generation low-carbon products andto accelerate the promotion of GX businesses.
Japan Climate Transition Bonds
CarbonPricing andregulations•Clear intention ofstarting from alow burden with a
gradual increase

Transition finance
Financial institutions (in Asia and beyond)Investment
support• R&D• Economies of scale• Creating demand

CostCarbonprice

Non-GX products••Budget of 20trillion yen
Institutionalmeasures

GX products

Development of GX business based on market principles

3

Source: Materials from 10th GX Implementation Council meeting held on 15 December 2023

Investment Promotion Measures using Japan Climate Transition Bonds•

The government plans to issue JPY 20 trillion of sovereign Japan Climate Transition Bonds over the next tenyears as a market catalyst to achieve JPY 150 trillion (approx. USD 1 trillion) of private-public investments to realise
its GX goals.

•In November 2023, the government issued its Japan Climate Transition Bond Framework in line with theInternational Capital Market Association (ICMA) transition handbook and also obtained a Second Party Opinion(SPO) from two external reviewers, the Japan Credit Rating Agency and the international organisation, DNV.

•An inagural issue totalling JPY 1.6 trillion yen with 5 and 10-year tenors (around JPY 800 billion each) will takeplace in Feburary 2024.

• Proposed priority investment areas were published in December 2023. This set out how the government will
allocate JPY 13 trillion of government funding for GX initiatives in 16 sectors, alongside other tax incentives andcross-sectoral measures. Details of how the remaining JPY 7 trillion will be used are still being considered.
• Some of the highest financial support to be directly provided by the government is for decarbonisation of theenergy sector (particularly for hydrogen and next-generation renewables) and the hard-to-abate industries (e.g.
steel and chemicals). The Contract for Difference scheme is a key support mechanism for development ofhydrogen. Alongside this in the energy sector, the government is focused on supply chain development forperovskite solar cells, floating offshore wind, water electrolysis equipment, and introduction of perovskites (“nextgeneration renewables”.
• Priority areas ranked by the investment amount the government is hoping to catalyse with its pump priming are
the automotive industry (JPY 34 trillion~), next-generation renewables (JPY 20 trillion~) and housing andbuildings (JPY 14 trillion~).
• The principles used to decide the use of proceeds places most weight on the commercial viability and level ofmass implementation of new GX products/ technologies.
• Further details on the announced areas for investment are set out in the tables in the Annex.

4Growth-oriented Carbon Pricing• Carbon pricing is to be implemented in two forms:
1. A carbon levy to be imposed on fossil fuel importers from FY2028
2. A GX Emission Trading Scheme (ETS) that began operations in FY2023• The ETS started in 2023 with voluntary participation by member companies of the GX League.
The plan is for it to be fully operational from FY2026. A paid auction will be implemented for thepower sector through the ETS from FY2033.
• The carbon levy imposed on fossil fuel importers will start at an initial low rate that will gradually
increase over time and will be announced in advance to encourage companies to accelerate GX
investments.
Institution
Projected carbon price per tonne• The government has stated it will consider Japan’sof CO2 in 2050
emissions reductions status, overseas carbon prices, and McKinsey
Approx. 36USD
organisational projections when setting a reference
Institute ofCarbon levy: Approx. 14-42USD
price range for carbon pricing. Projections by McKinsey Energyand IEEJ are mentioned in METI materials.
Economics,ETS paid auction: Approx. 83-131 USD

GX Promotion Organisation

Japan (IEEJ)• In FY2024, a GX Promotion Organisation will be established to oversee:• Provision of financial support to companies engaged in GX investments• Administration of the carbon levy and operation of the ETS• To enhance the Organisation’s financial support operations, the government will formulate support
standards, establish a steering committee including experts, and will set regulations via prior5consultations with METI.

GX League
Established in April 2022, the GX League is a network of 550+ Japanese companies (accountingfor more than 50% of Japan’s emissions) committed to voluntary emissions reduction,
decarbonising the supply chain, and creating green markets.
GX-ETS• In April 2023, Japan launched the first phase of the GX-ETS on a trial basis. Since then,participating companies have developed their emission reduction targets and submitted
them to METI.
• From October 2024, companies in the GX League will begin trading their surplus emission
reduction allowances.
Tokyo Stock Exchange carbon credit market• In October 2023, the Tokyo Stock Exchange (TSE) launched a new carbon credit market fortrading existing carbon credits, known as J-Credits.
• As of 10 January 2024, there were 249 participants in TSE carbon credit market and of these,
82 were GX League members.
Three new working groups• In October 2023, the GX League announced the formation of three working groups focusedon: (1) developing market rules for carbon credits; (2) management; and (3) human resources.
6

New proposal on Tax Credits• The GX Implementation Council began
discussing new tax credits in December 2023.
This aims to support domestic production instrategic sectors.
• The government plans to utilise proceeds fromthe Japan Climate Transition Bonds to introduce
tax credits in strategic sectors, including EVs,
green steel, green chemicals and Sustainable
Aviation Fuel (SAF).

Overview of proposed tax credits in strategic sectors
Strategic sectors

Proposed tax credit

EVs

EVs and FCVs

400,000 yen/vehicle

Light EVs and PHEVs

200,000 yen/vehicle

Green steel

20,000 yen/tonne

Green chemicals

50,000 yen/tonne

SAF

30 yen/litre• The proposed tax credits, once approved, will beapplicable for ten years.

Support measures for SMEs and start-ups• A menu of supportive measures, amounting to a total of JPY 700 billion over the next
three years, will be implemented to assist the low carbon transition of SMEs, particularly toimprove energy efficiency and achieve zero-emissions for buildings.
• Noting that Japan is behind other major economies in the number of GX/ cleantech
startups, JPY 200 billion will also be allocated over the next five years to foster start-up
incubation.

7Final remarks• Overall, the government remains serious about implementing its GX plans in accordance with the GX Roadmap
released in February 2023. These plans involve huge investments into industrial and economic transformation.
• The GX Plan is one of the main overarching policy frameworks of the Kishida administration. The policy wascreated primarily to stimulate economic growth, however, with a somewhat secondary focus on environmental
aims and emissions reduction. The government is therefore focused on supporting new green industry andgreening existing Japanese industry to secure international competitive advantage. This can be seen in theprovision of tax credits for key strategic sectors, including EVs, green steel, green chemicals and sustainableaviation fuel.
• The sector level investment strategies published in December are focused on the provision of subsidies andsupport for R&D rather than any penalties or regulations to be enforced if emissions reduction targets are not met i.e. the policy in its current form is "all carrot and no stick”. This raises the question of how much emissions
reduction will be realistically achieved under this policy.
• Now the sector level investment strategies have been published, the lead on GX will move from the Cabinet
Office GX Implementation Council to ministries and agencies in charge of each area. They will take forward
work on individual bills and specific support programmes. Progress on this is unlikely to be uniform acrossministries and sectors.
• The voluntary nature of the Emission Trading Scheme and the low initial carbon price has thrown some doubt on
the effectiveness of the planned carbon pricing schemes, particularly whether voluntary participation andvoluntary emissions caps will reduce emissions. To address these concerns, the government is currently reviewing
how to ensure greater private sector participation in the ETS. For example, it may mandate companies that receive
public GX funding to join the ETS and it is considering setting industry-specific guidelines for emission cut targets.
• Japan’s GX plans cover the whole economy but there is still concern that Japan may not be moving fast enoughto ensure their decarbonisation plans are aligned with a 1.5-degree pathway. 2024 will be an important year for8
GX as the bonds are launched and various schemes continue to be developed.

AnnexInvestment Promotion Measuresusing Japan Climate Transition Bonds(METI draft, December 2023)

9Investment Promotion Measures using Japan Climate Transition Bonds (METI draft, Dec 2023) (1/4)

Transportation

Manufacturing

Publicand private
investment thegovernment islooking tocatalyse

Iron/Steel
Chemicals
Paper pulp
Cement3 trillion yen~
3 trillion yen~
1 trillion yen~
1 trillion yen~

Investment Promotion Measures using
GX Economic Transition Bonds

Capital investment support for
production process conversion(innovative electric furnaces,ammonification of decomposition
furnace heat sources, conversion tochemical recycling, biochemicals, CCUS,biorefineries etc.)

Funding from 2022 &2023 supplementarybudgets[Appx. 3 trillion yen]

N/A・Support for introduction of personal EVs 219.1 billion yen
34trillionyen~・Support for introduction of commercial 54.5 billion yen
Automobile
EVs

Storagebattery

7 trillion yen~Support for introduction of production
equipment

597.4 billion yen

Support for introduction of stationary
storage batteries

N/A

Financialsupport fromFY2024
onwards

Notes*Subsidy rate for capital investment
support is in principle 1/2 for SMEs, 1/3for large enterprises

5 years:484.4 billion
yen・Total support amount for capital
investment in 4 sectors (iron/steel,chemicals, paper, cement) is approx.
1.3 trillion yen over 10 years.
・Separate R&D support for hydrogen
reduction via Green Innovation Fund(GI Fund), as well as tax credits forgreen steel/green chemical
production.

N/ASeparate R&D support via GI Fund fornext-gen storage batteries/motors,
synthetic fuels, as well as tax credits
according to EV production volume.

230 billion yen ・230 billion yen allotted to Economic
Security Fund・Separate R&D support for all-solid3 years:
state batteries via GI Fund
40 billion yen10Investment Promotion Measures using Japan Climate Transition Bonds (2/4)

Transportation

Publicand private
investment thegovernment islooking to catalyse

Aircraft
Sust.
AirlineFuel(SAF)
Ships

LifestyleLifestyle

Investment Promotion Measures using
GX Economic Transition Bonds

Funding from 2022 &2023 supplementarybudgets[Appx. 3 trillion yen]

Financialsupport fromFY2024 onwards

N/A

N/A

Notes

*Subsidy rate for capital investment
support is in principle 1/2 for SMEs,
1/3 for large enterprises・To be considered based on theNext Generation Aircraft Strategy
to be formulated within FY2023
・Separate R&D support for SAF
and next-gen aircraft via GI Fund,as well as tax credits according toSAF production volume

4 trillion yen~Support for next-gen aircraft coretechnology development

1 trillion yen~Support for SAF manufacturing andsupply chain development

N/A

5 years:336.8 billion
yenSupport for introduction of production
equipment for zero emission ships etc.

N/A

・Separate R&D support for
5 years:
60 billion yen ammonia-powered ships via GI Fund

3 trillion yen~14 trillion yen~

Resource
Circulation 2 trillion yen~
Semiconductors 12 trillion yen~・Support for home upgrades to insulated
windows
・Support for high efficiency water heater
installation
・Support for renovating commercial andeducational facilities
Support for building circular business

235 billion yen
58 billion yen
33.9 billion yen

N/Amodels・Support for introduction of production
equipment for power semiconductors etc.
・Support for technology development of AI
semiconductors, photonics integration etc.

432.9 billion yen
103.1 billion yen

N/A・Approx. 2 trillion yen of
support, including automobiles, tobe implemented over 3 years(including other than GX
Economic Transition Bonds)

・Separate R&D support for
3 years:
thermal anaerobic conversion
30 billion yen
technologies via GI Fund

N/A・Separate R&D support for power
semiconductors via GI Fund
11

Investment Promotion Measures using Japan Climate Transition Bonds (3/4)
Publicand private
investment thegovernment islooking to catalyse

Investment Promotion Measures using
GX Economic Transition Bonds

Funding from 2022 &2023 supplementarybudgets[Appx. 3 trillion yen]

Financialsupport fromFY2024
onwards

5 years:

EnergyHydrogen

Support focused on Contract for Difference
(CfD)

N/A

Development of supply hubs for hydrogen

N/ACCSyen

7 trillion yen~Support for supply chain development ofNextperovskite solar cells, floating offshore
generation
31 trillion yen~ wind, water electrolysis equipment, andrenewables
introduction of perovskites

Nuclear457 billion

Development and construction of1 trilllion yen~ next-gen innovative reactors

Support for building CCS value chains
4 trillion yen~ (developing suitable sites, etc.)

N/ANotes*Subsidy rate for capital investment
support is in principle 1/2 for SMEs,
1/3 for large enterprises

・Approx. 3 trillion yen in support
for CfD over 15 years, from start ofsupply
・Separate R&D support for supply
chains via GI Fund・Hub development to beconsidered based on separate
feasibility studies

N/A

5 years:421.2 billion
yen・Total support amount for capital
investment is about 1 trillion yen
over 10 years
・Separate R&D support forperovskites via GI Fund89.1 billion yen

3 years:
164.1 billion
yen

N/A

N/A

N/A・To be considered based on
results of feasibility studies on
advanced CCS projects
12Investment Promotion Measures using Japan Climate Transition Bonds (4/4)
Investment Promotion Measures using
GX Economic Transition Bonds

Promoting investment via energy efficiency subsidies
incl. SMEs

Support for nurturing deep tech startups

Funding from 2022 &2023 supplementarybudgets[Appx. 3 trillion yen]

340 billion yen

N/A

Cross-Financial
support fromFY2024
onwards

N/A

806 billion yen

Financial support from GX Implementation Organisation
for GX implementation

N/A

Regional Decarbonisation Grants (microgrids for private
railways etc.)

3 billion yen*Subsidy rate for capital investment
support is in principle 1/2 for SMEs, 1/3for large enterprises

・Support of approx. 700 billion yen
over 3 years

・Support of approx. 200 billion
41 billion yen yen over 5 years (incl. GX
Implementation Organisation’s
finance support)

sectoralmeasures R&D via the GI FundNotes

N/A・2 trillion yen (general account)allotted in FY2020 third supplementarybudget120 billion yen ・Envisage financing support via
debt guarantees
6 billion yen

N/ATaxmeasures Newly establish tax credits according to production volume of green steel, green chemicals, SAF, EVs, etc.

Expected direct financial support from FY2024 onward: Approx. 2.4 trillion yen (total of red amounts)
Total of approx. 13 trillion yen financial support (red figures plus 2022-23 support already provided and future planned
support figures in blue) - METI implies that most of this will come from revenue generated by the bonds.

13

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