Outline of the Basic Policy for the Realization of GX (Green Transformation)

Provisional
Translation

Background✓More countries and regions are declaring net-zero emissions with timeline (more than 90% on a GDP basis), and there is intensifying long-term, large-scale investment competition for GX, which delivers both emissions reduction andeconomic growth. The era has arrived where the success or failure of GX initiatives is directly linked to the competitiveness of companies and nations. Russia's aggression against Ukraine has again highlighted Japan's energy security
issues.

✓In the midst of this, Japan will take full advantage of its strengths by accelerating GX and create new demand and markets in the fields of stable energy supply and decarbonization, leading to the enhanced competitiveness of its industries
and economic growth.

✓The Government of Japan submits the relevant bills necessary to achieve GX to the 211th Session of the Diet (underlined parts are to be included in the bills).

(2) Realization and implementation of the “Pro-Growth Carbon Pricing
Concept” and other initiatives(1) GX initiatives based on the premise of ensuring a stable energy supply•1) Promotion of thorough energy efficiency improvement•••

Strengthening support measures for small and medium-sized enterprises to improve energy efficiency by subsidies
which are eligible for multi-year investment plans.
The relevant ministries and agencies will work together to strengthen support for house to replace windows for highenergy efficiency.
The government encourages the shift to non-fossil fuel energy with newly proposed governmental guidelines for five
major industries (steel, chemical, cement, paper, and automobile).

2) Making renewable energy a mainstay power source• Aiming to achieve a renewable energy ratio of 36% to 38% by FY2030, based on the national master plan, in thenext ten years or so, we will accelerate the establishment of the power grid system on a scale more than eight times
that of the previous ten years. We will establish undersea direct current power transmission cables from Hokkaido
Prefecture with the aim of completing them by FY2030. We will prepare a financial environment necessary for thesesystem investments.
• To increase the deployment of offshore wind power, we will establish the Japanese version of centralized systemand begin a public offering with new public offering rules.
• We will strengthen business rules to introduce renewable energy in coexistence with local communities. We willsocially implement next-generation solar cells (Perovskite solar cells) and floating offshore wind power.
3) Utilization of nuclear power• On the premise of ensuring safety, we will materialize plans for building next-generation advanced reactors within
the sites of existing nuclear power plants that have determined to be decommissioned. We will consider otherdevelopment and construction projects, based on the future situation, including the status of reactors operating ineach region and how local understanding has progressed.
• On the premise of the rigorous safety reviews, the operation period, limited to 40 years with a possibility ofextensions for 20 years, will be approved to be additionally extended for a certain length of outage periods. Inaddition, we will promote the nuclear fuel cycle, develop a mechanism sharing knowledge and securing funds forsteady and efficient decommissioning, encourage country-led understanding by citizens to realize final disposal anddrastically strengthen proactive work for local municipalities.
4) Other important matters• ​In order to develop hydrogen and ammonia production and supply chains, we aim to implement a support schemethat focuses on their price differences with existing fuels. We will design comprehensive policy measures and update
the national strategy with a view to leading the world in the hydrogen field.
• In order to secure supply capacity in the electricity market, we will steadily operate the capacity market and promote
systematic investment into decarbonized energy sources by implementing Reserve Power Plants system and LongTerm Decarbonized Power Resource Auction.
• Interests in Sakhalin 1 and 2, and other international projects will be preserved for the time being, as they areimportant for energy security.
• In light of the growing uncertainty in the LNG market, we will build a mechanism to strategically secure buffer LNG
and support the development of technologies such as those related to methane hydrate.
• In addition, we will promote research and development, capital investment, demand creation, and other GX efforts inthe areas of carbon recycled fuels (e.g., Methanation, SAF, fuels), batteries, resource circulation, next-generation
automobiles, next-generation aircraft, zero-emission ships, investment into digital technology for decarbonization,
housing and buildings, ports and other infrastructure, food and agriculture, forestry, and fishery industries, andregions and livelihoods.

Last May, Prime Minister Kishida announced that more than 150 trillion yen of public and private GX investments
would be made over the next decade. In order to achieve this, the government has complied a comprehensive
strategy, and will swiftly achieve and implement the following pillars.

1) Upfront investment support utilizing GX Economy Transition Bonds•We will establish GX Economy Transition Bonds (with the aim of issuing them in a new form that conforms tointernational standards) and implement initial investment support of 20 trillion yen for 10 years in order to form longterm support measures and increase predictability for private companies. For the cases that are very difficult for theprivate sector to make investment decisions alone, we will implement the support together with regulatory andsystemic measures in areas that will contribute to the strengthening of industries' competitiveness, economic growth,and emission reductions .

2) GX investment incentives through “Pro-Growth Carbon Pricing Concept”• We will position carbon emission prices through growth-oriented carbon pricing and increase the value added of
GX-related products and businesses.
• We will indicate ahead of time a policy of implementing GX efforts as we reduce the total energy-related burden in
the medium- to long-term after setting a certain amount of time to make GX efforts instead of implementing them
immediately.
⇒ In addition to the support measures, we will establish a mechanism to give incentives to businesses on theforefront of GX efforts.

<Specific examples>(i) GX League to be developed in stages → Full-scale operation of carbon emissions trading system by companies,including those in high emission industries [FY2026 onward](ii) We will implement auctioning* similar to those in Europe for power generation businesses in gradual stages[FY2033 onward]*: Fixed contributions based on CO2 emissions(iii) We will implement a "GX-Surcharge" (Surcharge on fossil fuel supply) for companies such as fossil fuelimporters [FY2028 onward]* In addition, GX Promotion Organization will be established to carry out the above in a unified manner3) Utilization of new financial instruments••

The GX Promotion Organization will consider and implement supplementary measures to address risks during thegradual social implementation of GX technologies in order to accelerate investment into GX.
We will create an environment with measures to promote sustainable finance, including disclosures of information
related to climate change, in addition to strengthening efforts to foster international understanding on transition
finance.

4) International strategy, Just Transitions, and GX of small and medium enterprises and otherbusinesses••••

We will make efforts to materialize the "Asia Zero Emission Community (AZEC) initiative" and further promote GX inAsia.
We will promote skill acquisition and smooth labor mobility in growth areas such as green ones through reskilling
support and other measures.
In addition to the creation of Decarbonization Leading Areas and the nationwide deployment, local governments willutilize financial support and take the initiative in decarbonizing of the administrative operations. We will launch a
new national movement and stimulate demand for decarbonized products.
We will promote efforts for entire supply chains including those of SMEs through support that uses subsidies
including the Project to promote business restructuring of SMEs, training of human resources for SME support
organizations that provide push-type support, further expansion of the “Declaration of Partnership Building”, andother measures.

(3) Progress evaluation and necessary reviews••The GX Implementation Council and others will regularly conduct progress evaluations and do necessary reviews effectively taking into account progress in GX investments, global trends, impacts on the economy, and other factors.
We will clarify the items that require legislative measures in a bill that will be submitted to the 211th Session of the Diet and be sure to implement them.