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In Japan, the promotion of renewable energy is expected to continue to advance through groundbreaking amendments that allow offshore wind power projects in Japan’s exclusive economic zone (EEZ) and the strengthening of the Green Transformation (GX) emissions trading system, both of which are set to take effect. The Act on the Development of Marine Renewable Energy Power Generation Facilities (the amended Act on Promoting the Utilisation of Sea Areas), which enables the installation of marine renewable energy power generation facilities in the EEZ is scheduled to come into force on 1 April 2026.

The Act on the Promotion of Smooth Transition to a Decarbonised, Growth-Oriented Economic Structure (GX Promotion Act) has also been amended, and participation in the Emissions Trading System (GX-ETS) will become mandatory for specified companies starting 1 April 2026.

Act opens door to marine development

Under the amended Act on Promoting the Utilisation of Sea Areas, sites available for the installation of marine renewable energy power generation facilities will be expanded from the territorial and inland waters to the EEZ. Significant progress in offshore wind power generation projects is expected, particularly through the development of floating wind turbines.

A two-stage framework has been adopted for permitting the installation of marine renewable energy power generation facilities in the EEZ, unlike the single-stage framework used for territorial and inland waters. The key procedures are outlined below.

Designation of solicitation zones. The Minister of Economy, Trade and Industry (METI Minister) may, following public notice and consultations with administrative authorities, designate certain zones of the EEZ that are appropriate in light of natural conditions and other relevant circumstances as solicitation zones for the installation of marine renewable energy power generation facilities (the Solicitation Zones) (article 32, paragraph 1).

Grant of provisional status (provisional permit). Business operators intending to install marine renewable energy power generation facilities shall identify sea areas within the Solicitation Zones and apply for provisional status, together with a draft of the zone map and a plan for the installation of marine renewable energy power generation facilities (the installation plan) (article 33, paragraphs 1 and 2). Such business operators may obtain provisional status (a provisional permit) only if the METI Minister and the Minister of Land, Infrastructure, Transport and Tourism find that the application complies with the criteria for the supply price, the marine renewable energy power generation facilities, and the methods of maintenance and management of those facilities (article 34, paragraph 1). When applications overlap in the same area of the Solicitation Zones, the business operator deemed most appropriate to enable the long-term, stable and efficient operation of the marine renewable energy power generation project shall be selected (article 34, paragraph 1, item 2). Provisional permits are subject to a validity period of up to five years (article 34, paragraph 2).

While other regulations under the Foreign Exchange and Foreign Trade Act may apply, the amended Act on Promoting the Utilisation of Sea Areas does not directly restrict the participation of foreign companies or foreign capital.

Establishment of council. Following the granting of provisional status, a council must be established to hold the deliberations necessary for the operation of the marine renewable energy power generation business within the Solicitation Zones (article 36, paragraph 1).

If the draft of the zone map or the Installation Plan submitted by the provisionally approved business operator is inconsistent with the results of the above deliberations, the business operator shall revise them to be in compliance with such results (article 36, paragraph 6).

Installation permit. Provisionally approved business operators shall, within the validity period, refine and revise their zone map and the installation plan drafts, and apply for an installation permit, together with a finalised zone map and Installation Plan (article 37, paragraphs 1 and 2).

Provisionally approved business operators may obtain an installation permit only when the application is found to meet certain criteria, including consistency with the particulars on which the council has reached a consensus (article 38, paragraph 1).

Business operators that obtain an installation permit may install marine renewable energy power generation facilities within the permitted area (excluding territorial and inland waters), and are also obliged to maintain, manage and remove the facilities in accordance with the approved Installation Plan (article 38, paragraph 4; article 40). For their business to be eligible for the FIT or FIP systems, they need to participate in bidding under the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities.

GX-ETS emissions reporting and trading

Under the amended GX Promotion Act, a business operator whose annual average carbon dioxide emissions during the preceding three fiscal years reaches 100,000 tons or more shall annually report to the METI Minister the following information:

1. 1. Their name, location and the name of their representative;
   2. Their business sector and activities;
   3. Their annual average CO? emissions;
   4. Their emissions target for the relevant fiscal year and the basis for setting that target; and
   5. Other matters specified by the ordinance (article 33, paragraph 1).

Allocation of emission allowances. When satisfied that the content of the reporting is appropriate in light of the implementation guidelines, the METI Minister shall allocate the emission allowance to the notifying business operators for free, based on the emission quantity target stated in the notification (article 34, paragraph 1). Such business operators shall report their actual emissions for the allocation year to the METI Minister, the Minister of the Environment, and the relevant Minister in charge of the business in the year following the allocation year (article 35, paragraph 1). Such business operators shall obtain confirmation from a registered confirmation body that the actual emissions volume has been appropriately calculated using the calculation method specified in the implementation guidelines (article 35, paragraph 2; Enforcement Order article 5), and attach a report detailing the confirmation results (article 35, paragraph 3; article 33, paragraph 3).

The METI Minister shall notify the business operators who have reported a quantity of emission allowances equivalent to their actual emissions (article 36, paragraph 1). If the content of the report is inappropriate, or if otherwise necessary, the METI Minister shall, based on an investigation, determine the quantity of emission allowances to be held and notify the business operator (article 36, paragraph 2). Such business operators shall then hold the quantity of emission allowances notified pursuant to article 36, paragraph 2 in their holding account by 31 January of the year following the allocation year (the amortisation date) (article 36, paragraph 3). Emission allowances may be traded but speculative trading is not permitted (article 38).

Emissions trading. The emissions allowance trading market (article 111, paragraph 1, item 6(a)) is scheduled to open around autumn 2027. The METI Minister shall, taking into account the impact on industry and people’s lives, the status of transition to GX, and consistency with measures concerning energy supply and demand, determine the reference upper trading price (the price that serves as the basis for calculating the upper limit of the trading price for an emission allowance equivalent to one ton of carbon dioxide) before the start of each fiscal year (article 39, paragraph 1).

Meanwhile, the METI Minister shall, each fiscal year, set the adjusted benchmark trading price before the start of the fiscal year, taking into account the level of the trading price of emission allowances that induce business activities, and domestic and international economic trends concerning carbon dioxide emissions (article 116, paragraphs 1 and 2). The GX Promotion Organisation may purchase emission allowances to adjust its trading price when the average trading price falls below the adjusted benchmark trading price (article 111, paragraph 1, item 7; article 117, paragraph 1).

Amortisation of emission allowances. The METI Minister shall amortise the notified quantity of emission allowances on the amortisation date (article 37, paragraph 1). The METI Minister collects an unamortised equivalent contribution from the business operators who have not received amortisation for the notified quantity of emission allowances from the METI Minister during the relevant allocation year, on or after the day following the amortisation date. This contribution is calculated as the amount obtained by multiplying the quantity of emission allowances for which amortisation has not been received by the notified quantity by the reference upper trading price, then multiplying that amount by 1.1 (article 41, paragraph 1).

Oh-Ebashi LPC & Partners
Nakanoshima Festival Tower 27F, 2-3-18 Nakanoshima
Kita-ku, Osaka 530-0005, Japan
Tel: +81 06 6208 1500
Fax: +81 06 6226 3055
Email: shunta.doki@ohebashi.com