In brief
Several means exist to reduce greenhouse gas (GHG) emissions in order to achieve carbon neutrality by 2050, including development of new technologies, transitioning to renewable energy and voluntary energy conservation. In addition to these efforts, there is growing interest in offsetting residual emissions that are inevitably emitted despite reduction efforts through the use of carbon credits.
Although an increasing number of companies are interested in using carbon credits, the following issues have emerged:
(a) The treatment of carbon credits under domestic and overseas legal systems is unclear, and their use cases and importance are not fully understood; and
(b) Many types of carbon credits exist in Japan: J-Credits, Non-fossil Certificates, green electricity certificates, the Joint Crediting Mechanism (JCM) and voluntary carbon credits that are actively traded overseas. This makes it difficult for companies to determine which credits they should apply for and how to utilize them.
Against this backdrop, companies have been unable to fully estimate carbon credit demand, thus limiting their ability to increase the supply of carbon credits based on new carbon removal technologies and carbon sequestration using natural methods. In addition, carbon credits are mainly distributed via bilateral transactions, resulting in a lack of clarity on the status and pricing of these transactions.
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