Updated on 30/09/2026 to reflect ANA's response.
Japan’s Green Transformation Emissions Trading System (GX-ETS) entered its mandatory phase in 2026, three years after voluntary trading began under the GX League initiative. The country’s Ministry of Economy, Trade and Industry (METI) has now finalised the aviation benchmark through 2030, resolving one of the main uncertainties when Ishka Airfinance last examined the scheme in late 2025.
Though company-level free allowance allocations have yet to be finalised, the benchmark suggests airlines will likely have limited exposure to domestic carbon pricing during the scheme’s onset, tightening by only 1.3% through to 2030. Japan’s Scheduled Airlines Association has stated that airlines have secured free allowances at a “level that does not result in additional economic burden”. Discussions on the sidelines of Ishka Airfinance’s Japan event earlier this month also suggest limited expectations that GX-ETS will provide a strong decarbonisation signal.
By contrast, preparation in Japan for CORSIA Phase I compliance is shaping up more proactively, with Japan’s flagship airlines, Japan Airlines (JAL) and All Nippon Airways (ANA), already procuring eligible credits and being among the first in the world to retire some.
This report provides an update to GX-ETS and CORSIA adoption progress in Japan.
GX-ETS aviation benchmark set, free allocation still to come
Japan launched its GX-ETS in April 2023 as a voluntary scheme. Participation became mandatory from April 2026 for businesses whose average annual direct CO2 emissions over the preceding three years exceed 100,000 tonnes. For aviation, a March 2026 Ministry of Land, Infrastructure, Transport and Tourism (MLIT) meeting transcript appears to indicate that only JAL and ANA fall within the scheme – narrower than Ishka Airfinance’s previous estimate, which included smaller domestic airlines.
Covered companies must report verified emissions and hold sufficient allowances to cover them. To note, the scheme does not set a fixed aggregate cap on the total volume of issued allowances (whether auctioned or free). The Renewable Energy Institute, a Japanese think-tank, has criticised the absence of a quantified link between total allocations, expected GX-ETS emission reductions, and Japan’s Nationally Determined Contributions (NDC).
During its initial years, the scheme will be accompanied by a free allocation of allowances. For Japan’s domestic aviation (the GX ETS does not cover international aviation) free allocation will be calculated by multiplying the annual emissions benchmark by the airline’s baseline domestic transport activity, measured as average tonne-kilometres over the preceding three years.
Japan’s Ministry of Economy, Trade, and Industry (METI) finalised the aviation benchmark in March 2026, starting at 1.148 kgCO2/t-km for 2026, subsequently falling to 1.144 (2027), 1.141 (2028), 1.137 (2029) and 1.133 (2030) – thereby tightening by around 1.3% over five years. METI derived the benchmark from the emissions intensity of a comparison group of 22 domestic airlines, ranked by CO2 emitted per tonne-kilometre and weighted by their transport activity. The starting point reflects the emissions-intensity level achieved by the better-performing 50% of aviation activity in that group, with the benchmark tightening towards the level achieved by the better-performing 32.5% by 2030.
Allowances to cover emissions incurred in 2026 will not be formally allocated until late 2027, although airlines may already be able to estimate their allocation from the published benchmark and their FY2023-25 activity data. FY2026 emissions will determine the number of allowances each airline is ultimately required to hold for compliance.
The benchmark can be considered a victory for airlines given its relatively limited cost implications.
A marginal cost by design
Unlike the European emissions trading schemes, the GX-ETS features allowances price floors and ceilings - ¥1,700-¥4,300/tCO2 ($10.7-$27.06/tCO2) in 2026, with METI's indicative trajectory rising to ¥1,913-¥4,840/tCO2 ($12.04-$30.46/tCO2) by 2030 before inflation adjustments. For perspective, the Renewable Energy Institute estimates that a carbon price of around ¥8,400/tCO2 ($52.87) would be needed in 2026 to tip the cost balance for power generation from coal to LNG under projected fuel prices.
A similar comparison for aviation suggests the GX-ETS price is unlikely to impact the economics of SAF. Even at the 2026 ceiling of ¥4,300/tCO2, the direct CO2 emissions from burning one litre of conventional aviation fuel (CAF) result in an emissions allowance obligation of around ¥11 ($0.069) - based on ICAO’s standard Jet-A/Jet-A1 fuel density and emissions factor. Using Japan’s Scheduled Airlines Association estimations for domestic prices* of CAF (¥100/l or $0.63) and SAF (¥300-500/l or $1.89 - $3.15), even if the full GX-ETS ceiling were treated as a marginal carbon cost without free allowances, the final price of CAF would rise only to around ¥111/l (¥139,000/t or $878.75/t).
* These domestic prices are for reference only, and precede the post-Iran War surge in jet fuel prices around the world.
As of September 2026, there is no free allowance phase-out date for aviation, unlike for the power generation sector (whch will begin gradually from 2033). Aviation’s benchmark has not yet been decided post-FY2030, with METI set to review the scheme in 2031. From FY2028, fossil fuel used domestically will also be subject to Japan’s GX fossil-fuel surcharge, imposed upstream on fossil-fuel importers. The surcharge rate has not yet been set.
Market participants expect limited pressure from GX-ETS
With a weak carbon price, and generous distribution of free allowances, the initial financial impact on emitters of the GX-ETS is expected to be limited.
Market participants gave Ishka Airfinance a similar assessment of the scheme, with one stakeholder saying only a limited number of companies were moving seriously on GX-ETS, and that “the majority hasn’t moved yet”. He also said his company had developed detailed analysis looking into CORSIA, but had not done the same for GX-ETS due to limited data.
Another stakeholder described GX-ETS as “not a decarbonisation fund” but “an industry fund”, as the scheme prioritises supporting and protecting domestic industry rather than imposing a strong carbon constraint. He pointed to the low carbon-price range and his expectation that companies would receive “very friendly allowances”.
An August 2026 analysis by consultancies Transition Metrics and Asset Impact modelled a group of 200 companies across power, steel, cement, aluminium, and oil and gas, and found they would benefit from a collective free allowance surplus through to 2032. Estimated earnings from surplus allowances rise from around ¥75 billion ($475 million) in 2026 to around ¥300 billion ($1.9 billion) in 2030. Net costs only start to emerge after paid allocation begins for power generators in 2033.
| Metric | Japan GX-ETS | EU ETS | Interpretation | Notes |
|---|---|---|---|---|
| Carbon price (USD / tCO2) | $27.23 | $83.78 | The EU carbon price is just over three times the GX-ETS ceiling. | Japan uses the FY2026 GX-ETS ceiling, so this is an upper-bound marginal carbon value rather than the airline's actual cash cost. The EU figure is the carbon price implied by the Commission's 2025 SAF-support calculation. |
| Carbon cost on conventional aviation fuel (CAF) (USD/L) | $0.07 | $0.21 | The EU ETS adds around $0.21/L to CAF, versus around $0.07/L under the GX-ETS ceiling. | Calculated from direct combustion emissions of 0.002528 tCO2/L, using ICAO's standard 0.8 kg/L fuel density and 3.16 kgCO2/kg fuel conversion factor. |
| CAF price (USD/L) | $0.63 | $0.58 | Underlying CAF prices are broadly similar, so most of the difference in carbon-adjusted cost comes from the carbon price. | Japan: Scheduled Airlines Association estimate of around ¥100/L. EU: EASA 2025 CAF reference price of €640/t, converted using 0.8 kg/L. See source note below on period choice. |
| CAF + carbon (USD/L) | $0.70 | $0.80 | Carbon pricing raises the effective CAF price to around $0.80/L in the EU versus $0.70/L in Japan. | Illustrative CAF price plus the marginal carbon value above; before taxes/airport charges and, for Japan, before considering free allocation. |
| SAF price (USD/L) | $2.53 | $1.76 | On these inputs, the Japanese SAF price is around $0.77/L higher than the EU reference price. | Japan uses the midpoint (¥400/L) of the Scheduled Airlines Association's ¥300-500/L domestic SAF estimate. This is a simple midpoint, not an observed market average. EU uses EASA's 2025 €1,925/t aviation-biofuel reference price. |
| SAF premium before carbon (USD/L) | $1.90 | $1.17 | Before carbon pricing, the SAF premium is larger in the Japanese comparison: around $1.90/L versus $1.17/L in the EU. | SAF price minus CAF price. |
| SAF premium after carbon (USD/L) | $1.83 | $0.96 | The higher EU carbon price reduces the remaining SAF premium more materially: to $0.96/L versus $1.83/L in Japan. | SAF price minus CAF plus carbon. |
| Share of initial SAF premium closed by carbon price | 3.6% | 18.1% | Carbon pricing closes around 4% of the Japanese SAF premium, compared with around 18% in the EU. | Carbon cost divided by the initial SAF premium. |
| Direct SAF support (USD/L) | $0.19 | $0.48 | Direct support is also larger in the EU comparison: around $0.48/L versus Japan's $0.19/L producer tax credit. | Japan: ¥30/L tax credit for qualifying domestic SAF production/sales. EU: €526/t direct ETS support for standard aviation biofuel at normal eligible airports. |
| SAF cost after direct support (USD/L) | $2.34 | $1.28 | After direct support, the indicative SAF cost is around $1.28/L in the EU versus $2.34/L in Japan. | Japan assumes 100% pass-through of the producer-side ¥30/L tax credit to the airline fuel price. This is illustrative and not guaranteed. |
| Remaining gap after carbon + direct support (USD/L) | $1.64 | $0.48 | Combined carbon pricing and direct support leave a much larger residual SAF premium in Japan: around $1.64/L versus $0.48/L in the EU. | SAF after direct support minus CAF plus carbon. |
| Share of initial SAF premium closed by carbon + support | 13.6% | 59.0% | Together, carbon pricing and direct support close around 59% of the EU SAF premium, compared with around 14% in Japan on the assumptions used here. | Japan remains an illustrative upper-bound because this assumes full pass-through of the producer tax credit. |
| Sources: Scheduled Airlines Association of Japan, SAF cost estimates (2025); METI, GX-ETS framework and FY2026 price ceiling (2026); Agency for Natural Resources and Energy, SAF production tax credit (2026); European Commission, EU ETS alternative aviation fuels support calculation (2025); EASA, aviation fuel reference prices (2025); ICAO, standard aviation-fuel density and emissions conversion factors. | ||||
Note: To Ishka Airfinance’s knowledge, Japan does not publish a directly comparable annual CAF/SAF reference-price series, so the 2025 Scheduled Airlines Association estimate is compared with EASA’s 2025 reference prices. Japan’s carbon-price figure uses the FY2026 GX-ETS ceiling, while the EU carbon-price figure is the 2025 weighted-average EU ETS auction price used by the Commission in its SAF-support calculation.
EU fuel-price assumptions use EASA’s 2025 reference prices of €640/t for CAF and €1,925/t for aviation biofuel. The 2025 values are used because the European Commission’s calculation of EU ETS support for alternative aviation fuels uses the same EASA reference-price year. The Commission calculated direct support of €526/t for standard aviation biofuel in 2025.
Japan fuel-price assumptions are based on the Scheduled Airlines Association of Japan’s June 2025 estimates of approximately ¥100/L for conventional aviation fuel (CAF) and ¥300–500/L for domestic SAF. The analysis uses ¥400/L as a simple midpoint of the SAF range – this is not an observed market average. Japan’s SAF support is represented by the ¥30/L tax credit for qualifying domestic SAF production/sales. This is producer-side support, not a guaranteed discount to airlines. The calculation assumes 100% pass-through solely to illustrate the maximum simple impact on the fuel-price differential.
Japanese airlines lead world on CORSIA
Where ambition under GX-ETS remains limited, Japan’s preparedness for CORSIA presents a more encouraging picture for aviation decarbonisation. JAL and ANA have already begun procuring and retiring eligible credits, among the first airlines in the world to do so.
In March 2026, 180,000 Gold Standard CORSIA-eligible credits were retired by Shell on behalf of JAL, the first large-scale Gold Standard retirement by a commercial airline under CORSIA Phase 1. This month, JAL retired a further 100,000 tonnes of CORSIA Phase 1 credits from a Cambodian improved-cookstoves project. The airline’s latest financial statements show that its provision for outstanding CORSIA credit-purchase obligations increased from ¥2.29 billion ($14 million) in FY 2024 to ¥5.34 billion ($34 million) by the end of March 2026 (FY 2025).
The airline has also begun moving beyond conventional avoidance credits. Also this month, on 18th September, JAL announced what it describes as the world’s first purchase agreement for carbon-removal credits designed to comply with CORSIA. The CORSIA-eligible portfolio, structured by Climeworks, will include removal approaches such as soil-carbon sequestration and biochar, while JAL will separately purchase Climeworks’ direct-air-capture (DAC) credits. The volume and value of the credits were not disclosed. JAL has also purchased CORSIA-eligible SAF.
ANA is also building a CORSIA procurement strategy. Its 2026 integrated report (for FY2025) estimates that the airline will require around 3.5 million tCO2 of carbon credits across CORSIA’s 2024-2026 first phase, with procurement expected to take place by around 2027 and retirement completed by January 2028. This follows an initial purchase and retirement of 1,000tCO2 of CORSIA Eligible Emissions Units (EEUs) in 2024. The airline’s involvement extends beyond purchasing.
Ishka Airfinance understands that these early transactions may just be the tip of the iceberg. One Japanese carbon market stakeholder described JAL and ANA as leading participants in Japan’s wholesale carbon-credit market. They said ANA had run a procurement of around 800,000t, attracting more than 20 participants, and was preparing another procurement of around 1 Mt. They characterised earlier tenders as price discovery exercises. Ishka Airfinance could not independently verify these claims and ANA declined to comment.
The Ishka View
The limited carbon price imposed on aviation by Japan’s GX-ETS is consistent with the wider structure of the policy. Instead of relying on carbon pricing to push companies to invest in technologies that remain expensive or supply-constrained, Japan's approach is to finance transition investment before imposing higher carbon costs. It does this through around ¥20 trillion ($127 billion) of GX Economy Transition Bonds being issued between 2023 and 2032. METI describes this combination of upfront support and gradually increasing carbon pricing as “pro-growth carbon pricing”. For aviation, this includes - over five years - around ¥340 billion ($2 billion) of support for SAF manufacturing and supply-chain development over five years, as well as and ¥120 billion ($762 million) over five years from 2025 for the aircraft commercial aerospace sector, including development of next-generation airframes and more fuel-efficient engines, supply-chain modernisation and engine MRO.
The bonds funding these investments are meant to be repaid by 2050 using fiscal revenues, including a fossil-fuel surcharge from 2028 and paid power-sector allowance auctions from 2033. The GX-funded programmes remain in the early stages of deployment, with only around ¥8 billion ($50.8 million) of SAF grants been committed as of January 2026. Separate GX-funded support has also begun going to next-generation aircraft development, including fuel-efficient engine technologies and lightweight aircraft structures, although the broader aircraft programme also funds industrial objectives such as high-rate production capacity, supply-chain modernisation and domestic MRO.
In terms of the carbon pricing “stick” to repay GX bonds, the Japanese government is taking a relatively business-friendly approach for the coming years. however, with low ceiling prices and benchmark-based free allocation, airlines are likely to be left with little carbon-price exposure in the near-term. This may change after 2030, as METI has left the allocation methodology from FY2031 open to review, including the sector benchmarks and the level of free allocation. Nevertheless, Japanese companies, including airlines, have sometimes demonstrated a proactive approach to compliance, responding to reputational and stakeholder expectations even where legal requirements or penalties are not yet fully established. Early compliance with CORSIA illustrates this tendency, while the emergence of the GX-ETS provides a new emissions benchmark for airlines and a potential pricing reference for the broader costs of pollution over the coming decade.
