Introduction - The current state of play within Japan and the world 

Increasingly, Japanese companies are pursuing the acquisition and sale of carbon credits as a means of achieving their carbon abatement objectives. This taps into the growth of Voluntary Carbon Markets (VCMs) at a global scale - particularly in Asia. The voluntary carbon market, where credits are traded to offset emissions, is projected to reach a value between $10 billion and $40 billion by 2030. 

Japan is currently piloting a voluntary carbon credit trading scheme for companies participating in the government’s green transformation (GX) league—a cross-industry collaboration aimed at achieving carbon neutrality. The voluntary carbon credit exchange market will initially trade credits generated by GX members, J-Credits and those obtained through the Joint Crediting Mechanism - focused on carbon abatement in partner countries.

In particular, many Japanese companies are increasingly interested in carbon removal projects, and the associated carbon offsets and credits. The International Energy Agency estimates that billions of tons of CO2 must be removed from the atmosphere to achieve net zero by 2050 - including through technologies such as Direct Air Capture (DAC) and Carbon, Capture, Utilisation and Storage (CCUS). In parallel with these efforts, Japanese companies are increasingly investing in overseas carbon credit initiatives; anticipating a heightened demand for carbon offsets. 

However, there are many critics of carbon removal methodologies - arguing these technologies are ineffective, inefficient, costly and possibly, a form of greenwashing. This is in addition to the heavy criticism directed towards carbon offsets and VCMs - decried as being poorly verified and evaluated in their carbon abatement potential. 

The growth of Japanese carbon credit and offset purchasing 

Demonstrably, as previously discussed, there is a growing appetite for carbon credits and offsets in Japan, which Japanese companies are responding to. 

For example, Sumitomo Corporation, a leading Japanese trading house, is set to launch an innovative business venture focused on capturing carbon dioxide from the atmosphere and selling the resulting credits to CO2 emitters by 2025. Sumitomo also aims to handle 2 million tons of CO2 annually by 2030, positioning itself as one of Japan’s leading companies in the carbon removal credit market. This volume of CO2 is comparable to the annual household emissions from Iwate Prefecture in northern Japan, which has a population of nearly 1.2 million.

To support this initiative, Sumitomo has recently taken a minor equity stake in Inherit Carbon Solutions, an Oslo-based company specialising in removing CO2 generated by biogas plants. This process produces biomethane from manure and other waste materials, and the captured CO2 is then stored underground. Notably, Microsoft has also entered into carbon removal agreements with Inherent Carbon Solutions. 

But Sumitomo Corporation is not the only Japanese company engaging in such efforts. For example, in collaboration with 1PointFive, All Nippon Airways (ANA) has announced plans to purchase over 30,000 tons of credits over three years starting in 2025. Importantly, this is through CCUS and DAC technology. 

Other notable case studies include the Japanese energy firm Iwatani, which has announced its intention to acquire Australian Carbon Credit Units (ACCUs) through an afforestation program in Western Australia. This initiative is in collaboration with the state government-appointed Forest Products Commission (FPC). 

Likewise, Japanese trading house Itochu has announced it will finance a Kenyan clean cooking stove project to secure carbon credits.

Demonstrably, Japanese companies of all sorts are eager to purchase carbon credits - stimulating robust localised markets of carbon offsets and credits. However, are these methods effective in tackling climate change? 

Carbon removal, capture and offsets - A stalling and greenwashing strategy? 

Detractors argue that carbon offsets, credits and removal are just a delay and stalling strategy for taking evidence-based climate action - rather providing a ‘smokescreen’ for climate inaction. 

For example, Mitsubishi has announced a major investment in carbon removal - collaborating with carbon offset provider South Pole to purchase about 200,000 tonnes of carbon dioxide removal credits from technological schemes through a program called NextGen. 

However, at the same time Mitsubishi is still operating and investing in new fossil fuel projects. According to Global Energy Monitor, Mitsubishi still operates nine coal power stations in Japan and Taiwan, and is building two in Vietnam and two in Indonesia. 

So is this just a greenwashing and delay strategy stymying a net zero future? This is all accompanied by common criticisms about the effectiveness of carbon offsets; often critiqued for their questionable quality, verification and evaluation with respect to carbon abatement potential. 

For example, a paper published in Nature Climate Change highlighted that removing tons of carbon dioxide from the atmosphere might not be as effective at mitigating climate change as many thought. This is because shifting atmospheric chemistry could actually affect how readily land and oceans release their CO2, therefore counterbalancing the possible positive effects of Carbon removal and capture. 

It’s also very unclear how many tonnes of emissions need to be removed from the atmosphere to effectively abate greenhouse gasses. The estimated range for achieving this is anywhere between 1.3 billion tons a year to 29 billion tons - an enormous range.

Furthermore, CCUS technology is perceived as inefficient and ineffective at mitigating carbon emissions. There are also strong accusations that discussions about carbon removal technology are highly politicised - with countries like Japan perhaps overstating its effectiveness. US special presidential envoy for climate John Kerry stating this technology is “dangerous” and a cause for “alarm”.

In this sense, the effectiveness of carbon removal is very questionable. It’s possible investment in carbon removal and storage is just an opportunity cost for investing in more mainstream, evidence-based green technologies. 

Conclusion 

Looking ahead, Tokyo plans to launch an official carbon credit market by 2026-2027 and gradually implement an auction system for emissions allowances, beginning with the power sector in 2033-2034. The Tokyo Stock Exchange has already introduced carbon trading. 

Yet many argue Japan is stuck in an archaic, unproven and low prospects pathway to achieving decarbonisation. Japan might call this the ‘various pathways approach towards a common goal’, but critics say this obfuscates the truth - that Japan doesn't have the capacity or will to pursue more mainstream, accepted green technologies. 

Notably, Japan’s more stubborn, less proven approach to carbon abatement is beginning to leak into its climate diplomacy. For example, Japan has been a proponent of ammonia co-firing and CCS among developing countries in Asia, which prolongs the use of coal-fired power across Asia, rather than transitioning beyond such energy sources. Among G20 nations, Japan was also ranked first in international public financing for fossil fuel projects between 2019-2021.

For now, Japanese companies and the government will continue to pursue carbon offsets and credits through questionable technologies. Perhaps if the landscape for offsets and credits changes, so will Japan’s carbon abatement priorities.