The revised law requires companies producing 100,000 tonnes of carbon emissions to participate in a trading system, which will be introduced in the fiscal year starting April 2026.

An industry ministry official told AFP that the companies -- which include electricity generation firms and manufacturers of steel, chemical products, cement and paper -- account for roughly 60 percent of Japan's greenhouse gas emissions.

"With them joining the carbon trading market that the European Union already has, we expect that companies will be motivated to reduce their carbon emissions and will be prompted to work on technological innovation" towards a carbon-free society, said the official.

Under the trading system, companies will be allotted an annual maximum emission allowance. Carbon credits will have to be purchased on market for any amount above that cap from firms able to sell them given that their emissions are below the threshold.

Japan, the world's fourth-largest economy, has set a target of becoming carbon-neutral by 2050 and to cut emissions by 46 percent by 2030 from 2013 levels.