Biochar, carbon offset’s rising star

In February 2025, Nomura signed a memorandum of understanding with Shonaikomekobo Corporation, an agricultural group based in Yamagata, to promote decarbonization and advance agriculture using biochar. A month later, the group launched a carbon farming initiative by spreading biochar made from rice husks generated during the polishing process over their farmland. This not only improves soil quality but also aims to reduce greenhouse gas emissions by sequestering carbon in the soil. This initiative seeks to create and eventually sell carbon credits through the use of biochar.

This article highlights the efforts by Shonaikomekobo and Nomura to drive decarbonization with biochar, while also explaining key concepts such as carbon neutrality, carbon offset, and carbon credits. 

Q. Can you tell us about Japan’s approach to carbon neutrality?

In light of the 2015 Paris Agreement, then Prime Minister Yoshihide Suga declared in October 2020 that Japan would aim to achieve carbon neutrality by 2050—meaning reducing greenhouse gas emissions to net zero. “Net zero” means that while it is difficult to completely eliminate all emissions, by 2050 the total greenhouse gases emitted by human activities will be balanced out by the amount absorbed or removed from the atmosphere. Since making this declaration, Japan’s efforts toward zero emissions have accelerated.

That said, Japan’s main energy sources remain fossil fuels such as oil, coal, and natural gas, which emit CO2. While companies have been working to measure and reduce their emissions, “carbon offsetting” allows them to compensate for emissions that cannot be eliminated internally by investing in activities that reduce or remove emissions elsewhere—effectively offsetting their emissions to net zero. Central to this offsetting process is the use of “carbon credits.” 

Carbon credits are certificates that verify companies or organizations have successfully reduced or removed greenhouse gas emissions. These credits can be traded with governments, companies, or other counterparties. Common examples of emission reduction or absorption activities include switching lighting to LEDs, using electric vehicles, or planting trees, as trees naturally absorb CO2.

There are many types of carbon credits, and their trading prices can vary significantly. Verification of actual greenhouse gas reductions or removals and issuance of carbon credits are carried out by certifying bodies. These organizations generally fall into two categories: those led by international organizations, national governments, or local governments; and those managed by private companies or NGOs.

Since 2013, Japan’s Ministry of Economy, Trade and Industry (METI), Ministry of the Environment (MOEJ), and Ministry of Agriculture, Forestry and Fisheries (MAFF) have operated the “J-Credit Scheme.” In addition, the Joint Crediting Mechanism (JCM) is a framework through which Japan deploys advanced decarbonization technologies to partner developing countries, enabling both Japan and its partners to share credits gained from the resulting emission reductions and carbon absorption. Private company or NGO-led credits are called “voluntary credits.”
 

Q. Nomura and Shonaikomekobo have undertaken an initiative to spread biochar on farmland. Is this eligible for carbon credit certification?

Yes, it is. Rice husks are consistently generated during rice production. While they are sometimes used as fertilizer or livestock feed, a large portion of the husks is still discarded.

Shonaikomekobo cultivates rice on about 780 hectares (1 ha = 10,000 square meters) of farmland and was confronted with the issue of what to do with the large volume of husks. Their search for a solution led them to biochar. They began producing biochar from surplus rice husks and spreading it on their fields in a local production-consumption cycle. The J-Credit Scheme recognizes the application of biochar to farmland as a greenhouse gas reduction method eligible for certification and credit issuance, provided certain conditions are met. Nomura Securities is supporting Shonaikomekobo in acquiring J-Credits through their biochar farmland application.
 

Q. What exactly is biochar?

Biochar is plant-based waste that has been converted into charcoal by heating it in an oxygen-depleted environment. The carbon in biochar is resistant to decomposition, and when applied to farmland, an estimated 60 to 80% of this carbon remains underground even after 100 years. Biochar also improves soil aeration and moisture retention. It can also help neutralize acidic soils, taking them from weakly acidic to neutral, which is beneficial for crops.

Besides rice husks, other raw materials include unused thinned timber, bamboo, and livestock manure. While biochar is used on farmland for J-Credit issuance, it also finds applications in the steelmaking, thermal power generation, and casting industries. However, because few operators produce biochar from unused raw materials, supply remains insufficient. 

Q. What is the current state of the carbon credit market?

In October 2023, the Tokyo Stock Exchange established a carbon credit market. In addition, a new trading classification for the sale and purchase of J-Credits related to biochar farmland applications was introduced in January 2024, creating a new trading venue for agricultural J-Credits.

Meanwhile, there are numerous direct, over-the-counter transactions between carbon credit creators and buyers, especially for large volumes.

Japan aims to achieve cumulative certification of 15 million tons of CO2 through the J-Credit Scheme and 100 million tons of CO2 through the Joint Crediting Mechanism (JCM) by 2030. As such, significant growth is expected in carbon credit generation. From fiscal 2026, the Green Transformation Emission Trading Scheme (GX-ETS), a cap-and-trade system, will be launched. Companies with an average direct CO2 emissions exceeding 100,000 tons over three years will be required to participate. Companies exceeding their emission caps under GX-ETS will need to purchase emission allowances from companies below their limit or purchase J-Credits or JCM credits through carbon credit trading (Baseline & Credit). This is expected to boost interest in and demand for carbon credits. 

(See inset for further explanation.)
 

Q. What does Nomura envision for the future?

Nomura’s goal is to expand the local biochar production-consumption model implemented by Shonaikomekobo across Japan. Our initial target is to produce 10,000 tons of biochar annually and generate carbon credits. In the mid- to-long term, we believe there is potential to produce up to 100,000 tons per year in Japan.

Additionally, Nomura will take part in a survey commissioned by Japan’s Forestry Agency that generates JCM credits from an afforestation project in Cambodia. We are the first financial institution to be selected for this initiative. We will also conduct research and issue carbon credit reports, as well as raising awareness and providing information to stakeholders. We will work to create new value from carbon credits and contribute to decarbonization.
 

Baseline & Credit (credit trading)
In this system, current CO2 emissions are set as a baseline. Projects that reduce or remove emissions below this baseline generate credits that can be traded. For example, replacing heavy oil with renewable energy results in the issuance of credits corresponding to the CO2 reduction. The J-Credit Scheme employs this approach.
(The biochar project by Shonaikomekobo and Nomura uses this method.)
 

Cap & Trade (emission trading)
Under this method, government or local authorities allocate emission allowances (caps) to companies. If a company allotted 100 units emits 120 units, it must purchase rights for the excess 20 units from companies that have emitted less than their caps. Japan’s GX-ETS*, set to become fully operational from fiscal year 2026, is a cap and trade system. Detailed allocation rules are currently being discussed at the national level.

*GX-ETS: Green Transformation Emission Trading Scheme — a nationwide emission trading system aimed at achieving carbon neutrality by 2050 across all industries.