The Japanese government has begun weighing the introduction of tax incentives for investments in products and equipment that reduce carbon emissions, Nikkei has learned, as it works toward its goal of zero greenhouse gas output by midcentury.

The central government, along with the ruling Liberal Democratic Party, will also explore setting up a fund that would support research and development toward such green investing.

Prime Minister Yoshihide Suga unveiled the net-zero emissions goal last month and instructed relevant government agencies to explore policy options. The tax incentives and the fund are set to be included in the tax revision outline for the next fiscal year, as well as in the third supplementary budget for the current fiscal year.

Japan used to be ahead of the curve in the 20th century when it came to energy efficiency and battery technology. But in this century, the nation has lagged behind setting environmental goals, and domestic corporations have lost competitive advantage.

Currently, the top three solar cell companies are based in China. Offshore wind farms are considered a growth industry, but the leading businesses for wind turbines are headquartered outside of Japan.

Japanese companies are expected to reform themselves in tune with the global trend toward environmental responsiveness. Suga has positioned the environment as a pillar for Japan's growth. Under that banner, he plans to encourage technological innovations and investments in renewable energy and similar domains and support the development of next-generation industries.

The main feature of the incentives are tax cuts for adding production equipment. If a company invests in equipment that manufactures wind turbines, for example, the business would be able to claim an exemption from the corporate tax at a certain percentage.

The government will determine how much the tax exemption will be and the qualifying targets by the end of the year. Policymakers are looking at three possible sectors.