This chapter examines the establishment of the Tokyo greenhouse gas emissions trading system (the Tokyo ETS) and the main internal and external shaping forces involved. It also examines the effect of policy diffusion on the design of the Tokyo ETS. The nationwide cap-and-trade ETS, the Japan Voluntary Emissions Trading Scheme, was introduced by the Ministry of the Environment in 2005. This was a voluntary approach that aimed to support the greenhouse gas reduction activities of Japanese companies not included under the Keidanren Voluntary Action Plan. The chapter summarizes the development of the Tokyo ETS. It examines that six design features of the Tokyo ETS are: Ambition level, Allocation mechanism(s), Sectors, gases and emissions covered, External offsets/credits/linkages, Monitoring, reporting and verification (MRV) and enforcement, and Price management. Shintaro Ishihara criticized the stagnation of national-level climate policy and emphasized that Tokyo could be the first model city to introduce a mandatory ETS prior to a national-level regulation.