Hydrogen is being hailed as the next-generation low-carbon renewable energy solution, leading many countries to devise hydrogen roadmaps to revolutionize their energy consumption landscapes; and, among them, Japan, which has been tackling the issue since 2017, is facing two primary challenges – insufficient supply and sluggish progress towards decarbonization.
To ensure that carbon neutrality aligns with the predetermined timeline, critics have put forth a number of suggestions aimed at leveraging hydrogen in appropriate sectors and reducing emissions during its production. These measures are crucial for Japan to establish a more prominent position in the global hydrogen market.
Hydrogen is deemed a good fit for countries like Japan that are subject to geographical and climate restrictions in developing renewable energy. For seven years, Japan has striven to meet ambitious hydrogen supply targets, including that of becoming a critical international supplier in 2030, as set out in its Basic Hydrogen Strategy launched in 2017. And, last year, the strategy’s annual hydrogen supply targets were revised and finalized at 3 million tonnes by 2030, 12 million tonnes by 2040, and 20 million tonnes by 2050.
Despite significant investments, progress in hydrogen development in Japan has fallen short of initial commitments, even though, the country, according to KPMG’s analysis of geographic hydrogen hotspots, is still categorized as a net importer.
However, in spite of holding 24% of hydrogen-related patents between 2011 and 2020, making Japan the largest owner of hydrogen technology patents, its hydrogen outlook heavily relies on imports from Australia and the Middle East rather than domestic production.
And, while Japan, as of last year, has already created 2 million tonnes of hydrogen, according to policy analysis firm GR Japan, it has yet to meet its targeted amount of supply. One reason leading to the deficit is the broadbrush approach to using hydrogen power in various activities.
Hydrogen, according to the Japanese government, is targeted to meet diverse demands, from use in power generation to mobility, and even households. However, as the applicable technology was initially designed for industrial decarbonization, it is not wise to put hydrogen to use everywhere.
Low domestic demand
Hydrogen fuel has proven to be particularly useful in specific industries like steelmaking and chemicals. However, the Japanese government has been criticized for allocating an excessive number of resources to less critical sectors.
While vehicles and household appliances have been identified as key areas for the application of hydrogen fuel cells, the Renewable Energy Institute (REI), a sustainability think-tank based in Tokyo, has raised concerns about this approach. Not only is hydrogen fuel comparatively more expensive than existing alternatives, but its adoption in these areas would require significant structural changes to the current infrastructure.
The lack of significant demand in these tepid markets also raises doubts about their meaningful contribution to Japan’s decarbonization efforts. Additionally, the REI has emphasized that focusing on these sectors could have adverse effects on local manufacturing exporters. “In the 10 years since 2012, 70% of the government’s hydrogen-related spending,” it states, “has gone toward such low-priority or undesirable applications.”
Regardless of the lacklustre demand, the Japanese government pushed hydrogen use in the consumer sector amid the hydrogen hype. The 2030 targets for household fuel cells and fuel cell vehicles (FCVs), according to data from the Japan’s Ministry of Economy, Trade and Industry, are six times and 103 times above the sold amount in 2023.
In contrast, the sales of electric vehicles, which are intended to be phased out by FCVs, were 11 times more than those of FCVs last year. The uneven allocation dilutes the resources reserved for industries that truly need hydrogen for decarbonization, hindering the gas’ development to its full potential.
Hydrogen still pollutes
Even if Japan manages to power the entire society by hydrogen, decarbonization eludes the country due to the prioritized high-emission hydrogen fuel used across the industrial sector. Co-firing fuels are more commonly used than those produced by electrolysis in Japan, wherein burning hydrogen with ammonia is introduced as a long-term development for industrial heating purposes and energy generation.
Although this kind of fuel comes with potent greenhouse gas emission, it still receives funding from the Green Innovation Fund. In comparison, there have been shallow efforts witnessed on the green hydrogen side, with the acceleration of the production and use of the clean hydrogen briefly addressed in last year’s revised strategy. As dirty hydrogen remains a government-backed option, Japan is slowly swerving from what is generally considered a “net-zero” transition.
Using hydrogen ammonia co-firing, the REI points out, exacerbates greenhouse gas emission. Furthermore, the unclear pathway for green hydrogen development introduces uncertainty to the decarbonization journey. Overlooking the pollution from hydrogen burning widens the gap between Japan and other countries in the pace at which it can achieve decarbonization. Again, the Japanese exporters classified as high-emission businesses under international standards will bear the brunt.
“From the standpoint of Europe, the US and other countries that were early in announcing standards, and that have already put them into operation, hydrogen use in Japan does not currently contribute to reducing CO2 [carbon dioxide] emissions,” the REI stresses. “Consequently, the products and materials that use hydrogen will be rated as having high CO2 emissions.”
Going greener, cleaner
Japan’s efforts to achieve net-zero emissions and their outcomes significantly impact how it positions itself on the global stage. With the country’s advanced technology development, it can certainly make more meaningful strides towards decarbonization.
As laid out in the hydrogen strategy, the Japanese government demonstrated a sustained interest in the water electrolyser industry, which generates hydrogen without carbon-associated byproducts, to facilitate renewable hydrogen production.
To attain competitive pricing for electrolyzed hydrogen, the Japanese government also underscored the importance of enhancing the scalability and quality of electrolysers. The enthusiasm is steered by a target of 15 gigawatts of power generated by electrolysers in 2030.
The official recognition of the importance of green hydrogen has spurred a wave of upcoming hydrogen projects within Japan's borders. Following the release of the new strategy, Takasago Hydrogen Park, which had primarily focused on hydrogen combustion for fuel production, began exploring electrolysis technology last year.
Toyota Motor Corporation and Chiyoda Corporation also reached an agreement to develop a large-scale electrolysis system both in Japan and overseas this year. Industrial sector players, driven by this momentum, have intensified public-private collaborations in the hydrogen industry to strengthen the foundation for future hydrogen advancement projects.
While ammonia is expected to be the primary component for hydrogen combustion in the long run, the Japanese government is aware of the pollution challenges associated with its production. To address this issue, the government has announced plans to allocate 3 trillion yen (US$19 billion) to a “contract for difference” clean hydrogen subsidy scheme.
This scheme aims to offset the cost difference between coal and clean ammonia generation, thereby encouraging the early-stage market and accelerating the adoption of clean hydrogen practices. The effectiveness of these measures will be evaluated in 2030.
Sustaining national effort
Once local supply can meet domestic demand, Japan will need to capitalize on foreign markets to sustain its hydrogen production and support the economy. To develop a well-established position in the global hydrogen market, Japan must address its regional challenges.
And both the private and government sectors need to continue making consistent contributions to the hydrogen industry to keep pace with international expectations. This will ensure that Japan maintains its competitiveness and meets the demands of the global market.
“Without doubt Japan’s industry has the potential to become a leader in producing hydrogen through electrolysis and in managing hydrogen,” explains the Green Hydrogen Organization. “To compete internationally, some of the demand for these products, at least initially, is likely to require Japanese government’s involvement, through issuing export guarantees or other arrangements as part of transactions resulting in the import of green hydrogen to Japan.”
