The role of hydrogen in decarbonising Japan: a key choice for government as it finalises its support scheme

It is clear that Japan is at a crossroads as it defines the role of hydrogen in decarbonising its economy. As the country seeks to increase hydrogen supply to 20 million tonnes by 2050, Japan should choose a path which would be a win for climate, its energy security and domestic manufacturing. Following meetings with government, companies, think tanks, and a visit to the Hydrogen and Fuel Cell Expo in Tokyo last week, indications suggest that Japan may well choose a winning path which does not allow blue hydrogen with significant associated emissions to dominate.  
The government could finalise rules for its contract for difference (CfD) scheme to favour fossil fuel derived hydrogen with carbon capture and upstream methane leakage leading to lower but still significant associated emissions compared to unabated grey hydrogen. We call this approach the dark blue scenario
Alternatively, the government could design a scheme which favours renewable green hydrogen and blue hydrogen with very high carbon capture and extremely low methane leakage. This approach would catalyse global green hydrogen and ammonia production, provide Japan with a diverse set of suppliers, boost the country’s electrolyser industry and set up Japan’s hydrogen sector to be built on genuinely low carbon hydrogen. We call this approach the truly low carbon scenario

The indications we picked up in Japan last week cautiously point towards a genuinely low carbon approach. The hydrogen law will hopefully be approved by the Diet (legislature) during the current sitting which ends in late spring.

The role of hydrogen in decarbonising Japan: a key choice for government as it finalises its support scheme

Let's look at both scenarios, starting with the dark blue one. With this route, the CfD scheme would see such hydrogen sold at prices below that of green hydrogen, or truly low carbon blue hydrogen. Given that Japan has mentioned an emissions threshold of 3.4 kg CO2e per kg H2 up to the point of production, this could mean the market becomes flooded by a product which is associated with 3.4 million tonnes of CO2e emissions for every million tonnes of hydrogen produced. These sorts of emissions would run contrary to the Breakthrough Agenda Report published by the International Energy Agency, International Renewable Energy Agency and UN Climate Change High-Level Champions which notes that production routes will need to achieve verifiable low-carbon intensities that trend towards near zero by 2030”. Furthermore, there are concerns about the emissions accounting methodologies for blue hydrogen which means real emissions could be even higher.
There are other negative consequences for Japanese energy security, industry and the economy if cheaper dark blue hydrogen is favoured.
Japan would be locked into a dependance on a small number of oil and gas producing countries, often in volatile regions, which are implementing carbon capture technologies in the hydrogen sector.

If Japan chooses the dark blue scenario, this is likely to have a negative impact on Japan's industrial ambitions for clean tech. During our quick tour around the Energy Week's Hydrogen and Fuel Cell Expo, we were stunned by the number of PEM membranes for electrolysers and other key products that Japanese companies like Toray and others were bringing to the market. It is a competitive market and we were reminded in Tokyo how cheap Chinese electrolysers are and how good and fast Chinese companies are becoming at learning from mistakes and innovating.
Without doubt Japan's industry has the potential to become a leader in producing hydrogen through electrolysis and in managing hydrogen. Japan's relatively limited renewable energy is however likely to be used for other things than hydrogen production. If Japan is going to be become a leader in producing electrolysers, it will be mainly as an exporter. To compete internationally, some of the demand for these products, at least initially, is likely to require Japanese government involvement, through issuing export guarantees or other arrangements as part of transactions resulting in the import of green hydrogen to Japan. 
Therefore, the dark blue hydrogen route will likely have a negative impact on the nascent Japanese electrolyser manufacturing sector while Chinese counterparts move ahead at great pace.

Lastly, while the risk of cheap dark blue hydrogen is real, price volatility will always be an issue as with all hydrogen made using fossil gas.
If the government opts for a CfD scheme and other efforts to now truly catalyse the renewable green hydrogen economy, this has the potential to be a lynchpin for Japan's heavy industry pivot to truly low carbon solutions. Green hydrogen presents Japan with a more diverse supply base given the many regions which are looking at leveraging their renewable resources for export including Africa, North and South America, as well as other parts of Asia Pacific.  
There are of course also challenges with green hydrogen or with truly low carbon blue hydrogen including higher costs initially, questions about how quickly capacity and supply chains can be ramped up, about responsible sourcing of materials, water use and so on. However, these issues are likely to be of a diminishing nature, as our industry reaches scale and develops new practices and standards. The agreement between IHI and ACME to supply green ammonia from India to Japan is an early sign that Japanese industry is willing to move towards the truly low carbon scenario, and we expect more announcements like this in the near future. However, everyone is looking to the CfD scheme as the major near-term opportunity to cover the green premium. It is a choice between a climate-aligned path likely to become easier over time, or a short term hand out to a path which is likely to become increasingly fraught. 


The role of hydrogen in decarbonising Japan: a key choice for government as it finalises its support scheme
A green hydrogen roundtable in Tokyo organised in collaboration with the Policy Entrepreneurs Platform, International House of Japan and Asia Pacific Initiative  

In this context, GH2 has teamed up with Breakthrough Energy to form the APAC Green Hydrogen Alliance to accelerate policy action, financial incentives and trade in the green hydrogen industry in APAC.
The alliance is initially focusing on Japan, Singapore, South Korea, Australia and Indonesia and will bring together governments, project developers, offtakers and financial institutions to get projects to financial investment decision faster. One of the key focus areas is to share good practices related to financial incentives and CfD schemes. We will soon be reporting more on the Alliance activities and welcome anyone who is interested to get in touch.