Japan’s latest hydrogen strategy is a positive development that underlines the country’s commitment to develop its hydrogen industry, with new targets covering hydrogen demand, electrolysers and carbon intensity. But the continued absence of policies to stimulate demand could drag on development of the domestic market.

The recent update to Japan’s Basic Hydrogen Strategy sets a new interim hydrogen demand target of 12mt/yr by 2040 and a target of 15GW by 2030 for the installation of electrolysers using parts provided by Japanese companies in and outside of the country. The strategy also calls for ¥15t ($102b) of public-private investments in the hydrogen supply chain over the next 15 years.

“Japan’s hydrogen basic strategy is a key first step in achieving carbon neutrality by 2050, but detailed policies will need to be designed to implement it, including comprehensive plans on how the proposed ¥15t hydrogen financing support package will be spent,” Julien Bocobza, a partner in the project development and finance group in Tokyo for law firm White & Case, told Hydrogen Economist.

15GW – Electrolysers capacity target

The update finally expanded Japan’s focus on the use of hydrogen for hard-to-abate sectors—including heat, steel and petrochemicals—although it still lacks quantitative targets for these sectors. Heavy-duty transport, aviation and marine transport are also featured in the strategy. The government is keen to decarbonise city gas using synthetic methane produced with hydrogen together with biomethane and carbon offsets.

New in the update was labelling for 'low-carbon' molecules. For hydrogen, molecules that have a lifetime emissions intensity of 3.4kg of CO₂ equivalent (CO₂e) or lower will be considered low-carbon. The standard is similar to the emission intensity threshold proposed by the EU, at 3.38kg CO₂e/kg of hydrogen.

Demand incentives

But the strategy continues to lack measures to spur hydrogen demand in hard-to-abate sectors as the focus remains on research and development of hydrogen use in these sectors, backed by the ¥2t Green Innovation Fund, set up in 2021. Policy incentives and mandates are critical to fundamentally scale hydrogen demand in industrial and heavy-duty transport applications—hence why the EU, for instance, has proposed a binding mandate on renewable hydrogen consumption in industry.

“The basic strategy highlights the need to encourage hydrogen demand in Japan, including in hard-to-abate sectors such as steel and chemicals, but does not explicitly set out plans on how to incentivise such demand,” said Bocobza.

“In addition to supporting the technology, supply chain and production of hydrogen, ammonia and e-methane, other key areas the government may want to focus on to drive long-term investment include the provision of decarbonisation tax incentives to heavy industries and heavy-duty transport and the planning for the construction of a large-scale hydrogen infrastructure in Japan.”

In light of the Inflation Reduction Act in the US and the development of support mechanisms in the EU and the UK, Japan will need to ensure that its support mechanism is competitive on a global scale, Bocobza added.

Still, the decision to expand the use of hydrogen to hard-to-abate industrial sectors and heavy-duty transport is a step in the right direction, given industry consensus is that hydrogen is better-placed to decarbonise sectors of the economy that are the hardest to electrify—such as aviation, shipping and steel.

Japan’s previous hydrogen roadmap focused mainly on consumer applications such as stationary fuel cells and passenger cars, but more mature technologies such as electric heat pumps and battery electric vehicles exist in these segments.

The updated strategy also underscores Japan’s continued focus on hydrogen for power generation. Burning hydrogen or ammonia at existing fossil-fuel power plants will be a costly way to decarbonise Japan’s power sector—especially for baseload generation—given the continuously declining cost of deploying new solar or wind projects with battery storage. Still, the country plans to launch a new capacity market for low-carbon technologies, including hydrogen and ammonia co-firing, at fossil-fuel power plants in October to spur demand.

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Author: Shi Weijun