Japan is facing a disconnect between the effectiveness of its hydrogen plans and its ambitions for the sector. Rising costs and infrastructure limitations are the two most significant factors impeding the scalability and competitiveness of hydrogen. This is particularly evident when it comes to low-carbon applications in the Japanese transport sector.

“Japan is one of the key supporters driving hydrogen developments in the region. It has had a hydrogen strategy in place since 2017, and its green growth strategy has a hydrogen consumption target of 3mt by 2030, increasing to 20mt by 2050,” said consultant Dale Hazelton of market intelligence firm Argus on a recent webinar.

However, considering Japan’s current progress rate in fuel-cell vehicles, achieving its 2030 targets seems challenging. Moreover, ensuring infrastructure development for refuelling stations and adequate government subsidies to incentivise demand against competitors will play a vital role in achieving these targets, a view supported by Argus' Low Carbon Hydrogen Strategy Report.

Transport focus

Japan's hydrogen strategy emphasises decarbonising its automotive sector and sets out ambitious targets for transportation. The government aims for 100% of new passenger vehicle sales to be electric by 2035, encompassing battery-electric vehicles, hydrogen fuel-cell vehicles and hybrids. Specifically on hydrogen, Japan has set a target of 800,000 hydrogen-powered passenger cars by 2030. Additionally, there are hydrogen targets for other vehicle segments, including buses and forklifts, as well as plans for expanding refuelling stations.

“Japan is less than 1% of the way towards meeting its 2030 target” Hazelton, Argus

“If we look at the current progress to date, with Japan having around 7,500 hydrogen fuel-cell passenger cars at the end of 2022, that implies that Japan is less than 1% of the way towards meeting its 2030 target,” stated Hazelton. Having missed its 2020 target of 40,000 hydrogen fuel-cell vehicles (FCEVs), reaching the 2030 goal presents a significant challenge for Japan.

However, Japan’s Ministry of Economy, Trade and Industry estimates that, if the fuel-cell vehicle targets were met, domestic demand for hydrogen could see a massive boost and reach close to 6mt by 2050.

Highlighting the importance of subsidies in incentivising demand, Hazelton said: “Subsidies play a critical role in incentivising the adoption of new technologies such as fuel-cell vehicles. If we were to remove the subsidies, the breakeven price analysis shows that heavy goods vehicles running on hydrogen will not be composite until closer to 2050. And even then, the hydrogen would need to be below $3/kg to be competitive versus a battery electric vehicle.”

Hazelton emphasised the example of hydrogen heavy goods vehicles (HGVs). “This is a category that believes hydrogen has the potential in, despite the fact that there is no target or mandate currently for this vehicle segment in Japan,” he said.

The Low Carbon Hydrogen Strategy Report delves into the break-even price analysis, which estimates the price of hydrogen at which an FCEV would be competitive against traditional (diesel) and competing vehicle technologies (battery electric). It finds that FCEV adoption for HGVS is likely to increase towards 2050 as the delivered cost of hydrogen is well above the breakeven price needed for FCEVs to compete.

The declining capital expenditure required for FCEV HGVs and the anticipated increase in diesel prices are the main driving forces. Breakeven prices for hydrogen compared with BEVs are positive from 2030 and increase thereafter. However, the rise is not as steep compared with diesel since the purchase price of BEVs also declines.

Infrastructure buildout

The report also emphasised the importance of developing infrastructure for refuelling stations. Japan has allocated ¥11b ($70m) to develop hydrogen refuelling infrastructure and aims to install 1,000 stations by 2030. This further substantiates the argument that the interplay between variables such as infrastructure development, demand subsidies and costs collectively influence the scalability of hydrogen.

1,000 – Japan’s 2030 hydrogen refuelling station target

Hazelton explained the intricate relationship between carbon and hydrogen, highlighting carbon's critical role in bridging the gap between green hydrogen and the more economical but carbon-emitting forms of the fuel. In Europe, the implementation of the Carbon Border Adjustment Mechanism (CBAM) aims to mitigate carbon leakage. This mechanism is designed to prevent EU countries from circumventing emission regulations by importing goods produced with high-emission fuels or energy sources.

CBAM initially targets six sectors: electricity, steel, cement, fertilisers, aluminium and hydrogen. Under this system, importers must obtain certificates corresponding to the carbon price that would have been paid if the product were manufactured within the EU. This approach effectively levels the playing field for European producers against their non-European counterparts. However, for the CBAM to drive a meaningful shift towards green hydrogen, carbon prices must be high enough to penalise the use of carbon-based hydrogen.

Yet, “current price levels are not really where we need them to be to incentivise green hydrogen just yet, but they make it there in the future”, Hazelton said.

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Author: Shweta Dilawari