Global Hydrogen Policy: Assessing Japan’s Hydrogen Society

To achieve this, Japan has sought to maximise imports of liquid hydrogen or ammonia by sea. In turn, this pushes Japan away from a model primarily prioritising domestic production from electrolysers and renewable energy sources.

Criticisms aside, Japan’s hydrogen strategy, particularly the way Japan necessarily envisages importing hydrogen by sea, provides an interesting comparative example for Europe and its own hydrogen strategy. While the two regions have significant differences in terms of potential for decarbonized hydrogen production and have differing conceptions of hydrogen’s role in their economies, Europe and Japan have one essential point in common. They both are rich and industrialised, with a need to import hydrogen to reach their targets for carbon neutrality.

Japan’s Current Policies

Since 2014, Japan has been actively exploring the development of fuel cells and hydrogen as part of its energy mix.  In 2017, Japan’s Ministry of Economy, Trade and Industry adopted the Basic Hydrogen Strategy, enshrining the concept of a hydrogen society for the first time in its policies. This policy was then also presented as a fundamental part of Japan’s efforts to reduce its dependence on fossil fuels.

These policies have been organised around subsidies for hydrogen projects, tax incentives for companies investing in hydrogen technology, and the creation of international supply chains. They likewise are tied to specific objectives for reducing costs of hydrogen production by 2030 and 2050, with the stated ambition of cutting the cost of a hydrogen molecule to the price of a molecule of liquefied natural gas (LNG). The Ministry of Economy, Trade and Industry (METI) is the primary funder of these initiatives,, with the Ministry of the Environment (MOEJ) supporting the transition towards hydrogen technologies on a more individual level (the social dimension). For its part, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) is financing the hydrogen transition in the maritime sector, and for transport more broadly.

Since 2017, Japan’s strategy has been amended by several texts, changing the way in which Japan develops its hydrogen society. These texts are listed in the drop-down menu below.  Another reform is expected in 2023 which might partly respond to the criticisms of the Japanese approach hitherto. Setting aside this future reform, two distinct phases of the development of Japan’s strategy emerge. First is the period from 2017 to 2019, in which hydrogen was considered as the silver bullet to Japan’s problems. Second is the period from 2019 to today, where full-scale testing has been pursued.

Pillar 1 – Policies to boost hydrogen demand

The demand side of Japan’s hydrogen policies – which aims at promoting the use of hydrogen as an alternative fuel for a wide range of applications – forms the first pillar of Japan’s hydrogen society policy. Particularly, hydrogen would be mobilised in industrial processes, transport, and fuel cells for vehicles, as well as in individual heating and electricity production, first in co-combustion in gas or coal-fired stations to cut their emissions, then by thermal power stations powered only by hydrogen. Ultimately, this aims to create a market for hydrogen which would drive down production costs and encourage new investments in the technology. The demand-oriented side of this policy sets targets and mobilises financial resources for developing new technologies and creating new facilities for hydrogen usage. The following drop-down list details the targets and funds allocated for each sector (1 euro = 142.5 yen).

Pillar 2 – Policies to secure hydrogen supply

The second pillar of Japan’s hydrogen society focuses on promoting abundant hydrogen production. Initially, production would be from all possible sources, including renewable energies such as solar and wind energy but also from fossil fuels such as gas and coal, combined with carbon capture technology. At the same time, Japan’s strategy relies heavily on importing carbon-free hydrogen. Regarding domestic production of green hydrogen, no quantitative targets are set in stone for Japan. In contrast, the targets set by the Japanese government are price targets; these public policy choices reflect the government’s desire to pursue decarbonised hydrogen wherever is cheapest, i.e. from foreign producers. Investments will therefore be needed for production, both in Japan and abroad.

The supply-side of Japan’s strategy centres of four points:

Pillar 3 – Building partnerships to establish international supply chains

The third pillar of Japan’s hydrogen society is the establishment of international partnerships to develop hydrogen supply chains. It is fundamental since it determines how Japan can import hydrogen. Indeed, Japan has limited potential in producing low-cost, renewable energy, and though it has significant potential in offshore wind energy production, such a strategy is expensive. Japan, therefore, aims to develop international hydrogen supply chains to import decarbonised energy from abroad.

On the national level, this part of the Japanese hydrogen policy aims to increase the efficiency of hydrogen liquification, (56% reduction in 2020) and to make the import of liquified hydrogen more competitive. To do this, the Japanese government is already deploying substantial investments, with 14.12 billion yen in 2020 and 8.87 billion yen in 2023. The government is also setting the target to import 3 million tonnes of hydrogen annually by 2030 - having imported 2 million tonnes in 2022 - and between 5 and 10 million tonnes of hydrogen annually by 2050. For comparison, the European Commission has set a target of importing 10 million tonnes by 2030. Taken together, these objectives  are likely to increase the global demand for hydrogen and eventually give rise to a major world market for decarbonised hydrogen without considering the effect of other actors’ own hydrogen strategies.

Here, EU and Japanese interests converge. Both sides have much to gain from building an international green hydrogen supply chain. They have therefore been pursuing greater cooperation to this end. On these issues, Japan and the EU are already committed to working together regularly to improve reliable and rules-based international trade of hydrogen, based on open-markets and no export restrictions. Likewise, they are working together on developing standards to qualify hydrogen as “renewable” or as “low-carbon”, as well as on associated certification. Developing the latter of these issues is essential for both sides.

For its part, Japan has been signing numerous memoranda and other cooperation agreements for several years. The list of countries with whom Japan aims to cooperate is long and covers the different aspects of the emerging global hydrogen economy. Australia is considered the leading candidate to be the main hydrogen supplier for Japan.

A Heavily Criticised Strategy

Japan’s hydrogen society has been heavily criticised by many experts in Japan and abroad. Criticisms tend to focus primarily on three of its specificities.

At first, Japan's approach to decarbonization was met with criticism for being more about name than substance. Specifically, some experts and stakeholders argued that the country's focus on hydrogen as a key part of its energy mix was being prioritized over other efforts to reduce carbon emissions. This led to concerns that the hydrogen strategy was not truly aligned with decarbonization goals and that Japan needed to do more to address emissions across all sectors of its energy system.

At first, Japan's approach to decarbonization was met with criticism for being more about name than substance. Specifically, some experts and stakeholders argued that the country's focus on hydrogen as a key part of its energy mix was being prioritized over other efforts to reduce carbon emissions. This led to concerns that the hydrogen strategy was not truly aligned with decarbonization goals and that Japan needed to do more to address emissions across all sectors of its energy system.

The third set of criticisms focuses on the fact that Japan is putting forward hydrogen usage for unrealistic applications, in which other technologies such as electrification, heat pumps, or batteries would be more competitive. One such example Is Japan’s decision to rely on hydrogen for individual heating, perceived as a bizarre strategy compared to alternatives, such as heat pumps, as well as the heavy investments in fuel cell vehicles. The latter subject is politically sensitive, given the government’s concerns about Japan’s leading automotive manufacturers such as Toyota. However, this strategy goes against global trends, which increasingly favour batteries for individual cars.

The Geopolitical and Industrial foundations of the Japanese Strategy

There are diverse reasons behind the strategic choices taken by Japan in its hydrogen strategy, with the government shifting its strategy over time. Japan is very resistant to changes to its energy system, mainly as a result of the Fukushima nuclear disaster of 2011, which drove a shift away from nuclear energy and back towards carbon-emitting energies such as coal and gas. This resistance has counterintuitively delayed political decision-making in favour of developing renewables and long paralysed Japan’s usage of nuclear energy, given its political sensitivity. Both these factors have hindered Japan’s production capacity of decarbonised hydrogen.

Japan’s approach is based on an idealised view of hydrogen as a tool capable of adequately replacing fossil fuels, both gas and oil, in its current energy system. This view does not sufficiently take into account the poor energy efficiency of hydrogen with regard to other technologies for individual usage (heating, transport, etc.). Rather, it views hydrogen as a way to avoid a fundamental transformation away from the old vision of the country’s energy policy and as a solution to avoid having to respond to the storage and battery recharging issues at the heart of the energy transition.

The ambitions behind the hydrogen society rest on a broader political and industrial issue facing Japan. Toyota, Japan’s leading industrial company, decided to focus on fuel cell vehicles (FCEV) rather than battery electric vehicles. With FCEVs being developed since the early 1990s, the first FCEV was put to the market by Toyota in 2014. This costly gamble, long backed by Toyota’s management, added a major industrial challenge to Japan’s hydrogen strategy, which must facilitate the aims of the industry at large.

This hydrogen ambition is also founded on the challenges considered politically crucial to Japan’s future. First, due to limited available land area, Japan does not have sufficient renewable capacities, which can operate at competitive costs to respond to all its decarbonised energy needs. This inevitable scarcity, coupled with the consequences of the Fukushima disaster on nuclear energy policy, results in the need to import decarbonised energy to guarantee energy security. This is particularly the case given the broader context of shifting away from fossil fuels. This model of importing hydrogen in liquified form (through ammonia or otherwise) is reminiscent of the time when Japan pioneered LNG development and transport.

In fact, Japan is among the leaders in patenting certain technologies required for using hydrogen on a larger scale. Nevertheless, Japanese companies are falling behind others in the development of these technologies. Additionally, the operating costs of their electrolysers (Alkaline) are higher than those of their European and Chinese competitors (up to 2 times higher than Chinese electrolysers by 2030), giving credence to the criticisms of the strategy’s detractors.

Most rational criticisms of Japan’s hydrogen society focus more on the demand side of the strategy (usage for heating, electricity co-combustion with coal, etc), than on the supply side. Indeed, if Japan really wants to meet its carbon neutrality goals, it will have to import decarbonised energy, meaning its only option will be to import liquified hydrogen, in all its forms.

However, if this supply strategy includes significant usage of carbon capture and carbon storage technologies, therefore being blue hydrogen, Japan will have a greater interest in directly capturing this carbon in its industrial process instead of importing costly decarbonised hydrogen of low energy efficiency. The success of a “greening” of the hydrogen importing strategy will therefore be key to the success of its industrial decarbonisation strategy.

Beyond the criticisms of an excessive dependency on hydrogen, the different developments in Japan’s decarbonisation policy suggest that hydrogen will not be the only technology prioritised by the country. While the most recent Clean Energy Strategy Interim Report produced by METI predicts annual investment in energy vectors necessary for the country’s decarbonisation of 300 billion yen for hydrogen, the document envisages 600 billion in investment in batteries. Ultimately, it is clear that in Japan as in other countries, the technology mix will shape the answer and trajectory towards carbon neutrality.

Japan and Europe share common interests on hydrogen

Japan set itself the goal of carbon neutrality by 2050. Hydrogen will be used to achieve this. Japan’s hydrogen society, in this way, provides Europe with food for thought. The strategy has been strongly criticised as risky and based on many unknowns about the costs of importing liquified hydrogen by the sea in the short- and medium-term. It does not rely enough on domestic production and neglects risks to energy security. However, this strategy is realistic as a response to Japan’s need to develop international supply chains to meet its energy needs. Japan’s insularity, rugged terrain, risks of natural disaster, and industrial and economic makeup render it inevitable that Japan must source hydrogen from abroad if the country hopes to eventually replace fossil fuels.

In this respect, Japan is a genuine “import” partner of Europe. Indeed, they share common interests in developing a global hydrogen economy. Considering the high costs and constraints, the green hydrogen markets that will develop will be regional in scope. In the short- and medium-term, Europe will primarily import its green hydrogen by pipeline, exposing it to risks of limited diversity of suppliers. Japan will instead be forced to import by boat from the outset. Japan, therefore, offers an interesting example to follow for the future of maritime imports of decarbonised hydrogen. Beyond the fact that Japan and Europe will have little competition for the resource in the near future, both sides have the potential to become crucial partners in developing regulations and standards which will shape these emerging markets, both in environmental terms and in terms of the trade rules linking them to their exporting partners.

Acknowledgements

The author thanks Mr Kawaguchi, Director for Industrial Decarbonisation at the Ministry of Economy, Trade and Industry (METI), and the members of the Joint Research Project on the Renewable Energy Economics of Kyoto University for their contributions to this analysis. The author also thanks Thomas Maddock, Assistant Policy Officer of the Asia Program at Institut Montaigne, for his contributions to the research.

Copyright Image: Richard A. Brooks / AFP

A section of the hydrogen storage and supply facilities at the Fukushima Hydrogen Energy Research Field (FH2R), one of the world's largest test facilities producing hydrogen from renewable energy.