Japan plans to spend JPY 3 trillion (USD 20.3 billion) over the next 15 years to subsidize the production of cleaner hydrogen, aiming to boost cooperation with the private sector to develop a domestic supply chain for the energy source.
Hydrogen fuel, which emits only water as a byproduct, is regarded as a next-generation energy source as nations pursue decarbonization. But the cost of hydrogen, covering production through supply, is reportedly ten times higher than that of natural gas.
Tokyo is looking to subsidize the cost difference for companies that produce cleaner forms of hydrogen, often categorized as “green” or “blue” hydrogen.
Most hydrogen currently is produced from natural gas or coal, resulting in carbon dioxide emissions during production. This emissions-heavy form is referred to as “gray” hydrogen.
Blue hydrogen involves capturing and storing most of the carbon emissions produced during that process. Green hydrogen produces hydrogen through the electrolysis of water using renewable power sources like solar and wind.
Japan intends to set 3.4 kilograms of CO2 emissions during production per kilogram of hydrogen as the upper limit to be eligible for the subsidy. Anticipated recipients are businesses that produce hydrogen domestically as well as those that import and sell hydrogen from overseas.
A bill that includes the establishment of the framework will be submitted during the current regular parliament session. After a law is enacted, business plans will be solicited from companies and subsidy recipients will be decided by the end of 2024.
The JPY 3 trillion will be financed by Tokyo’s green transformation (GX) transition sovereign bonds, which will be issued starting in February. Subsidy amounts will be reassessed based on the extent of hydrogen adoption.
Potential targets include chemical maker Asahi Kasei, which is using money from Japan’s New Energy and Industrial Technology Development Organization to develop electrolysis equipment, as well as oil company Eneos and trading house Sumitomo Corporation, which have plans to import hydrogen produced overseas.
Japan plans to increase the domestic hydrogen supply by 50% over the current level to 3 million tons in 2030, and to 20 million tons in 2050. The subsidy will require that hydrogen supply begins by fiscal 2030 and that the supply continues for 10 years after government financial support ends.
The US and Europe are leading the way in clean hydrogen support measures.
The US Inflation Reduction Act passed in 2022 created a tax credit system offering companies up to USD 3 per kilogram of hydrogen produced. The less CO2 emitted during production, the larger the credit. The framework will be in place for ten years starting in 2023.
The European Union launched its first auctions for hydrogen production support in November, valued at EUR 800 million (USD 865 million) for the first round. The program, also slated to run for ten years, will offer a fixed premium per kilogram of hydrogen produced for companies that use renewable energy.
Middle Eastern countries like Saudi Arabia and Oman also are rushing to produce hydrogen from renewable energy, but are not enacting subsidy policies like Japan or the EU, Japan’s Ministry of Economy, Trade and Industry said. The Middle East is expected to mainly export its hydrogen.
Countries are promoting the use of hydrogen in fields like steel, aviation and shipping. Global demand for hydrogen is anticipated to reach 88.3 million tons in 2030 and 287 million tons in 2050, the International Energy Agency reported.
The EU aims to secure 20 million tons of hydrogen per year in 2030, including hydrogen produced from renewable energy within the region and imported hydrogen. The US looks to increase the amount secured annually to 10 million tons in 2030 and 50 million tons in 2050.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.