On February 13, 2024, the Kishida administration issued cabinet decisions on two bills that could lead to maintaining and prolonging domestic coal-fired power plants even longer. The Bill for the Act on Promotion of Supply and Utilization of Low-Carbon Hydrogen and its Derivatives for Smooth Transition to a Decarbonized, Growth-Oriented Economic Structure (Hydrogen Society Promotion Bill) and the Bill for the Act on Carbon Dioxide Storage Businesses (CCS Business Bill) have been formulated to promote Japan’s GX (Green Transformation) strategy to achieve “carbon neutrality by 2050,” and encourage the use of hydrogen and ammonia (often referred to as “hydrogen derivatives”) on the basis of maintaining thermal power generation and strengthening the system for promoting capture and storage of carbon dioxide (CCS) emitted from thermal power plants.

Kiko Network and other environmental NGOs in Japan have called for a complete review or abolition of these bills.

Price difference compensation when hydrogen and ammonia are used in power sector (Hydrogen Society Promotion Bill)

The Hydrogen Society Promotion Bill aims to expand the use of hydrogen and ammonia, but one of the biggest problems with this bill is the establishment of a framework for the government to fully or partially compensate for the price difference between hydrogen and fossil fuels. This compensation also covers thermal power generation, which the government plans to use hydrogen and ammonia in. However, alternative technologies for the power sector such as renewable energy sources are cheaper and already exist on a practical level, so why do we need to create a new system for the government to pay for the price difference of technologies that have yet to be commercialized and have costs that are already known to be steadily higher than renewables?

In Japan, massive amounts of money are flowing to power companies through systems that essentially subsidize coal-fired power generation and ammonia co-firing, such as the Capacity Market, Long-Term Decarbonisation Power Source Auction, and Green Innovation Fund. In addition to these support systems, if this Hydrogen Society Promotion Bill goes into action, the fuel cost of ammonia co-firing will be equivalent to that of fossil fuel-burning (about 15 years), and power companies who are promoting ammonia co-firing can use fossil fuel continuously for the foreseeable future while generously receiving more support than ever before. This will make it substantially more difficult for Japan to phase out coal-fired power.

Additionally, although it is said that the bill will define the term “low-carbon hydrogen and its derivatives,” it does not specify any quantitative standard for this. Instead of using the vague term “low-carbon hydrogen,” specifying only “green hydrogen” or “green ammonia” as options contributing to a “decarbonized society” should be considered. These are produced by electrolyzing water with renewable energy, and thus do not emit CO2 during production. Currently, “gray hydrogen” and “gray ammonia”, which emit significant amounts of CO2 during production, are promoted without any kind of distinction in this bill. 

Moreover, even if a standard for “low-carbon hydrogen” is defined in the bill, this would only be for use as a reference for businesses and power plant operators, and will not be retroactively applied to support measures such as the price difference compensation. It is clear these support measures are based on the assumption that  gray hydrogen and ammonia will be used.

The hydrogen derivatives assumed in this bill to be ”low-carbon hydrogen” include fossil fuel-based hydrogen and ammonia, synthetic methane (e-methane), and other synthetic fuels. All of these are synthetically produced from fossil fuels, producing them is very expensive, consumes a substantial amount of energy, and emits CO2. If Japan utilizes them as fuels in power generation, it will continue to rely on foreign fuel imports, which is very problematic from an energy security perspective and will make Japan’s energy independence even more difficult to attain.

Simply put, governmental compensation for the price difference when companies use hydrogen and ammonia as a fuel for power generation and support for the development of related infrastructure are not economically rational. This is little more than a policy to direct the flow of money to CO2-emitting businesses, and it will hinder the formation of a fair market and inhibit the competitiveness of renewable energy.

This bill also imposes on local governments and businesses the obligation to cooperate with policies promoting the supply and use of hydrogen and ammonia, which could constrain local governments and businesses from taking real action to reduce emissions. Both hydrogen and ammonia are extremely hazardous, but there is still no experience or security standards for storing and transporting large quantities of these materials, and local governments do not have the authority to control storage sites.

Trial-drilling and CO2 storage authority given to business operators, but the government is ultimately responsible (CCS Business Act)

Along with the Hydrogen Society Promotion Bill, Japan’s Cabinet also approved the CCS Business Act. CCS, short for “carbon capture and storage”, is another measure that is considered to be a last resort in the fight against climate change, as it is both costly and risky. This bill establishes a permit system for trial-drilling and CO2 storage projects, and an approval system for the implementation plan of these projects. The Minister of Economy, Trade and Industry designates possible reservoir areas as “specified areas” and then permits business operators to conduct trial-drilling and implement CO2 storage projects in those areas. These permitted business operators are given prospecting rights (the right to drill into a geological formation to see if it is a reservoirs) and storage rights (the right to store CO2 in a reservoir).

Business operators that have developed an implementation plan for trial-drilling and storage and obtained approval from the Minister of Economy, Trade and Industry are required to monitor reservoir temperature and pressure to check for any leakage of stored CO2, and to accumulate the necessary reserves after storage is suspended. However, once the stored CO2 is confirmed to be stable, the management of the storage sites, including monitoring, will be transferred to the government organization JOGMEC (Japan Organization for Metals and Energy Security).

Throughout the world, CCS projects have been overwhelmingly unsuccessful, with only a few exceptions where it was implemented for enhanced oil recovery (EOR). In Japan, it is far from practical, and the risks of project failure include irreparable harm to the climate. High concentrations of CO2 are hazardous to life, and thus strict control is required.

There is no mention In this bill of any kind of scientific evidence that Japan, an earthquake-prone country, has suitable underground storage sites. Despite this, it grants exploration and storage rights to approved businesses, allowing them to conduct their activities both in and outside of the specified area. It is also problematic that businesses transfer their responsibility for the semi-permanent required monitoring to JOGMEC after completion of the project, as it significantly reduces the responsibility of the operator.

These two bills are discussed in the 213th Ordinary Session of the Diet. (Session 16 and 17)
(Session information is listed only in Japanese)

Environmental NGOs have criticized these bills for economically and systematically supporting impractical technologies such as hydrogen usage and CCS, and the negative impact they would have on the expansion of renewable energy, emphasizing that these bills will significantly distort Japan’s future climate and energy policies.

Proposed bills (written in Japanese)

• The Bill for the Act on Promotion of Supply and Utilization of Low-Carbon Hydrogen and its Derivatives for Smooth Transition to a Decarbonized, Growth-Oriented Economic Structure (Hydrogen Society Promotion Bill) (Link)
• The Bill for the Act on Carbon Dioxide Storage Businesses (CCS Business Bill) (Link)

Reference

• METI: Cabinet Approvals on the “Bill for the Act on Promotion of Supply and Utilization of Low-Carbon Hydrogen and its Derivatives for Smooth Transition to a Decarbonized, Growth-Oriented Economic Structure” and the “Bill for the Act on Carbon Dioxide Storage Businesses” (Link)
• METI: Press Conference by Minister Saito (Excerpt) (Link)

Related release from JBC Partners

• [Press Release] Cabinet Decides on Hydrogen Society Promotion Bill and CCS Business Bill – Cabinet Decides on Hydrogen Society Promotion Bill and CCS Business Bill（2024/2/13）(Link)