The Subcommittee on Hydrogen and Ammonia Policy/Subcommittee on Decarbonized Fuel Policy/Subcommittee on Hydrogen Safety, a joint council of the Ministry of Economy, Trade and Industry (METI) and the Agency for Natural Resources and Energy (ANRE), compiled a draft interim report on December 6, 2023.
Most of the hydrogen currently distributed in Japan is “gray hydrogen” (also sometimes called “brown hydrogen”), which is produced from fossil fuels and emits a large amount of CO2 during its production. This interim report sets a definition of “low-carbon hydrogen”, stating that gray hydrogen is acceptable for the time being. It also mentions that the government will compensate for the price difference between hydrogen (high price) and fossil fuels (low price) through GX Transition Bonds in order to promote the use of hydrogen. JBC and NGOs throughout Japan find this to be very problematic.
1. The definition of “low-carbon hydrogen”
1) Standard for hydrogen
On the standard for low-carbon hydrogen, the report states “In principle, it is appropriate to set the standard at 3.4 kg-CO2/kg-H2 to achieve approximately 70% emission reductions compared to the process without any means to reduce CO2 emissionstreatment.” This is equivalent to a 70% reduction in natural gas emissions, a figure that can be achieved by recovering more than 90% of the modified CO2 and utilizing renewable energy for feedstock production and transportation. However, even if such measures are taken, as long as natural gas is used as a raw material, the hydrogen production processes will still emit about 30% as much CO2 as natural gas. Basically, green hydrogen should be based on electrolyzing water with renewable energy. This is why we should fundamentally use “green hydrogen”, which is based on electrolyzing water with renewable energy.
Note that the EU taxonomy sets the standard at 3 kg-CO2/kg-H2.
2) Standards for ammonia and others
The interim report did not state specific standard values for ammonia and others. It only stated that “Hydrogen will be supplied in various forms of carriers and fuel types such as ammonia, synthetic methane, synthetic fuels, etc. For ammonia and other hydrogen compounds that may be subject to this system, a standard value will be established with reference to the level of low-carbon hydrogen. Production of ammonia, synthetic methane, and other derivatives made from hydrogen require even larger amounts of energy. To achieve decarbonization, the electricity used in the manufacturing process must be renewable or that emits minimum (close to zero) CO2.
3) Application of standards to support mechanisms
The report states that the government will provide price differential support, but that the support requirements “shall not be applied retroactively as requirements for support focusing on price differentials and base development.” In other words, 3.4 kg-CO2/kg-H2 will not be applied as a standard. In that case, what is even the point of establishing a standard value if it isn’t used? Without measures to reduce CO2 emissions, promoting the utilization of hydrogen does not contribute to tackling climate change. The government should not create a system to promote hydrogen that cannot contribute to CO2 reduction.
2. Governmental support focusing on price difference and base development
1) Governmental support focusing on price difference and base development
The report proposes that the government compensates for the price difference between the benchmark price and the reference price. The introduction of hydrogen and ammonia is heavily subsidized by the Green Innovation Fund, and the establishment of “decarbonized power auctions” has introduced a mechanism whereby large capital investment costs for power plants using hydrogen/ammonia are paid as part of the capacity market for the electric power sector. Ammonia co-firing in coal-fired power plants, which will extend the life of coal-fired power, is also heavily subsidized. Why is it necessary to provide such generous support for hydrogen/ammonia price differentials?
Moreover, it is outrageous that gray hydrogen, which does not reduce CO2 emissions, is also able to receive such support. Addressing the price gap through such a mechanism will not reduce the burden on consumers and will only increase future liabilities.
2) Calculation of benchmark price, etc.
Regarding the calculation of the benchmark price for hydrogen/ammonia, the report states that “the operator shall provide a formula or fixed value for the benchmark price in advance.” This mechanism itself is problematic, but it is also very problematic that the price is set at the discretion of the business operator in the first place. In case of renewable energy, the price of its feed-in tariffs are determined by a third-party organization called the Price Calculation Committee. The price of hydrogen/ammonia should not be determined by energy suppliers.