Shulman Advisory

Japan considers hydrogen/ammonia CfD qualification criteria; avoids emission caps

In its hydrogen strategy revised in June, the Japanese government stated its aim to increase the supply of hydrogen and ammonia in Japan from 2 million tons to 3 million tons by 2030, 12 million tons by 2040, and finally to 20 million tons by 2050.

To help achieve this, METI has been planning a contract for difference (CfD) scheme over the next 15 years, which would cover the expected price gap between low-carbon hydrogen and ammonia and conventional fossil fuels. This scheme is designed to support clean hydrogen/ammonia producers and importers by shielding end-users from their higher anticipated costs.

In the pursuit of carbon neutrality, the strategy involves the expansion of clean energy sources, the transition of various sectors to decarbonized alternatives, and a gradual fostering of public acceptance of the energy transition process.

On October 25, METI held a joint advisory committee meeting to discuss what conditions hydrogen- and ammonia-related companies needed to fulfill to qualify for government CfD support. It also discussed what types of hydrogen/ammonia hubs should be supported, and whether compulsory #carbon emissions standards should also be imposed on hydrogen/ammonia producers.

METI suggested that companies meet the following three conditions to qualify for CfDs:

  1. Plan to supply hydrogen/ammonia and invest in related infrastructure in harder-to-abate sectors such as the steel and chemicals industries
  2. Contribute to the international competitiveness of clean hydrogen production and use
  3. Contribute to Japan’s carbon emissions reduction targets by ensuring any carbon emitted in the hydrogen production process stays below predefined limits that are also in line with international emissions standards.

METI aims to support firms meeting these criteria, which it hopes will form the basis of supply chains that can become economically independent in the long-term.

On the question of hydrogen/ammonia hubs, METI suggested that they should be located where large-scale demand can be found and efficient supply chains can be established. These hubs should also anticipate the future integration of carbon capture, utilization and storage (CCUS) technologies, as well as be able to accommodate hydrogen/ammonia demand in the surrounding areas.

Lastly, METI briefly touched on the question of how companies that do not receive CfD support should expand clean hydrogen/ammonia supply in the mid- to long-term. Responding to suggestions that carbon intensity standards should be incrementally strengthened to encourage suppliers to produce clean hydrogen/ammonia, METI argued that such compulsory standards could hurt the firms’ ability to supply the fuels. Instead, it proposed that companies should voluntarily plan to expand low-carbon hydrogen and ammonia production.

The next meeting of the Hydrogen and Ammonia Strategy Advisory Committee is scheduled for November 14. We’ll deliver timely updates to keep you informed; stay with us for the latest news.

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Publication date: November 3, 2023

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