However, despite the dampened prospects for clean hydrogen amid mounting production costs and global macroeconomic headwinds, one country remains all-in on it: Japan.
Speaking at Singapore state investor Temasek’s Ecosperity summit last week, Japanese megabank SMBC’s group chief sustainability officer Masayuki Takanashi said that the country remains very invested in low-carbon hydrogen.
“We are aware that there has been a lot of news around project suspensions, especially around hydrogen production. But I don’t think we have the luxury of just giving up hydrogen,” said Takanashi.
“The reason we think that hydrogen is very important is because of its potential to be utilised across a very wide range of fields,” he said, citing the power, mobility, chemical and steel sectors as examples.
While hydrogen does not emit any carbon dioxide when burned, its environmental impact depends heavily on the feedstock – which ranges from natural gas to renewable power – used to produce it.
Under Japan’s latest strategic energy plan, hydrogen and ammonia are key to decarbonising its fossil-based thermal power segment, which is projected to supply over a third of the nation’s electricity needs by 2040. The government is also aiming for renewables and nuclear to make up 40-50 per cent and 20 per cent of its energy mix, respectively, by the next decade.
SMBC has been heavily involved in promoting hydrogen-related initiatives, including jointly establishing the Japan Hydrogen Association with other industry players in 2020.
It is also co-leading the country’s first equity fund dedicated to developing a “low-carbon” hydrogen supply chain domestically and abroad. The fund was launched last September with US$400 million in commitments from a group of Japan-based financial and industrial companies, including automaker Toyota, gas company Iwatani and MUFG, with support from French energy giant TotalEnergies and Japan’s Ministry of Economy, Trade and Industry.
Takanashi shared that the fund has already invested in Infineon and Twelve – both US producers of synthetic gas derived from green hydrogen – and GravitHy, a French company building a hydrogen-based steelmaking facility.
While the fund has not specified what counts as “low-carbon hydrogen”, the Japanese government has defined it as having a carbon intensity of 3.4 kilogrammes (kg) for each kg of hydrogen produced – a less stringent emissions threshold compared to the European Union and the United Kingdom.
A study by Temasek-owned investment platform GenZero and research provider BloombergNEF (BNEF) last year projected that hydrogen will make up 4 per cent of Asia’s carbon abatement efforts by 2050, under its net zero scenario. Of that amount, 95 per cent will be green hydrogen, while 2 per cent is expected to be blue hydrogen, which is derived from natural gas coupled with carbon capture and storage.
Analysts have, however, warned that countries should only depend on hydrogen to decarbonise sectors where electrification is not yet viable, as it is an inefficient energy carrier.
“Producing hydrogen from natural gas or renewable electricity incurs higher costs than the raw materials themselves and suffers from significant energy conversion losses,” Yuri Okubo, a senior researcher at Tokyo-based non-profit think tank Renewable Energy Institute (REI) told Eco-Business.
“The current national strategy, however, extends hydrogen applications into areas like passenger vehicles and ammonia co-firing in coal plants, where electrification or renewable energy solutions are more cost-effective and efficient,” she said.
As Japan currently classifies all hydrogen as “non-fossil”, even if the gas was produced in facilities running on gas or coal, Okubo added that she hopes the hydrogen fund which SMBC is participating in will tighten this definition.
Okubo also suggested producing Japan’s domestic green hydrogen in areas with abundant offshore wind potential. “While it will likely be expensive, this can be part of Japan’s future industrial strategy to, for instance, produce green steel. For that, we need a high enough carbon price and renewable energy investment at a scale that benefits local communities,” she said.
Procuring hydrogen from abroad has proven to be tricky. Last December, Japan’s Kawasaki Heavy Industries ditched its plan to source hydrogen from Australian coal, due to delays in construction approvals and concerns around the project’s climate credentials. Instead, the company has decided to use hydrogen produced domestically to meet its 2030 deadline to ship liquid hydrogen from Australia to Japan, as part of the government’s billion-dollar Hydrogen Energy Supply Chain project.
“We’re not going to be able to replicate the energy value chain that exists today, with sea-borne transport of fossil fuels, for hydrogen. It’s not going to happen,” said Ali Izadi-Najafabadi, BNEF’s Asia Pacific head at a separate conference held by non-profit Climate Group last week.
“Shipping hydrogen, whether you do it as liquified ammonia or other liquified hydrogen carriers, will always be extremely expensive. That means for every economy that cannot produce hydrogen locally, you want to minimise the amount that your transition is going to depend on hydrogen. Direct electrification, wherever possible, is the most efficient economic pathway,” he said.
Stalling hydrogen momentum
BNEF had previously forecasted steep declines in the price of green hydrogen, but it has more than tripled its 2050 cost estimate in an analysis released last December, citing higher future costs for the electrolysers.
Still, SMBC’s Takanashi is optimistic that costs for hydrogen production will come down in the long run due to technological and policy advancements.
For instance, the Japanese government kicked off its hydrogen subsidies scheme last year, which will see up to JPY 3 trillion (US$20 billion) deployed to close the price gap between low-carbon hydrogen and fossil fuels over the next 15 years.
REI, however, has suggested the addition of a bidding process to the scheme to increase the competitiveness of domestically-produced hydrogen and for Japan’s planned carbon levy on fossil fuel importers to be implemented sooner, so as not to further dip into taxpayer funds for these subsidies.
Globally, several notable projects in green hydrogen, made from splitting the gas from water using machines called electrolysers using renewable power, have faced setbacks in the past year.
Just yesterday (14 May), Australian mining billionaire turned hydrogen evangelist Andrew Forrest’s Fortescue Metals axed 90 jobs in its green hydrogen division. In February, the company announced that it would cut spending in its green energy division by a fifth in the wake of market uncertainties in the United States, Europe and Australia. Project timelines for its green hydrogen facilities are also being adjusted.
Earlier this week, Norway’s state-owned energy giant Statkraft decided to halt all new green hydrogen projects across Europe.
In March, Japan’s Iwatani pulled out from a green hydrogen project in Queensland, Australia, following the exit of other Japanese companies and the state government. In 2023, SMBC was appointed the financial advisor to the project – the largest to be proposed in Australia, with the capacity to produce 70,000 tonnes of green hydrogen annually by around 2028. Some of the hydrogen was set to be imported to Japan.
The pull back in hydrogen investments in the past year is partly a US story, said BNEF’s Izadi-Najafabadi, where the Inflation Reduction Act (IRA) had initially created a lot of euphoria around clean hydrogen, but former president Joe Biden had failed to finalise rules for how the different tecnologies and projects can qualify for tax credits before leaving office.
With current US president Donald Trump now talking about repealing the IRA, coupled with economic uncertainties, the future for the sector is now even more uncertain, he told Eco-Business.
“Although the probability of a wholesale repeal of the legislation itself is very low, there are a lot of rules that [Trump’s administration] can tweak, which means that it’s a lot harder for investors to continue making commitments to some of those technologies without certainty that the subsidies will continue.”
In Europe, while its emissions trading system’s carbon prices were high enough at one point to support these technologies, many companies will “wait and see” after investing in a few projects to ensure that there is long-term economic certainty, supported by carbon pricing, subsidies and consumer demand, said Izadi-Najafabadi.
