February 13, 2024

Kiko Network
Mie Asaoka, President

On February 13, 2024, the Kishida administration issued cabinet decisions on two bills: 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). The purpose of these bills is to promote GX (Green Transformation) in order to achieve “carbon neutrality by 2050”. However, the current government policy is inextricably linked to maintaining thermal power generation until 2050, and includes issues that run counter to climate change measures, such as the use of hydrogen and ammonia in the power generation sector.

Hydrogen and its derivatives should be limited to use in sectors that have no viable alternatives to fossil fuels, and CCS should only be used as a last resort where complete reduction of CO2 emissions is not possible - and neither should be promoted for use in the power sector. For this sector in particular, although renewable energy is an inexpensive and highly effective technology for reducing CO2 emissions that is already in practical use, these bills provide economic and institutional support for hydrogen and CCS, which are far from practical implementation, and thus will only act as a major obstacle in Japan's future climate and energy policy.
The issues regarding each bill are explained below:

1. Hydrogen Society Promotion Bill

Under this bill, businesses that domestically produce, import, and provide "low-carbon hydrogen and its derivatives" to use as an energy source or raw materials will be certified by the Minister of Economy, Trade and Industry, and will receive necessary funds and subsidies from JOGMEC (Japan Organization for Metals and Energy Security) as "support focusing on the price gap" between hydrogen and fossil fuels and "support for the development of hubs".

Another problematic point is that “low-carbon hydrogen and its derivatives” includes hydrogen, ammonia, synthetic methane, and other synthetic fuels derived from fossil fuels. Since all of these are artificially produced, they are expensive, require large amounts of energy to produce, and are highly dependent on imports from overseas. Hydrogen and ammonia are hazardous materials, and there is no prior experience regarding their mass storage and transport in Japan.

The biggest problem of this bill is that it provides the framework for the government to compensate for the price gap between fossil fuels and expensive hydrogen, as well as for the development of infrastructure for the supply and use of hydrogen, as “support focusing on the price gap” and “support for the development of hubs.”

1. This is a dole-out policy to CO2 emitters without economic rationality

Energy transition to renewable energy, which emits no CO2 and is highly economical, is an urgent issue. Establishing a framework in which the government compensates for the price gap of infrastructure development or the cost of the fuel itself using GX Transition Bonds or other means will hinder the competitiveness of renewable energy and seriously impede the formation of a fair market.

Currently, under the 6th Strategic Energy Plan, the Act on Rationalizing Energy Use, and the Basic Policy for the Realization of GX, the government has already taken various measures to promote hydrogen and ammonia co-firing in order to maintain the use of thermal power generation, including financial support for infrastructure development through the Green Innovation Fund, maintenance of existing power facilities through the capacity market and long-term decarbonization power source auctions, and development of new power sources and modification of existing facilities. Large amounts of money are flowing to major electric power companies, power generation equipment manufacturers, and fossil fuel developers. Many of the businesses receiving such support are fossil fuel-related businesses that emit large amounts of CO2, and the flow of large amounts of public funds to fossil fuel-related industries will hinder the industrial structure’s transition toward decarbonization.

2. Thermal power generation, which hinders the competitiveness of renewable energy, should be excluded

For hydrogen, it is recommended that green hydrogen produced from surplus renewable energy be used in limited applications where there are no other alternatives to fossil fuels.

Policies to accelerate the shift from thermal power to renewables are required for the power generation sector, where renewable energy sources such as solar and wind already exist at a practical, economically rational, and technologically feasible level. Nevertheless, the government's generous support for fossil fuel-derived hydrogen and ammonia lacks economic rationality and disrupts fair competition.

3. Policies that allow gray hydrogen run counter to climate change measures

Additionally, although it is said that the bill will define the carbon intensity of low-carbon hydrogen, it will not specify the standard level. At a minimum, it is necessary to keep the carbon intensity at 3 kgCO2e/kgH2, as indicated in the EU taxonomy, and should be set to a net zero emission level as soon as possible. Currently, most hydrogen and ammonia are produced from fossil fuels (so-called “gray hydrogen” and “gray ammonia”) and supporting them will not only not contribute to CO2 reduction, but will actually increase lifecycle CO2 emissions.

According to the interim report compiled by the the Ministry of Economy, Trade and Industry (METI) Joint Council, the standard value of low-carbon hydrogen is not clarified in for the time being, and even if it is revised in the future by cabinet order or ministerial order, there is significant concern that it will remain at a low level and will not retroactively apply to the support for price differentials and hub development.(*) It is outrageous that this price gap compensation for gray hydrogen and gray ammonia in the power sector is being provided.

4. Obligation  for local governments and businesses to cooperate magnifies the bills’ problems 

The bill establishes a basic policy and imposes an obligation on local governments and businesses to cooperate in the promotion of the supply and use of hydrogen and its derivatives, including ammonia. Hydrogen and ammonia are extremely hazardous, but there are no safety standards, nor does it stipulate the right to control storage sites. . This could constrain the activities that local governments and businesses want to do in order to deal with hydrogen and its derivatives.

2. CCS Business Act

This bill provides for the establishment of a permit system for trial-drilling and storage projects for CO2 sequestration and for the creation of an approval system for the implementation plan of exploratory drilling and storage projects.

The Minister of Economy, Trade and Industry designates possible reservoir areas as "specified areas" and then permits those who conduct trial-drilling and implement CO2 storage projects in those specified areas, by establishing permits for prospecting rights (the right to drill into a geological formation to see if it is a reservoir) and storage rights (the right to store CO2 in a reservoir).

Businesses 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 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 JOGMEC.

CCS projects throughout the world have seen little success apart from its implementation in enhanced oil recovery (EOR), and it is far from practical in Japan. High concentrations of CO2 are highly hazardous to life, and the risks of project failure could be irreparably harmful for stopping climate change. Nowhere in this bill is any scientific evidence that Japan, an earthquake-prone country, has any suitable underground storage sites. Despite this, the bill grants exploration and storage rights to approved businesses, allowing them to conduct their activities both in and outside of the specified area, and then transfers responsibility for the semi-permanently required monitoring to JOGMEC after completion. This is problematic, as it makes the operator’s responsibility extremely limited.

1.CCS projects should be subject to environmental impact assessment (EIA)

The bill does not require that an environmental impact assessment (EIA) be conducted in advance for trial-drilling and storage projects. The policy is to intensively support "advanced CCS projects" that have already been selected, but even in these specified areas, the content, method, and timing of geological and other investigations have not been clarified. The entire process of drilling several kilometers underground, injecting CO2, and stabilizing it places a significant burden on the environment, and so an EIA should be conducted in advance.Additionally, the fundamental authority for permission and authorization of projects is entirely held by the Minister of Economy, Trade and Industry, and the Minister of the Environment only holds authority in the case of offshore storage. Either way, regardless of who grants permissions and licenses, from the perspective of safety and environmental conservation it is essential to have a system for objective evaluation in advance.

2. CO2 generated in the power sector should be excluded

The power generation sector is one where the transition to renewable energy is both economically inexpensive and has high potential. This makes it an easier sector to decarbonize, and so thermal power generation should be shifted to renewable energy as soon as possible. In particular, coal-fired power generation should be phased out by 2030, and the G7 has agreed to fully or predominantly decarbonize their respective power sectors by 2035. A coal phase-out and decarbonization of the power sector are essential in the path to meet the Paris Agreement 1.5°C target, but the speed of CCS projects, such as starting projects in 2030, is not compatible with either of these.

Continuing to use thermal power generation in the hope that CCS and other technologies will be established in the future will only fix CO2 emissions, and runs counter to climate change measures. In addition, the government and power companies have stated that significant amounts of hydrogen and ammonia will be required for power generation, meaning that the high cost of importing hydrogen and ammonia will continue making Japan dependent on foreign countries in the future and making it difficult to reduce emissions from thermal power plants in the long term.

3. CCS project operators should be responsible for monitoring, etc.

The bill sets up a system in which the responsibility for the necessary continuous monitoring after storage is transferred to JOGMEC. Since stored CO2 must be kept in the ground permanently, the operator should conduct the project with the responsibility for its permanent storage, and the responsibility for semi-permanent monitoring should not be so easily transferred.

4. High-cost and high-risk CCS should only be used in very limited cases

The IPCC’s 6th Assessment Report noted that CCS is very costly and has low potential as a CO2 reduction measure. To reduce CO2 emissions, the government should prioritize shifting to renewable energy in the power sector and promoting electrification and introducing renewable energy in other energy-related sectors. Using CCS should be limited to hard-to-abate sectors where it is technically impossible to reduce emissions through any other means.

CCS projects should not be promoted based on the premise that fossil fuels will continue to be used in all energy sectors, including the power sector, as is currently the case.

The interim report compiled by METI’s joint councils (Hydrogen and Ammonia Policy Subcommittee, Subcommittee on Decarbonized Fuel Policy, Subcommittee on Hydrogen Safety) includes the definition of low-carbon hydrogen and its derivatives (p.5), and one of those definitions states, “This system will be implemented in accordance with the level of progress in carbon pricing and the trend of international discussions regarding carbon intensity, and will be reviewed as necessary. However, in order to ensure the stability and predictability of the system, the requirement will not be applied retroactively to support focusing on the price gap and for the development of hubs.” (tentative translation)

The interim report also does not make low-carbon hydrogen a prerequisite for evaluation of support (p.8).

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