Japanese parliament passes the act on promoting low-carbon hydrogen (May 2024)

The Japanese parliament passed on 17 May 2024 the act on promoting the supply and use of low-carbon hydrogen and its derivatives (the Hydrogen Society Promotion Act). The act was promulgated on 24 May 2024 – this is the date of promulgation, which is sometimes given as the date of “adoption”, hence the discrepancies in the reviews. The act creates a legal framework for long-term support of projects: contracts for difference and infrastructure development.

Two pillars

Price gap support. Companies supplying low-carbon hydrogen or derivatives (e.g. ammonia) can obtain support that covers the difference between the target (reference) price and the market price. The support period is up to 15 years. Support covers projects delivering hydrogen to Japan – both from domestic production and from imports.

Hub development. The second mechanism is grants towards part of the costs of FEED design, engineering and construction of domestic transport and storage infrastructure used by many companies (hydrogen hubs), so that hydrogen can be delivered at reasonable cost.

Scale of support

The budget earmarked for price gap support is about 3 trillion yen (about 19 billion USD) over 15 years. The grants are awarded by JOGMEC (Japan Organization for Metals and Energy Security).

Significance

Japan is competing with the EU, the USA and Korea for a hydrogen market that is only just taking shape. Contracts for difference reduce investors' risk because they secure revenue, although the definition of “low-carbon”, the assessment criteria and who will bear the cost of the difference if competitiveness is low remain open questions.

For the biogas sector

Support covers low-carbon hydrogen according to criteria set in implementing regulations – hydrogen from biogas could meet them, but the act does not directly concern biogas or biomethane. For Poland the conclusion is practical: a contract for difference is a support tool that is also being considered in the EU for biomethane and hydrogen, and Japan's experience with assessment criteria and tender procedures is worth following.

Outlook

At the time of passing, the key questions concerned the low-carbon criteria, the definition of hydrogen derivatives and how the base price level in the contracts would be set. The answers were to appear in implementing regulations, which METI was preparing.

Price gap support covers 15 years from the start of deliveries, and the first subsidies were announced for summer 2024 (Norton Rose Fulbright).