JAPAN Trends and Developments Contributed by: Takahiro Kobayashi, Shigeki Okatani, Yusuke Murakami and Hirohiko Tanaka, Mori Hamada & Matsumoto
The government also intends to introduce a new levy on importers of fossil fuels in FY 2028. The Japanese government also issued the first “GX economy transition bond” in February 2024 under the GX Promotion Act. This bond will be utilised to fund the government’s investment of JPY20 trillion in the promotion of GX. Hydrogen strategy The Japanese government regards both hydro- gen and ammonia as indispensable alternative energy resources to achieve carbon neutrality. In the Hydrogen Basic Strategy revised in 2023, the target for hydrogen and ammonia implementa- tion in 2040 is set at approximately 12 million tonnes per year and this target is reaffirmed in the seventh Strategic Energy Plan. The “Hydrogen Society Promotion Act”, which came into force on 23 October 2024, created two support mechanisms: • a 15-year CfD scheme that pays producers and importers the gap between their cost and a benchmark fossil fuel price (with a budget of up to JPY3 trillion); and • capital grants for hydrogen supply-chain infrastructure, including a FEED-stage sub- sidy for hydrogen hub projects, launched in March 2025. The first CfD auction, for which applications closed at the end of March 2025, was oversub- scribed. However, many hydrogen suppliers found it challenging to meet the criteria, particu- larly the requirements to continue supply for ten years following the end of the support period and to deliver hydrogen to hard-to-abate sec- tors.
The enforcement regulation under the act codi- fies a carbon intensity threshold of 3.4 kg-CO₂e per kg-H₂, thereby aligning Japan’s standard with emerging international benchmarks and ensuring that public financial support is direct- ed exclusively towards genuinely low-carbon hydrogen. Carbon capture and storage The government considers carbon capture and storage (CCS) indispensable for achieving car- bon neutrality. A study group established by METI set the following goals in its final report on the CCS long-term roadmap published in March 2023: • by 2030, Japan will foster a supportive busi- ness environment for CCS projects to start operation; • after 2030, Japan will see extensive develop- ment of CCS projects; and • by 2050, Japan will be able to store approxi- mately 120 to 240 million tonnes of carbon annually. The CCS Business Act was enacted in May 2024. This act establishes a permit system for exploratory drilling and carbon dioxide storage projects for CCS, and it sets up business and safety regulations related to carbon dioxide stor- age projects. Long-term decarbonisation power source auction The long-term decarbonisation power source auction, which is implemented as a new cate- gory of the capacity mechanism, started in 2024. Under this system, power producers and bat- tery energy storage system operators selected through the auction will be compensated for developing and maintaining their capacity to produce electricity for 20 years in principle.
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