The green tech series: Japan developing its green tech industry | OCBC Singapore
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The green tech series: Japan developing its green tech industry

The green tech series: Japan developing its green tech industry

  • July 2024
  • By Amundi Asset Management
  • 10 mins read

In the era of global climate action, the imperative to shift towards sustainable development has never been more pressing. At the heart of this transformation is the need for significant investment in green technologies, innovations supporting reduction of environmental footprint, enhancing energy efficiency and fostering a sustainable future. While the quest for green technology development is a global endeavour, Asia, led by China, stands at the vanguard of this movement, pioneering in both the adoption of these technologies and the crucial financing mechanisms that enable their growth.

Continuing our green tech in Asia series, we now take a closer look at Japan's combined private and public efforts to promote clean hydrogen and green steel to support the country’s goal to reduce its overall emissions.

Japan’s hydrogen strategy
The Japanese government revised its hydrogen strategy in June 2023, recognising the critical role that hydrogen will play in the country's future industrial competitiveness, energy security and carbon neutrality by 2050. The government has identified five categories as core strategic priorities in the plan: hydrogen supply, decarbonised power generation, fuel cells, direct use of hydrogen and utilisation of hydrogen compounds (including fuel ammonia and carbon-recycle products).

Why hydrogen?
Hydrogen plays a central role in supporting the world to reach net-zero emissions by 2050 and limit global warming to 1.5 degrees celsius.

By complementing other decarbonisation technologies like renewable energy, biofuels and energy efficiency improvements, “clean” hydrogen (that is both renewable and low carbon) offers a long-term, scalable and cost-effective option for deep decarbonisation in “hard to abate” sectors such as steel, maritime, aviation and ammonia1.

An example of technologies using hydrogen to further net zero objectives is fuel cells. Fuel cells use the chemical energy of hydrogen to cleanly and efficiently produce electricity: the only products are electricity, water and heat. This technology is also unique in terms of the variety of its potential applications: they can provide power for systems as large as a utility power station and as small as a laptop computer2.

The strategy aims to create demand for hydrogen to increase consumption volume from the current 2 million tons to 12 million tons per annum by 20403. Fuel cells are another technology that Japan is focusing on, and the strategy sets a target of having 1,000 refuelling stations by 2030, up from the current 180. This expansion in refuelling infrastructure will support the growing number of vehicles that rely on hydrogen as a fuel source, further driving the adoption of fuel cell technology.

On the supply side, the government is exploring the development of international partnerships to ensure stable supply. It intends to build supply chains in Asia and the Indo-Pacific region by commercialising hydrogen-related technologies. Japan targets 10% of the global market share of electrolysers, which use electricity to split water into hydrogen and oxygen, allowing it to produce low-emission hydrogen with 15 GW capacities installed by 20304. Domestically, the strategy lists the support for large-scale industrial clusters in metropolitan areas and the development of infrastructure for hydrogen. With growing demand and reliable supply, the government seeks to reduce the supply cost of hydrogen by 80% to JPY 20/Nm3 (approx. SGD 0.17 per normal cubic metre) by 2050.

In the hydrogen strategy, Japan is following the trend of policy intervention in other major economies, such as the EU’s Green Deal and the Inflation Reduction Act of the USA. The government will extend support to promote investment of JPY 15 trillion (approx. SGD 128bn) in hydrogen supply chains and infrastructure through collaboration between the public and private sectors over the next 15 years.

Case study of Japanese steel industry
Steel is a major industry in Japan that employs 220,000 workers, contributes to 8.5% of the GDP and emits about 14% of the country’s greenhouse gas (GHG) as the industry relies on coal-fired blast furnaces (BF). The winds of change towards a low-carbon steel industry are underway with innovations like green steel, which entails the potential replacement of fossil fuels with hydrogen in the steel manufacturing process, which would lead to a 54% fall in emissions by 20505.

The roadmaps for the steel industry include many different low-carbon technologies all along the steel production process: direct reduction iron by hydrogen (the chemical removal of oxygen from iron ore in its solid form) and CCS (carbon capture and storage) for blast furnaces, capacity up-scaling with enhanced impurity removal in electric arc furnaces (furnaces that heat material by means of an electric arc), electrified heating in the strand casting and rolling processes, and thermal conductivity improvement. The roadmap also presents dependencies on renewable energies, green hydrogen and CCUS (Carbon Capture, Utilisation and Storage) to achieve complete decarbonisation, as described below.

Japan’s steel industry has begun phasing in a series of projects to establish these technologies with the government’s support: the Ministry of Economy, Trade and Industry (METI) created a JPY 2tn (approx. SGD 17bn) fund for green innovation. Additionally, the New Energy and Industrial Technology Development Organization (NEDO), Japan’s national research and development agency, launched a green steel project and recently doubled the budget to JPY 450bn (approx. SGD 3bn) to build up the core technologies with the domestic steel producers, aiming to achieve practical application by 2040.

While Japan is making huge strides in transforming the manufacturing processes of steel by mobilising hydrogen to produce environmentally friendly and sustainable green steel, there remain challenges in the commercialisation of these technologies at a large scale. Hence, Japanese steelmakers still require continued support in terms of significant investments directed towards research and development of green steel.

Case study: Japanese steelmakers investments in green steel
An investment worth JPY 100bn (approx. SGD 855 million) to a green steel project is envisioned by Nippon Steel, the 4th largest steel producer globally and Japan’s biggest steelmaker. Besides this, Nippon Steel plans to begin testing 100% hydrogen direct reduction to apply the technology with electric arc furnaces and blast furnaces with CCS by 2050. To finance these projects, Nippon Steel issued convertible bonds to raise JPY 300bn (approx. SGD2.5 billion) in 2021 for the first time in 15 years.

Kobe Steel launched Japan’s first low CO2 blast furnace steel – the Kobenable Steel, which uses hot briquetted iron as a feedstock to blast furnaces, which significantly reduces CO2 emissions during the process. Since its launch, Kobenable Steel has been put to use by a diverse range of manufacturers in the automotive, shipbuilding and construction sectors. In the future, Kobe Steel has the ambition to further reduce their CO2 footprint by mobilising green hydrogen, produced from renewable energy, in specific product lines.

Sources:
1 The Hydrogen Council and McKinsey & Company, Hydrogen for Net Zero, A critical cost-competitive energy vector
2 Hydrogen and Fuel Cell Technologies Office of the USA office of Energy Efficiency and Renewable Energy, Fuel Cells
3 Agency for Natural Resources and Energy, Overview of Basic Hydrogen Strategy, June 2023
4 All numbers are from METI, “Technology Roadmap for ‘Transition Finance’ in Iron and Steel Sector”, October 2021
5 ESG Clarity, Green steel: The industry’s path to net zero?

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