The Japanese government has announced plans to spend ¥3trn ($20.86bn) on subsidies for delivered clean hydrogen (and its derivatives) over a 15-year period.

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The scheme — which will be open to both domestically produced and imported H2 — will cover the cost gap between low-carbon hydrogen and fossil equivalents from next year, with at least part of the funding coming from government-issued “GX (Green Transformation) Economic Transition Bonds”.

Low-carbon hydrogen is defined in Japan as having a carbon intensity of 3.4kg of CO2 per kilo of H2 or lower — regardless of the source.

Rather than offering a fixed payment or tax credit to producers, the subsidies would, effectively, be Contracts for Difference (CfD) for both domestically produced and imported H2 (or derivatives such as ammonia), in which recipients will receive a top-up payment above a set reference price — or have to pay the government the difference if production and transport costs end up being lower.

This allows producers to sell clean hydrogen at the same price as fossil alternatives, regardless of market fluctuations, increasing the likelihood that offtakers will commit to buying volumes and thereby providing financial certainty for investors.

The reference price would be based on the highest of three options: the price of raw materials and fuels that will be displaced by low-carbon hydrogen arriving in Japan (ie, liquefied natural gas or coal), this price plus a measure of “environmental value”, or the actual sales price of grey hydrogen or its derivatives in existing markets.

As these reference prices rise with the introduction of carbon pricing and other regulatory measures, the amount of subsidy paid out would slowly decrease.

An additional ¥1.3trn will also be made available to support the decarbonisation of heavy industries, such as steel and chemicals, which could involve the use of clean H2, the government also announced.

The decisions were made at the ruling Liberal Democratic Party’s GX executive committee meeting on Friday, which was chaired by Prime Minister Fumio Kishida.