Japan has big dreams for hydrogen. By 2050, it wants to use 20 million tons of the clean-burning gas each year – more than any other country today. The government sees hydrogen not just as a decarbonization tool for heavy industry and shipping, but as a pillar of national energy security and a balancing element for variable renewables. Yet turning this vision into reality is proving expensive, and slow.

METI’s 2030 price target for hydrogen is ¥30 per normal cubic meter (Nm³), or roughly $2.40 per kilogram. But real-world costs remain stubbornly high. Retail prices at hydrogen stations are still around ¥100/ Nm³, which translates as closer to $8/ kg. And some demonstration project bids – such as Tokyo’s green hydrogen auction – have come in at over ¥300/ Nm³.

The scale of the gap is sobering. In order to hit its 2030 benchmarks, Japan must find ways to cut hydrogen costs and increase annual supply by at least one million tons. It also needs to support the take-up of hydrogen by hard-to-abate manufacturing without ignoring interest in the fuel from the power sector, as well as possible future demand from transport.

That’s where subsidy schemes come in. So far, two main programs have emerged to help bridge the costs and stimulate demand: the Contract for Difference (CfD) and the LongTerm Decarbonized Power Sources Auction (LTDA). The former subsidizes the difference between hydrogen’s production cost and fossil fuel benchmarks. The LTDA, meanwhile, incentivizes utilities to use hydrogen and ammonia by guaranteeing fixed-price contracts.

The devil, however, lies in the details. Both schemes carry uncertainties and restrictions. Japan NRG takes a look at the specifics.