Green vs pink hydrogen production in Japan: a partial circular economy approach (Part 6/6)

This article is the sixth in a series of six, based on a research by Dr. Venera N. Anderson, “Comparative Analysis of Green and Pink Hydrogen Production in Japan Based on a Partial Circular Economy Approach”. You can read part one, two, three, four and five here.

• As Japan tackles its carbon footprint, choosing between green and pink hydrogen is crucial for sustainability

• With nuclear energy, pink hydrogen offers Japan a cost-effective, infrastructure-ready clean energy solution beyond 2040

• Overcoming cost, adoption, and infrastructure challenges requires Japan to invest strategically and ensure policy precision

Japan is currently facing urgent energy and environmental challenges, demanding bold and sustainable solutions. As the world’s fifth-largest carbon emitter, the country must rapidly transition to cleaner energy sources to meet its 2050 carbon neutrality goal. Recognising hydrogen’s potential, Japan has committed to major investments, including the $400 million Japan Hydrogen Fund and extensive government-backed incentives. However, while hydrogen is often seen as a “clean” energy source, its production and supply chains still carry emissions and environmental trade-offs. Identifying the most reasonable, practical, and economic source of clean hydrogen (green or pink) beyond 2040 is therefore critical. This research examines Japan’s energy and environmental situation, exploring how hydrogen, produced using a partial circular economy approach, could become the future cornerstone of Japan’s energy strategy. 

Discussion

The discussion section answers the research question, interprets the results, puts them in conversation with existing literature, discusses the study's limitations, and proposes future research. The research question was as follows: given the country's energy and environmental situations, which type of clean hydrogen (green or pink) produced in Japan based on a partial circular economy approach would be a more reasonable, practical, and economic future (2040-beyond) energy source? Inspired by the Japanese “mottainai” campaign and based on three theoretical frameworks, the thesis's methods were used to answer the research question by governing the selection of data and criteria for comparative analysis of green and pink H2 production in Japan based on a partial CE approach. The provided results indicated that, given Japan's energy and environmental situations, pink H2 produced based on a partial CE approach (technical cycle) would be a more reasonable, practical, and economic future (2040 and beyond) energy source.

First, the lack of reliable Japanese official estimates from the public about the costs of green and pink H2 production confirms that clean H2 is not ready for present prime time and remains an energy source of the future. If Japan wanted to develop domestic clean H2 more rapidly, it would make sense that the country would have a lot of data, perhaps, even incorporating CE approaches, in METI and other H2-related organisations. Therefore, the need for more reasonable data might hold back clean H2 development in Japan. Similarly, James (2024) claims that Japan's current and even revised vision of "H2 society" might increase global GHG emissions since it primarily focuses on building global H2 supply chains. The conversion of H2, shipping to Japan, conversion back to gas, and compressing it for storage represent energy-intensive processes requiring fossil fuels. Japan NRG (2024e) also describes the current problems in Japan's H2 sector that might hinder the domestic development of green and pink H2. For instance, the government desires some clean H2 to start operating and might encourage other clean H2 developers to approach their large-scale projects more commercially. However, at the same time, Japanese companies remain ambivalent about signing long-term off-take agreements for clean H2 and its derivatives since the future market developments and pricing mechanisms remain unclear. Lastly, Martin (2023b) warns about the global difficulties of determining the exact cost of one kilogram of green H2. Such challenges are due to a plethora of various methodologies with different timeframes, which strive toward delivering the final cost transparency to the H2 sector. Martin describes that the private sector frequently refuses to reveal production costs, explaining that a small project's current pricing differed from large-scale manufacturing. The governments also still need help to find out the correct amount for subsidy schemes, so clean H2 will be cheaper than gray H2, without overcompensating energy companies, especially oil ones that are already profitable.  The buyers also hesitate to purchase volumes from future clean H2 hubs if they are unaware about the real cost of clean H2 in the near or long term. Thus, the study’s first finding adds to the body of current knowledge about the difficulty of finding or estimating the cost of clean H2 (green and pink), especially in Japan.

Second, the comparison based on the economic criterion "OPEX," related to the cost of projected Japanese electricity/heat with associated capacity factors and partial CE approach, shows that pink H2 is a more reasonable, practical, and economic future (2040-beyond) energy source in Japan. The existing literature affirms the importance of economics as a primary driver of adoption for commodities, such as clean H2 (CTVC, 2024). Liebreich (2023b) proclaims the importance of economics, through "Horseman 1: It's the economics, stupid," as one of the "Five Horsemen of the Transition" (main reasons for the impossibility of the quick global decarbonisation). Gaster (2024) states that electricity inputs drive prices, so electricity costs must be lessened to make green H2 competitive. The study's data (2030 projections) show that, on average, the projected 2030 costs of electricity from solar and onshore wind combined are relatively close to the 2030 projected costs of nuclear energy. Only the 2030 projected cost of electricity from offshore wind might be substantially higher than the 2030 nuclear cost. Thus, due to the uncertainty of (2040-beyond) electricity prices, the study focused on comparing the capacity factors between renewables and nuclear energy, which reveal better economic viability for pink H2 production. Abdelshafy et al. (2024) and Swisher et al. (2019) confirm that higher capacity factors lead to the increase in the produced energy and higher electrolyser usage rates, improving economic viability for clean H2. Arias et al. (2024) also highlight another advantage for pink H2 production due to the potential utilisation of heat as a by-product of the nuclear fission process.  ULC-Energy (2024)’s study announces that pink H2 can be produced by SOEC electrolysers-SMR combination for less than 3.50 Euro/kg. Takeo (2024) affirms that using Japan's nuclear fleet to produce pink H2 and electricity for consumption might help Japan achieve its GHG targets. Also, using nuclear energy's electricity output to produce pink H2 will eliminate the need to curtail the production of wind and solar plants. In doing so, nuclear power and renewables can co-exist more effectively.

The study also paid attention to the CAPEX costs related to the energy source as part of OPEX (cost of electricity). Concerning green H2, some experts are enthusiastic about Japan's renewable development, which may lower electricity costs, increasing the economic viability of green H2 production. For instance, Shiraishi et al. (2023) study states that 90% of a cleaner energy grid, incorporating accelerated wind and solar capacity additions, new interregional transmission infrastructure, and new battery storage, merged with the existing fossil-fuel generation capacity might meet Japanese electricity demand. Merk et al. (2018) frequency stability and load flow analysis affirm that Japan's power system might accommodate more renewables by 2030 while maintaining energy resilience and reliability. The REI (2024) study, focusing on energy transition scenarios based on 80% renewables by 2035, underscores the importance of new interconnections, storage batteries, and IT investments. If these scenarios come true, Japan might use 7% (solar) and 9% (wind) renewable power to produce inexpensive green H2. In other words, only the significant investments in Japan's power grids and energy storage systems might help economic viability (OPEX and CAPEX) of green H2. 

Since, like METI (2021c) and CHP (2024b), the study assumed that CAPEX costs related to the energy source were a part of the electricity costs, such a rapid buildup of additional renewable energy infrastructure might be prohibitively costly, potentially increasing the future Japanese electricity prices and the cost of green H2 production. Similarly, IEA (2023c) spotlights the significance and expense of expanded, modern, and smart grids for successful energy transitions. Liebreich (2023b) uses another reason for the difficulty of the rapid energy transition, "Horseman 2: We're Going to Need a Bigger Grid," to warn about the magnitude of the challenge in front of all countries like Japan, which made net-zero commitments. The challenge and the cost are nearly inconceivable due to the issues of power engineering's supply chains, such as the need for more transformers, cables, and workforce. In contrast, nuclear energy has lower transmission requirements than site-constrained or distributed generation sources (DOE, 2024e). 

Regarding pink H2, Japan's decision to extend the life of NPPs, reuse existing nuclear reactors, and return them to good working order relates well to the nexus-integrated policies methodology (creating more with less) and the stages of the technical cycle of the Ellen MacArthur Foundation's CE system diagram: "maintain/prolong," "reuse," and "refurbish." These stages represent the loops/stages diagram where the most value can be captured since they preserve more of the embedded value of a product by keeping it whole. These stages also represent significant cost savings to firms and customers since they utilise the products/materials already in circulation rather than investing in new ones (Ellen MacArthur Foundation, 2024). Thus, using existing NPP infrastructure might potentially deliver cost savings to Japanese pink H2 hub developers. Moreover, such consideration, combined with the less capital requirements for advanced nuclear reactors, such as SMRs (IAEA, 2024b), might also reduce the OPEX related to the electricity costs in the cost of Japan’s pink H2 production based on the partial CE approach.  In sum, regardless of the uncertainty of future electricity costs, the study's second key finding adds to the current knowledge by affirming the importance of capacity factors in clean H2 production, utilisation of existing NPP infrastructure, and investment in advanced NPPs for the economic viability of Japan’s pink H2 production. 

Third, the “Other Criteria” areas in the comparative analysis show pink H2 as a more reasonable and practical future (2040-beyond) energy source for Japan. Despite the public concern about potential issues in handling radioactive materials and waste in the “Safety” indicator, pink H2 has more advantages in the “Impact on the Environment” indicator, related to “GHG Emissions” and “Land Use” criteria. Thus, in the “Other Criteria” area, pink H2 emerged as a more reasonable, practical, and economic future (2040-beyond) energy source. First, since H2 safety concerns are identical in green or pink H2 production based on a partial CE approach, the consequences of potential mishandling of nuclear waste represent potential disadvantages for pink H2 in the context of the study’s comparative analysis. Similarly, IAEA (2024a) highlights such concern about radioactive materials. Arias et al., (2019) suggests carefully addressing public concerns about the safe and ethical deployment of nuclear energy. Fortunately, SMRs and advanced SMR technologies come with better safety measures, which might alleviate some of the pink H2 safety concerns in the future (Lee, 2024; Schaffrath et al., Buchholz et al., 2021).  

Regarding the “Impact on the Environment” indicator, related to the “GHG Emissions” criterion, the study employed the nexus-integrated policies method to analyse the lifecycle emissions of renewables and nuclear energy for electricity production, revealing pink H2 as a better energy source with less impact on the environment. Similarly, Hassan et al. (2022) confirms the significant GHG emissions from utility solar energy systems during upstream production and assembly. Nian et al. (2014) describe the LCA analysis on power generation from nuclear energy, whereas Lenzen (2008) states that GHG emissions from fossil energy are lower than those from solar photovoltaic energy. Concerning the “Impact on the Environment” indicator related to “Land Use” criterion, the study reveals that pink H2, mainly if produced in brownfield hubs while restarting existing reactors or smaller advanced reactors, is a more reasonable, practical, and economic source of clean H2 in the context of the comparative analysis. Similarly, DOE (2024e), IAEA (2023), and IAEA (2024a) confirm that nuclear energy provides a differentiated value proposition in terms of low land use requirements versus those for renewable energy. Thus, the study’s third key finding adds to the current body of knowledge about the viability of pink H2 development considering nuclear energy’s negative public perception (safety) and positive factors (GHG emissions and land use).

Lastly, other criteria in the comparative analysis had similar ingredients, which would apply to green and pink H2 production in Japan based on the partial CE approach.  For instance, in the “Economic Indicators,” such ingredients were in the “OPEX” (Water Consumption – Cost of Purified Water), “CAPEX” (hubs, WWTPs, and electrolysers), and “Subsidies.”  In the “Other Criteria", similar,” similar ingredients were used in the “Impact on the Environment” indicator (water consumption and recycling of the materials) and the “Workforce Availability” indicator. Since these ingredients were identical, for the sake of the comparative analysis, these parameters were not considered for comparison purposes between Japanese green and pink H2 production based on the partial CE approach. However, the study added to the current body of knowledge by discussing the importance of each of these criteria in the analysis. 

Due to the restrictions in the length of the thesis, the study would only like to discuss the challenges of CRMs (critical raw materials) in the “Recycling Materials” criterion. Similarly, WEF (2024) and IEA (2024b) highlight the importance of CRMs in the energy transition. Daniel Yergin (Hosp, 2024) claims that the world cares more about “Big Shovel” versus “Big Oil” since the importance of metals is increasing. Since Japan depends on imports for most of its demand for rare metals (METI, 2020b), especially for electrolysers, outside entities, such as other nation-states, alliances, international organisations, and trading and investment partners, can help Japan in its efforts to acquire such materials. For instance, Japan and the US signed the bilateral Critical Minerals Agreement, which affirms these countries’ commitment to strengthening supply chains (Wan, 2023). At the same time, Japan seeks to innovate to reduce the use of rare metals in the clean H2 industry by reducing the need for iridium in combination with manganese oxide to develop an efficient catalyst for electrolysis (Bio-Energy Times, 2024).  

As with every research study, this thesis has limitations. First, the study's limitations are tied to the limited or unavailable quantitative data (2040-beyond) from Japan and global sources to perform a reliable comparative analysis on green H2 and pink H2 production in Japan based on a partial CE approach. The analysis would have also benefited from including additional criteria and data for each of the criteria to perform a "bottom-up" quantitative analysis of these types of productions to find a more reasonable, practical, and economic future (2040-beyond) source of clean H2. Second, the limitations of one of the study's methods, nexus-integrated policies for Japan, are tied to the knowledge gaps in the SEI's nexus framework, such as a lack of clarity about handling the accelerating level of complexity that comes with the advanced levels of integration, a lack of a harmonised analytical framework, which can be utilised for monitoring and trade-off analyses. Third, the nexus-integrated policies framework also has limitations due to the potential overlap of some sectoral actions that also may not fit in the time categories uniquely or entirely. Despite these limitations, no studies in the public domain present a similar comparative analysis based on three theoretical frameworks while considering Japan's energy and environmental challenges.

Finally, the discussion section proposes a few future research directions. First, the researchers may build on this study’s ideas and create a more rigorous quantitative comparative analysis for green and pink H2 production in Japan based on a partial or complete CE approach. Second, the analysts may also use a mathematical energy optimisation tool via digital twins to improve the future economic viability of green and pink H2 production based on a partial or complete CE approach. Third, the analyst may devise a similar analysis leveraging AI to predict market trends and identify potential clean H2 shifts, which can impact the analysis.  Lastly, using such an analysis, the researchers may also devise policy recommendations for the analysis’s winner, which includes feedback loops, additional complexities, and probable rebound effects when the prices for competing technologies and resources change due to the green or pink H2’s influence on their market shares. 

Conclusion

Japan is a unique island nation with a remarkable track record of confronting and transcending adversity. Nowadays, the country needs to confront and transcend its significant energy and environmental challenges while building its multi-dimensional circular economy. This research study examines such challenges and proposes pink H2 as the best reasonable, practical, and economic future (2040-beyond) source of clean hydrogen for Japan if produced based on a partial CE approach.  Although the clean H2 sector is experiencing “The Great Hydrogen Reset” (Liebriech, 2024), more realism means that the public and private sectors can focus capital, talent, and time on reasonable, practical, and economic sources of clean H2 based on each country’s unique energy and environmental situations. Japan’s H2 economy will survive and thrive if it switches hype for precision. 

Japan is a unique island nation with a remarkable track record of confronting and transcending adversity. Today, the country faces significant energy and environmental challenges, yet it also possesses the innovation, resilience, and ambition to rise to the occasion. By building a circular economy around hydrogen, Japan can ensure a sustainable and resilient energy future. Pink hydrogen, produced based on a partial circular economy approach, offers the most reasonable, practical, and economic clean hydrogen solution for Japan beyond 2040. While the clean hydrogen sector is still navigating its path, the future lies in focusing capital, talent, and time on practical, sustainable solutions that match Japan’s unique energy and environmental context. Japan’s hydrogen economy will thrive if it emphasises precision over hype.

For further details, you can find the list of references and appendix here.

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