Japan tightens low-carbon ammonia standards to align with Europe, US

In a bid to align its low-carbon hydrogen standards with international counterparts, Japan's Ministry of Economy, Trade and Industry has taken the decisive step to tighten the carbon intensity standard for low-carbon ammonia.

The move, discussed during a high-level expert panel meeting on the Hydrogen Society Promotion Act on June 7, aims to reduce CO2 emissions by 70% compared with fossil fuel-derived production, in line with standards in Europe and the US.

Under the revised standards, the carbon intensity threshold for low-carbon ammonia has been set at 0.87 kg-CO2e/kg-NH3 on a well-to-gate basis, representing a 70% reduction from fossil fuel-based gray ammonia.

In the Basic Hydrogen Strategy published in June 2023, the low-carbon ammonia threshold was set at 0.84 kg CO2e/kg-NH3 on a gate-to-gate basis. METI has expanded the system boundary from gate to gate to well to gate, ensuring a more comprehensive assessment of upstream emissions.

"The carbon intensity threshold revision will address methane leakage between natural gas wells and blue ammonia facilities. The new limit of 0.87 kg-CO2e/kg-NH3 on a well-to-gate basis restricts the use of natural gas sources, with methane loss exceeding around 2% in the system," Anri Nakamura, hydrogen analyst at S&P Global Commodity Insights, said June 14.

According to Nakamura, some facilities can achieve methane emissions as low as 0.2%, while older and less-managed assets may have emissions as high as 3%. Nevertheless, Japan's new threshold remains 40% higher than the limit set by the South Korean government.

"While the new limit is unlikely to shift investment from blue to green ammonia due to cost differences, it will prompt project developers to carefully assess natural gas supply and encourage natural gas suppliers to prioritize fugitive emission control," Nakamura added.

In addition to this, the carbon intensity threshold for synthetic fuels was defined as follows:

To further bolster the low-carbon fuel sector, the ordinance also specified the requirements for producing synthetic fuel or synthetic methane using CO2 recovered as a raw material.

Operators must either derive the CO2 from biomass or direct air capture or establish agreements to avoid double counting of emissions. Additionally, users of synthetic fuel in Japan should not include emissions already recorded by operators in the country's system.

As Japan embarks on phase one of its low-carbon hydrogen promotion plan, the government will focus on imports to meet immediate demand in key sectors such as steel, transportation and power generation. While domestic production remains a priority, the need for imports underscores the country's push toward a greener future.

Additional details of the contract for difference, or CFD, support mechanism were also discussed. As per the announcement earlier this year, the government will cover the price difference between the base price and the reference price.

The base price will cover project costs and a reference price that varies based on market dynamics and the environmental value of substitutes such as fossil fuels.

To be eligible for the support mechanism, businesses must have offtake agreements, and once accepted, the government will provide CFD payments for 15 years. The rule also stipulates that the operator must continue operating for an additional 10 years without CFD.

However, there was no announcement regarding the course of action if projects are financially unable to operate. These key details of the support scheme are expected to be announced this summer, ahead of the CFD scheme application opening.

Looking ahead, the draft proposal also hints at the potential introduction of carbon pricing, which could further impact reference prices and government support.

Platts, part of S&P Global Commodity Insights, assessed low-carbon Japan-Korea ammonia up $20/mt on the month at $470/mt on June 13. Steam methane reformation costs without carbon capture and sequestration in Japan were assessed 22% higher, closing at $2.43/kg.