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The True Cost of Electric Vehicles - Japan Energy Sector

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Electric Cars Japan

Introduction

The reduction of CO2 emissions using electric vehicles (EVs) is attracting more attention as a countermeasure for global warming. Various countries and international organisations have reported climate change as an important problem, and many have diverted their resources to climate change mitigation, to avoid impacts of global warming of 1.5℃ or above. Japan, as the fifth largest CO2 emitter, pledged to reduce its emissions by 26% by 2030 comparing to 2013. Ultimately by 2050, the country aims to become completely carbon neutral. While these ambitious goals set Japan on the right path towards a 'cleaner' energy future, the long-term strategies demonstrated by the country on multiple occasions outline the government's weak ambition to a complete phase-out of coal-fired power generation, the second biggest contributor to its energy mix. Ultimately, we believe that most of the changes will come from demographical and structural changes and changing preferences to transportation could see a decline in internal combustion engine (ICE) use.

Global Passenger Vehicle Sales per Region

Japan’s EV sales continue to climb, however, remain below the one in China, Europe, and the US.

The EV market continues to grow globally, with the global stock of electric passenger vehicles surpassing 7.17m in 2019, with China, Europe, the US, and Japan together accounting for over 95% of passenger EV sales, according to IEA. Comparing to other key markets, however, their data suggests that Japan has been losing momentum from 2017, when EV sales rose by 119% y/y, driven by the introduction of a next-generation plug-in electric vehicle (PHEV) model. In 2018 and 2019, the market declined by 8.04% y/y and 21.81% y/y, and EV penetration stood at 1.1% and 0.9% respectively (IEA). While Japanese carmakers were among the first to introduce EVs, the country now lacks a strong push for more aggressive adoption. Indeed, while the short-term outlook for EV seems to be promising, it is still behind the government's targets of 210,000 EVs by 2050.

Nevertheless, both Japanese electric and hybrid vehicle market is heading towards a turnaround point. Comparing to other key markets, the Japanese market will develop according to its own dynamics. A combination of increased government interventions, along with changing consumer interest, could push ICEs down the passenger vehicle market share. The effectiveness of EVs and FCVs in mitigating greenhouse gas emissions (GHG), however, depends largely on the composition of the grid and its carbon intensity. While FCVs and EVs are powered using different sources of renewable energy, the charging from the grid remains an integral part of their emission contribution. We, therefore, take a look at Japan's energy sector to see the main constituents that contribute to its electricity generation as well as the direction the country is moving in the next 20-30 years.

Energy Sector

Japan has been a major consumer and importer of energy for a long time and an established leader in energy technology development. Efforts to overcome the result of the 2011 earthquake and the subsequent Fukushima nuclear disaster have dominated energy policy in the last decade. One consequence of the accident was the shutdown of most of the nuclear power plants, which has led to a significant rise in fossil fuels contribution, increased fuel imports, and rising CO2 emissions. In 2013, two years after Fukushima, 38% of its electricity came from gas, while oil and coal accounted for 14% and 32% respectively, according to EIA.

Faced with these challenges, the government has revised its energy policy to focus on further diversifying its energy mix and curbing CO2 emissions. Building on these plans, the nation has outlined goals to cut greenhouse gas emissions by 26% and 50% between 2013 and 2030 and 2050 respectively. Japan is the only G20 member to have a defined target for the transport sector, namely a 27% reduction in emissions in the same period. Between 2013 and 2018, total CO2 emissions fell by 6.8% (EIA), which is on track with the current target. However, we attribute this drop mostly to a declining and ageing population rather than to government commitment. Indeed, the economy has lost 1.6m inhabitants over the last decade, from 128.1m in 2008 to 126.5m in 2018, and this number is expected to fall to 105m by 2050, according to the Japanese Statistics Bureau.

As for the transport sector, between 2013 and 2018, GHG emissions fell by 3.6%, according to Enerdata, mainly due to a 3.97% reduction in land transport emissions. This decrease, however, remains below what is needed to achieve the emission target goals by 2030. Reduced transport on the road goes some way to explain the fall in emissions, as this represents 89% of the sector's emissions, a unique situation compared to other developed economies, where advanced demographics and an increasing model shift to rail have led to lower car usage.

Japan's energy supply remains heavily fossil-fuel oriented, with oil, coal and natural gas taking up 87% of the overall mix. Wind, solar, and hydro are significantly behind. Electricity generation differs from that of overall energy, with fossil-fuel energy taking up 81% of all electricity generation, according to EIA. Nevertheless, coal and natural gas content is much larger, while oil contributes only 5.7%. Indeed, while low-carbon electricity generation fell drastically in 2011, due to a significant reduction in nuclear energy, it did not pick up from other sources, such as renewables.

Japan’s Electricity Generation Mix

In the long-term, renewable electricity contribution will be in line with the one of fossil fuels.

Most of this energy, such as oil, coal and natural gas, is imported from overseas. According to IEEJ, the country's energy self-sufficiency ratio in 2018 was 11.8%, which is a low level when compared to other countries. Since 2010, the self-sufficiency ratio has been declining, making the nation susceptible to the effects of international conflicts, raising concerns over the stability of energy supply. Indeed, Japan depends on the Middle East for around 86% of its crude oil imports, according to Ministry of Economy, Trade and Industry (METI). For natural gas and coal, it relies almost entirely on overseas imports from Australia, Russia, and the Middle East.

Despite a wave of cancelled coal plants over 2019-2020, the nation is to remain dependent on coal-fired power in the long term. Indeed, around 20GW of new coal is expected to be added over this decade, just under a half of the existing coal-powered fleet. Even if the government sticks to its promises to close more than 100 of sub-supercritical coal plants by 2030, it would still not be enough to meet the 2050 emission target, and by 2030, a third of its electricity will still come from coal. Indeed, Japan's biggest coal exporters, like Indonesia and Vietnam, have been backed with generous financial support and insurance by the Japanese government. It provided nearly $14bn in loans for nearly 30 new coal plants coal power projects to countries mentioned above, according to Market Forces data.

On the other hand, the nations' nuclear fleet has slowly begun restarting following the shutdown of all nuclear plants after the 2011 Fukushima accident. Indeed, for a country that lacks natural resources, nuclear power generation is essential to achieve the security a stable supply of power, along with reduction electric power costs, and overall CO₂ emissions. As of now, the Nuclear Regulation Authority (NRA) requires that before a nuclear power plant is restarted, it must conform to its new regulatory requirements. Measures to prevent accidents are being reinforced and preparation for emergencies have been enhanced as well.

Because of these procedures, the process to restart a reactor remains slow, and we do not foresee Japan reaching its 20-22% nuclear electricity generation target by 2030. Adopting a greater reliance on renewables as a source of low-carbon energy instead may help cut CO2 production and reach its energy targets. Japan has a huge potential for solar and wind-generated electricity but is significantly lagging behind other economies. Since 2012, we have seen solar pick up sharply, and in 2018, it achieved its 2030 PV generation target of 7% - surpassing 9% of electricity generation (EIA).

Cumulative Capacity Installation Mix

Renewables will take up the largest share of capacity installations by 2050.

According to EIA, total installed capacity has been growing since 2012, and PV installations contributed 55.0% to this new growth. And while we have seen increased solar electricity generation, its growth was not proportional to that of the installations, with capacity growth increasing 1.5 times faster than that of generation. Indeed, at the beginning of the 2010s, the centrepiece of the government's legislation was to reduce Japan's dependence on nuclear through the introduction of feed-in tariffs to promote more solar, wind, and geothermal. As a result, we saw increased producer interest in renewable energy, prompting a surge in solar and wind installations.

LCOE in Japan, 2040

Costs associated with PV and wind will remain above coal and gas, despite significant declines over the years.

However, a 70% decline in the feed-in tariffs between 2012 and 2020 has led to the rise of levelised cost of energy (LCOE) generated by solar. As a result, Japan, along with other Asian economies like South Korea and Indonesia, now has the most expensive renewable energy, with the LCOE for new utility-scale solar farms averaging around $120/MWh, whereas India incurs $38/MWh, according to IEEJ and Wood Mackenzie. Additionally, a hilly landscape along with strict land regulations have limited availability of flat land for future solar projects, with an average utility-scale solar plant size in Japan sitting at around 10-11MW, comparing to 44MW and 20MW in India and China, according to PV Status Report 2019 and EVwind. Ultimately, despite seeing a continued increase in renewable installations in the long-term, high generation costs push utilities away from using renewable power in the grid, causing a significant lag in grid diversification in the future.

Energy RD&D Budgets by Technology by Region

Japan has the highest RD&D budget for hydrogen and fuel cell in comparison to chosen countries.

Energy Policy and Outlook

Japan has limited domestic fossil fuel energy resources, and the country meets less than 15% of its own total primary energy use from domestic sources, according to EIA, therefore making it vulnerable to exogenous shocks as it depends heavily on imports. It causes Japan to have an energy structure which is heavily dependent on the trade relations with other countries. To support the country's energy transition away from an import-dependent economy, the government has worked together with the industrial sector to promote a transition away from nuclear towards other 'clean' sources of energy. In the past, the energy policy has been offering a mixed bag of support for renewables but also providing heavy support for conventional sources of energy such as oil, gas and coal. However, in recent years, we have seen a surge in both government and corporate initiatives to further diversify the grid away from fossil fuel and curb carbon emissions.

According to Japan's 3E+S energy policy, multiple targets, including self-sufficiency, economic efficiency and environment, were introduced. In terms of energy sufficiency, METI set a goal to exceed the level before the Great East Japan Earthquake to above 25% from 9.6% in 2017 and to reduce economic efficiency costs from their current level of ¥9.7tr in 2013 to ¥9.5tr by 2030. At the same time, targets were set out to reduce greenhouse gas emissions to the level comparable to Western countries.

Electricity Generation Government Target vs EIA Outlook 2030

EIA’s outlook on fossil fuel cuts seems more ‘promising’ than Japan’s government targets.

In 2019, the country adopted a long-term low-carbon strategy to reach carbon neutrality by 2050, with most of the improvement coming from car manufacturers' support and clean vehicle development. Indeed, with new fuel economy standards, the government expects 20-30% of new vehicle sales to come from EVs by 2030. To support the expansion of renewables, the government launched the non-fossil certificate market backed by renewable power generated under the feed-in tariff (FIT) programme. This certification created for retail electricity sellers encourages them to secure environmental value for their electricity obtained from the FIT programme, as well as to reduce the cost burden on consumers.

A single objective that drives Japanese energy policy is energy security, which has been evident by the presence of strict regulations around nuclear energy. More recently, a number of massive typhoons caused long-term blackouts throughout the country, highlighting concerns about the impacts of climate change. Japan has always been earthquake-prone; however, recent events reemphasised the need for additional energy security measures. Indeed, there is a growing concern that the frequency and impact of extreme weather such as heavy rains and typhoons may increase further. As a result, both the public and private sectors have started work on enhancing infrastructure resilience against these risks.

Japan's electricity demand is expected to continue to fall by an estimated 38% by 2050, as declining population, rising efficiency levels, and increasingly service-focused economy alleviate the pressures from the country's grid, according to Kiko Network. Globally, while emissions in the US and Europe have been seen declining in the past, they continued to grow in China, India and Africa, countries that continue to emerge from developing economies status. Japan is the only country with declining emissions in the growing Asia region. Indeed, according to IEA, while emissions from the ASEAN region increased by 28% between 2011 and 2017, Japan’s emissions have fallen by 4%.

Power Sector CO2 Emission Outlook

The biggest reduction in emissions will come from coal, followed by gas, and oil.

At the same time, the power system accelerated in the same time period, growing by 95bn kWh, with most of the new growth coming from renewables. In 2030, according to EIA, 25% of all electricity is expected to come from renewables, up 6-7pps from government estimates. By 2050, this share increases to 53%, as the island uses its landscape as an advantage for wind and PV power generation. In the medium term, PV generation will continue to slow due to the phasing out of feed-in tariffs. However, as solar energy gets cheaper in the second half of the 2020s, the interest for new installations should also pick up.

Nuclear restarts, new coal and renewable plant installations push more expensive oil and gas out of the mix. Natural gas will continue to provide about 30-40% of electricity generation between 2035 and 2050 (EIA), and it will remain integral to providing intermittent power services, as renewables become a more prominent part of the energy mix. Ultimately, concerns around energy policy remain as a general lack of a sense of urgency about the intensifying global warming issues are clear, especially highlighted by the government's inability to raise its nationally determined contribution (NDC) target set out by the 2015 Paris climate accord.

Power Trading

In the aftermath of the Fukushima nuclear disaster, Japan had to become an import-dependent country as it reduced its share of nuclear in the energy mix. As a result, the wholesale power market has become bigger and more complex. Indeed, in four years alone, the country's energy trading grew 14-fold to 285TWh in 2019, or 34% of annual power demand. Transactional volumes are growing steadily, and foreign corporations are now hiring staff and building relationships with Japanese firms to profit in the $136bn market, according to Bloomberg. It seems that, while Europe and the US both have mature energy markets, Japan is only starting to take shape the way European trading did two decades ago.

Japan’s Emissions by Sector

Electricity, industry, and transport constitute the majority of Japan’s emissions.

Indeed, Japan's energy future is uncertain: growing supply of intermittent energy, uncertainty surrounding nuclear power, two separate grids as well as a heavy reliance on imports of natural gas and coal, all stand in the way of uniform energy development. At the same time, the country’s nascent power market brings the potential for price volatility and arbitrage trades, and many companies have shown significant interest to establish both physical and financial trading in the economy.

Traded volume on the day-ahead physical power contract has been expanding since 2016 and power of 1TWh was reached in August 2020, or 40% of the total demand (Bloomberg), nearly double the amount seen in Germany, Europe's biggest physical market. So far, the progress of the derivatives market has been slow, due to the lack of local interest in derivatives. Then nation's 600 registered electricity retailers have shown limited interest to be a part of the futures market, providing near to no liquidity, as they pass most costs off to consumers. Indeed, according to Bloomberg, in July, 35.7GWh of Japanese power derivatives were cleared on the Tokyo Commodity Exchange (TOCOM) and EEX Japan Power, a small fraction of the 213TWh seen in Germany; as of now, long-term one-off contracts dictate trading.

As renewable energy continues to grow, demand for the futures market is expected increase, especially, as the initially volatile prices could gauge the interest of arbitrage traders. Indeed, rising solar and wind generation is already starting to affect midday wholesale power prices, and we would expect to see lower prices in the future. In the long-term, lower prices will hurt inflexible generators, such as nuclear, who might be relying on the planned capacity market to survive. However, without more regulatory reforms that include the removal of regulated retail power rates and disclosure of bilateral power contracts, the futures market is unlikely to grow. Nevertheless, Japan's government remains hopeful of the future ahead. It forecasts that the nation's power exchange is set to triple from April 2020 as the nation's giant utilities aim to put around 10% of their sales up for competitive bidding.

Hydrogen

Japan was once an automaking capital of the world, where one of the first EV models, such as Mitsubishi i MiEV and Nissan Leaf, were introduced to encourage the consumers to shift to 'greener' options. Since then, industrial giants have been left behind as technological change in the US, China and Europe took their respective auto sectors by storm. Japan's focus has instead shifted to developing cars that extract energy from onboard hydrogen fuel cells. Thanks to the vast and costly infrastructure in place for delivering hydrogen, the country has increasingly become an isolated hydrogen booster. The nation has committed to hydrogen with ambitious programmes, involving both governmental and industrial involvement on multiple multi-sectoral projects. As a result, according to a 2019 study by market research Fuji Keizai, the nationwide hydrogen market is expected to grow 56-fold to JPY408.5bn by 2030.

To meet its energy challenges and climate commitments, the government, in collaboration with Japanese manufacturers, is favouring the hydrogen solution. Indeed, for Japan's mountainous landscape and densely populated country, renewable energies are not always suitable. Since 2014, the government has been publishing hydrogen-related strategic roadmaps, taking into account the entire supply of hydrogen and its applications in the field of energy and transportation. When applied to transport, hydrogen is an energy carrier that generates electricity by reacting in a fuel cell with oxygen from the air. The reaction produces heat and water, and hydrogen cars (or FCVs) produce no emissions. These vehicles have the advantage of longer driving range (500km vs 300km for a standard EV) and can be recharged in a few minutes.

Indeed, the government has set ambitious targets for its transformative 'hydrogen society', with 200,000 of fuel cell vehicles (FCVs) on the road by 2025 and 800,000 by 2030. Additional 10m hydrogen-powered systems and 10,000 hydrogen refuelling stations (HRSs) are expected by 2029. Unfortunately, a similar target that was set at 40,000 FCVs is not likely to be achieved by 2020, as Deloitte forecast the number to stand at 3,219 FCVs, 170% less than set out by the government initiatives.

National and Sub-national FCEV targets

Japan’s targets remain in line with the US and China by 2050.

So how green is hydrogen comparing to other energy sources? It all depends on how it is produced. Globally, hydrogen production today is dominated by the use of fossil fuels, accounting for 96% of the hydrogen produced globally, with 48% of hydrogen coming from natural gas, 30% from hydrocarbons/crude oil products, 18% from coal, and only 4% from the electrolysis of water, according to the International Journal of Hydrogen Energy. According to IEA, around 70Mt of pure hydrogen is produced worldwide annually; however, most of it is used for oil refining and industrial production. Less than 0.014% of it is used in FCVs. Ultimately, there is a massive source of hydrogen opportunities for ‘clean’ vehicle and storage use that has not yet been tapped into.

The main reason for the use of fossil fuels to generate hydrogen is the high cost of water electrolysis. Japan, in particular, relies on both import and domestic production of hydrogen production. For domestic needs, the government favours production from industrial by-products and natural gas reforming along with the gasification of Australian brown coal rather than the hydrolysis of the water from renewable energy. In the longer term, Japan aims to develop international hydrogen supply chains with other countries, to produce hydrogen from a combination of low-cost unused energy from overseas and carbon capture and storage (CCS), as well as cheap renewable energy sources.

As expected from the country with such wide FCV deployment, Japan has an extremely advanced hydrogen infrastructure and government incentives along with industry participation driving hydrogen refuelling station density. Between 2016 and 2018, the METI has provided $88m budget on R&D and $539m on construction subsidies of hydrogen fuelling stations. In 2017, the government released the "basic strategy of hydrogen energy" which aims to commercialise hydrogen fuel cell power generation by 2030. Additionally, in 2018, a consortium of 11 companies, including Toyota and Nissan, established Japan H2 Mobility, promised to build 80 hydrogen refuelling station by 2021. Currently, according to IEA, the nation has 113 hydrogen fuelling stations, which is the most of any nation in the world.

Despite advanced systems implemented to support the uptake of hydrogen, especially for FCVs, Japan is still faced with current hydrogen problems, such as limited mass-market applications, infrastructure connectivity and current high prices of hydrogen. To combat these obstacle, government officials have been providing generous subsidies to minimise the impact on consumers. As of now, subsidies include $20,000 discount per passenger vehicle. Nevertheless, consumer demand for FCVs is low, and Japan's passenger FCV sales remain below the ones in South Korea and the US.

EV Market

The Japanese electric vehicle market has evolved in a unique way in that it has been driven primarily by users and has expanded with hybrid electric vehicles, occupying a third of passenger vehicle sales. The reasons behind this user-led growth are attributable to no penalties being imposed upon fuel economy vehicles, and the absence of stringent rule requirements for a shift towards a battery electric vehicle (BEV) slowed Japan’s development away from ICEs.

In general, a lack of new models and rising consumption tax continue to hold back EV sales, despite the country's relatively generous subsidies. Indeed, 2020 was set to see Japan's EV and fuel cell vehicle sales bounce back from a 2019 decline of 21.3%, thanks to planned new model launches. Additional ties to the Tokyo 2020 Summer Olympics were supposed to add to the marketing campaigns for new launches. With hopes of things going back to normal after the outbreak of the pandemic by 2021, we expect to see a recovery in sales, as domestic companies restart their long-term launch plans, in line with the Summer Olympic games.

Fuel Cell and Hydrogen Refuelling Stations Breakdown by Countries

While the US owns more FCEVs, Japan has the highest number of hydrogen-refuelling stations in the world.

By 2035, IEA expects the EVs and FCEVs to account for over 37.0% and 26% of annual passenger car sales respectively, with the rest attributed to internal combustion vehicles. Nevertheless, this share is lower than that of Europe and Korea. This is partly a reflection of Japanese reluctance towards environmentally-friendly vehicles as well as the popularity of small affordable ICE 'kei' cars. Developing EVs with adequate range and competitive prices will remain challenging despite falling battery prices. The kei car segment, in particular, will likely see more reliance on mild-hybrid technologies.

Indeed, we attribute the success of eco-friendly hybrid cars, like Toyota's Prius, to a number of factors that are economic in nature: better mileage and government incentives. Nissan Leaf is the most popular all-electric model in the country, followed by Mitsubishi Outlander P-HEV and Toyota Prius PHV. With 3.5m vehicle sold, Nissan Leaf remains by far the most popular low-emissions car on the planet. In 2019, cumulative PHEV sales in Japan (from 2013) totalled 130,000 ranking the third biggest market for PHEVs in the world, after China and the US. Ultimately, Japan has one of the largest plug-in car population in the world, and extremely attractive government incentives make plug-in vehicles so appealing to domestic buyers. In the mid-1990s, the government introduced an EV incentives programme, where up to 50% of the overall cost of a vehicle was provided for zero-emission car buyers. On top of that, the government also waved different one-time taxes (discount of ¥1,000 per km driven on a full charge), including the tonnage tax.

Japan's urge to secure the energy supplies in the country has led it to new ways of harnessing power, with battery for EV use and energy storage paving the way. In the last couple of decades, it has been pursuing aggressive plans for long-term battery dominance and built strong supply chains by fostering relationships between domestic battery-makers and electronic manufacturers. Indeed, Japan-based Panasonic supplies 80% of the world's nickel-hydride batteries used in vehicles, and new developments are underway.

Emission Calculations

A number of studies have been published that compare the environmental benefits of using EVs instead of conventional energy sources in Japan. For example, the research done by Dong et al. suggests that comparing to other countries, Japan remains in line with the world's average, below China but above Europe, and this is completely determined by the CO2 emission of electricity used for charging. Indeed, according to the IEA Outlook, the nation's CO2 emissions per kWh of electricity generated are on the decline for the 2020-2040 period, with the most noticeable drop between 2020-2025 due to increased engine efficiency in that period. The results show that, from the year 2018 to 2040, conventional vehicles (CV) have higher CO2 emissions than EVs driven in Japan. However, the decline in the emissions during the period seems to be more prominent for the CVs as increased engine efficiency outpaces the renewable's contribution to the grid, whereas EV emissions decline only marginally.

CO2 emission of CV and EV under New European Driving Cycle for different countries from the year 2018 to 2040

Japan's EV emissions remain in line with the world average, whilst declining between 2018 and 2040.

To better understand the potential role of hydrogen energy in decreasing GHG emissions in Japan, we take a look at some of the relevant studies. In the research paper conducted by Ozawa et al., a well-to-tank (WTT) life cycle inventory analysis was carried out for renewable hydrogen supply chains originating in Australia and Norway. Wind- or solar PV-powered electrolysis was used to generate hydrogen that was transported to Japan using a hydrogen carrier (liquid hydrogen (LH2) or methylcyclohexane (MCH)), before being distributed to domestic hydrogen filling stations where the hydrogen was restored and pressurised for FCV applications. The calculations showed that the initial hydrogen production, its liquefaction to produce LH2, the dehydrogenation of MCH, and the compression of hydrogen at the filling stations were particularly GHG-intensive. Nevertheless, renewable hydrogen produced in Australia or Norway and transported to Japan as LH2 exhibited significantly lower WTT GHG emission than those calculated for hydrogen produced by natural gas reforming.

Mean WtT GHG emissions from the renewable hydrogen supply chains that use LH2 and MCH as the hydrogen carrier

Australian solar polar that is being imported into Japan contributes the most to GHG emissions.

In theory, when driven, both BEV and FCV emit near to no emissions. However, according to the IICEC Energy and Climate Research Paper, FCVs that rely on hydrogen generated from electrolysis will not necessarily provide any emission reduction, and might actually contribute to a higher level of emissions, depending on how 'clean' the grid that produced the hydrogen is. While electric vehicle full fuel cycle emissions also reflect the emissions produced by the grid, an average BEV produced 37% of the emissions of an FCV given both are charged from the same grid that is used to produce hydrogen. This high sensitivity of hydrogen vehicles to the emissions of the electric grid implies that advances made towards grid decarbonisation could have a large impact on the potential GHG benefits of the FCV.

Their results show that if both BEVs and FCVs derive their hydrogen from an electric grid that has essentially low fuel-cycle GHG emissions (for example, Norway), then both BEVs and FCVs have near-zero full fuel-cycle GHG emissions. As the GHG emission of the grid increase, both BEV and FCV emissions increase, but that of the hydrogen fuel cell increase much faster given that the vehicle is refuelled from retail outlets producing hydrogen with electrolysis. For example, assuming the average Japan power sector emissions, the BEV produces around 215gCO2e/mile compared to 650gCO2e/mile for the FCV, which ultimately produces more emissions than the conventional ICE vehicle.

HFCV & BEV Full Fuel Cycle GHG Emissions vs the GHG Emissions of the Electric Grid (Assuming Distributed Generation of Hydrogen from Electricity for HFCVs)

The source of hydrogen generation remains integral to the CO2 emission calculation of the HFCV.

Similar to the results produced by Ozawa et al., hydrogen that was produced through the reformation of natural gas produces significantly lower emissions than the conventional ICE vehicle, even without carbon capture and storage technologies. This is only true for the GHG emissions of the electric grid that generates below 200g/kWh before hydrogen generation by electrolysis would provide emission reduction than by reforming natural gas. Countries with average electric grid emissions this low, typically have high percentages of renewable or nuclear power such as Canada and Europe; Japan does not fall into that category. One way the country could achieve low full fuel cycle emissions is by hydrogen merchant plants using electricity directly from low emission sources such as renewable or nuclear energy, completely bypassing the electric grid. This technology, however, is not yet commercialised nationwide.

According to Deloitte, however, the impact on the overall energy efficiency of FCVs is heavily dependent on hydrogen production and transportation. Compressing hydrogen into a liquid for transportation causes 40-46% efficiency loss, mainly due to the energy required to compress the hydrogen. Energy transmission for BEVs, however, is low, at 7-10%. Ultimately, renewable hydrogen is produced using renewable energy or electricity sources and can usually be expected to decrease the greenhouse gas emissions associated with its use.

Conclusion

Despite being one of the strongest auto markets in the world, Japan's electric and hydrogen fuel cell vehicles now remain behind those in China, the US and South Korea. The need for stability has incentivised the country to stick to "what is already known", clearly emphasised for their choice of Kei model cars. Indeed, consumer demand will remain the biggest hurdle to the EV revolution, and both governmental and industrial incentives will be necessary to make a significant change in general public perception.

Japan's energy policy has been dominated by the government's efforts to overcome the disastrous consequences of the 2011 earthquake and the subsequent nuclear accident. The country's energy landscape has changed overnight, as it had to cut down nuclear generation almost immediately, while urged to find other low-emission energy solutions to fill the gap. Years later, this gap was mostly closed by expensive fossil fuel sources, and, as the nation lacked domestic energy sources, Japan reserved to importing most of its new energy demand.

Recent years have been challenging; however, the energy policy is starting to move in the right direction, as hydrogen and renewable energy comes into play. Nuclear will also be on the rise; however, due to stringent security regulation, will remain as an intermittent energy source. On the upside, as a result of significant lag behind other economies, Japan has a huge potential for both solar and wind-generated electricity. The key will be the ability to use the country's hilly and dense landscape to its advantage in terms of new renewable plant installations.

Ultimately, the country is making steady progress towards achieving the target emission reduction in 2030; however, its carbon-free supply goal is not yet feasible for 2050. While the changes in the energy mix are visible, ambitious government targets are not likely to be met in the long-term. Indeed, despite a wave of cancelled coal plants, Japan is forecast to remain dependent on coal-fired power for the next three decades. The role of gas diminishes, and nuclear power finds support from government support and new installations. Wind and PV's share of generation increases to 65% by 2050 and 30% of the country's capacity is behind the meter by 2050, making it one of the most decentralised systems globally.

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