This article first appeared in Wealth, The Edge Malaysia Weekly on September 23, 2024 - September 29, 2024

In the era of global climate action, the imperative to shift towards sustainable development has never been more pressing. At the heart of this transformation is the need for significant investment in green technologies and innovations friendly to the environment for a sustainable future. While the quest for green technology development is a global endeavour, Asia is pioneering the adoption of these technologies that power new growth areas.

Chinese electric vehicles (EV) are popular in both Asia and Europe. They are competitively priced against EV pioneer Tesla. Malaysia too has seen a fair share of new EV launches in 2024. The consumer trend of moving to EVs is well underway in our capital city of Kuala Lumpur.

In East Malaysia, the National Energy Transition Roadmap (NETR) has driven Sarawak to the forefront of energy transition. This column highlighted the development in January 2024. The export potential for hydrogen is high, with developed nations such as Singapore, South Korea and Japan being the rich nations looking for cheap and clean energy sources to meet their carbon emissions goals.

Peeling back the ESG layers this month, we take a closer look at Japan’s combined private and public efforts to promote clean hydrogen and green steel to support the country’s net zero goal.

The Japanese government revised its hydrogen strategy in June 2023, recognising the critical role that hydrogen will play in the country’s future industrial competitiveness, energy security and carbon neutrality by 2050. The government has identified five categories as core strategic priorities in the plan: hydrogen supply, decarbonised power generation, fuel cells, direct use of hydrogen and utilisation of hydrogen compounds (including fuel ammonia and carbon-recycle products).

Hydrogen plays a central role in supporting Japan’s net zero target by 2050.

By complementing other decarbonisation technologies like renewable energy, biofuels and energy-efficiency improvements, “clean” hydrogen (that is both renewable and low carbon) offers a long-term, scalable and cost-effective option for deep decarbonisation in “hard to abate” sectors such as steel, maritime, aviation and ammonia. They are called “hard to abate” because of their high energy usage and the lack of low-cost alternatives.

An example of technologies using hydrogen to further net-zero objectives are fuel cells. Fuel cells use the chemical energy of hydrogen to cleanly and efficiently produce electricity; the only products are electricity, water and heat. This technology is also unique due to its wide applications, from powering a utility power station to a laptop computer.

Japan aims to create demand for hydrogen and increase consumption volume from the current two million tonnes to 12 million tonnes per annum by 2040. For fuel cell technology, it has set a target of having 1,000 refuelling stations by 2030, up from the current 180. This expansion in refuelling infrastructure will support the growing number of vehicles that rely on hydrogen as a fuel source, further driving the adoption of fuel cell technology.

On the supply side, the Japanese government is exploring the development of international partnerships to ensure stable supply. It intends to build supply chains in Asia and the Indo-Pacific region by commercialising hydrogen-related technologies. By growing both demand and supply, the government seeks to cut the cost of hydrogen by 80% to ¥20/Nm3 (RM0.50 per normal cubic metre) by 2050.

In enabling the financing of this hydrogen strategy, Japan is following the trend of policy intervention in other major economies, such as the EU’s Green Deal and the US’ Inflation Reduction Act. The Japanese government will extend support to promote investment of ¥15 trillion (RM380 billion) in hydrogen supply chains and infrastructure through collaboration between the public and private sectors over the next 15 years.

Steel is a major industry in Japan that employs 220,000 workers, contributes to 8.5% of GDP and emits about 14% of the country’s greenhouse gas (GHG) as the industry relies on coal-fired blast furnaces. A sea change towards a low-carbon steel industry is underway with innovations like green steel, which entails the potential replacement of fossil fuels with hydrogen in the steel manufacturing process, which would lead to a 54% fall in emissions by 2050.

The roadmap for the steel industry includes many different low-carbon technologies along the steel production chain — direct reduction iron by hydrogen (the chemical removal of oxygen from iron ore in its solid form) and CCS (carbon capture and storage) for blast furnaces; capacity upscaling with enhanced impurity removal in electric arc furnaces (furnaces that heat material by means of an electric arc); electrified heating in the strand casting and rolling processes; and thermal conductivity improvement. The roadmap also presents a dependence on renewable energy, green hydrogen and CCUS (carbon capture, utilisation and storage) to achieve complete decarbonisation.

Japan is making huge strides in transforming the manufacturing processes of steel by mobilising hydrogen as a clean energy source. The production of environmentally friendly and sustainable “green steel” is also underway. Kobe Steel launched Japan’s first low carbon dioxide blast furnace steel — the Kobenable Steel — which uses hot briquetted iron as a feedstock to blast furnaces, which significantly reduces carbon dioxide emissions. Since its launch, Kobenable Steel has been used by a diverse range of manufacturers in the automotive, shipbuilding and construction sectors.

As seen in the Japan example, from green hydrogen energy to green steel manufacturing, the transformation of the whole supply chain is a holistic strategy that is not only sustainable but may help these hard-to-abate industries undertake energy transition and cut emissions.

For investors to participate and support these strategies, look out for funds that are categorised as an “Article 8” fund under the EU’s Sustainable Finance Disclosures Regulation (SFDR).

Funds under Article 8 are ESG-enhanced and have extensive exclusion lists. Some funds also have a commitment to maintain an exposure to sustainable investments above 20% of net asset value (NAV). Sustainable investments such as the Japanese examples above will be well funded, and investors stand to reap returns over the long term. Japan and Asia are on to good things.

Michael Lai is executive director of wealth advisory (wealth management) at OCBC Bank (M) Bhd

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