Safety worries cloud Japan dream of carbon-free hydrogen society

By Osamu Tsukimori and Yoko Kubota TOKYO (Reuters) - On an empty lot in Japan's fourth-largest city, a Shinto priest performs rites in front of a makeshift altar loaded with offerings of fruit and vegetables to pray for the safety and success of Japan's newest hydrogen filling station. The small ceremony in central Nagoya earlier this month, attended by executives from operator Toyota Tsusho and construction firm Obayashi Corp, was another step in the world's most ambitious plans to use hydrogen to run cars and, eventually, produce electricity. Hydrogen, which produces only heat and water when burned, is often seen as an environmentally friendly source of energy, but it also carries safety concerns - particularly in Japan, where images of the hydrogen explosions that rocked the Fukushima nuclear plant remain seared in the collective memory. Plans for a so-called hydrogen society will not only have to prove the commercially untested technology can be viable - they must also win over a public that, three-and-half years on from the Fukushima disaster, remains deeply sceptical of government and industry's promises in the energy field. "People are concerned about safety after the incident at nuclear plant," said Miki Kubo, a council member in Saitama, who is supporting about 1,000 local residents trying to prevent construction of a hydrogen station in the centre of the city that abuts Tokyo. "Why do they have to build it here in the middle of a residential area?" Planning permission for the station has not been given and Tokyo Gas Co has had to revise its plans three times to accommodate public concerns. The company, which planned to start building the station that incorporates a hydrogen production unit as well as a filling stand about a year ago, has had to increase the distance from nearby houses and built a wall to protect residents. Tokyo Gas said it is aiming to start operations by the end of March, should it get planning approval. POWERFUL FORCES Despite the obstacles, there are powerful forces supporting the hydrogen push - a key element of Prime Minister Shinzo Abe's reform agenda - such as the desire to reduce expensive fuel imports and an inevitable cutback on nuclear power, rejected by a majority of the public after Fukushima. And the concerns have not stopped companies such as Toyota Tsusho and JX Holdings investing in the infrastructure needed to supply hydrogen for fuel cell vehicles (FCVs). Toyota Motor Corp is expected to start selling FCVs to the public around January priced at about 7 million yen ($65,800). Key to their success will be whether enough potential buyers have easy assess to a refuelling station. Under certain conditions hydrogen is explosive when in contact with oxygen, although as a light gas it dissipates easily. Industry groups are lobbying for an easing of government rules on siting and storage for hydrogen stations, which are stricter than for gasoline stands. "Many people are worried about hydrogen and whether it's going to explode, to put it in extreme terms," said Koji Nakagawa, general manager for Toyota Tsusho. "But it is not only hydrogen that can explode or burn – when you take into consideration other widely used resources like LP gas, hydrogen is not particularly dangerous." Emiko Nakanishi, 52, who lives near the new Nagoya hydrogen station, thinks the environmental benefits outweigh safety concerns, but is still worried about convenience. "I'm curious about how much fuel cell cars are going to cost and I want them to become popular," she said. "But my impression is that they will be less convenient than conventional gasoline cars." AMBITIOUS TARGETS, GENEROUS SUBSIDIES The government is promising $20,000 cash back on the cost of every FCVs and other subsides of up to $2.6 million per filling stations - about half the total cost - to achieve a target to build 100 by March 2016 and as many as 1,000 by 2025. Most analysts are sceptical that those targets will be met, but investments are also being made in hydrogen production facilities to supply FCVs, which run on electricity made by cells that combine hydrogen and oxygen, and other uses. The hydrogen revolution goes well beyond cars. By 2020 the government aims to have 1.4 million households installed with fuel cells and hydrogen powered turbines available for factories. Its hydrogen society is due to fully kick in by 2030, with utility scale power generation from the fuel planned and 10 percent of houses, or 5.3 million, relying on fuel cells, from 76,000 now. By then the cost of hydrogen and its availability is expected to make it commercially viable to replace fossil fuels. "The hydrogen initiative in Japan has long and strong legs," said Andrew De Wit, professor of public finance at Rikkyo University. There is "plenty of Japanese government money pushing it along, together with the demonstrated commitment of Toyota". Exactly how "green" hydrogen energy is varies depending on how the gas is produced. Most currently comes from heating fossil fuels in a process called reforming. But sources are diverse and potentially cheaper than fossil supplies. Japan will initially rely on imports of the fuel, but in the longer term plans to exploit Japan's booming solar industry, along with wind and hydro electric production, as a homegrown source, according to industry and government. The government has also set a target of carbon-free hydrogen production by 2040. JX, Japan's largest oil refiner, and other refining companies, its biggest industrial gas supplier, Iwatani Corp, and companies including Chiyoda Corp and Kawasaki Heavy are set to benefit should the dream of a hydrogen society come true. For now, that remains a long way off. "There is no way we are turning out a profit in, say, five or 10 years," president of JX Nippon Oil & Energy Corp, Tsutomu Sugimori, said, asked if it can make money from FCV stations. "We aim to contribute to realising the hydrogen society and we want the first-mover's advantage." ($1 = 106.3400 Japanese yen) (Addtional reporting and writing by Aaron Sheldrick; Editing by Alex Richardson)