But hydrogen in its natural gaseous state is difficult to store and distribute. There is also little consensus on what type of hydrogen source would work best.

"The aim of the projects is to see what problems arise when using fuel cells and developing an infrastructure, to ascertain whether in total - including such things as maintenance - they are actually good for the environment," a government official said.

In one project, automakers including Toyota Motor Corp, Honda Motor Co and Nissan Motor Co, as well as General Motors Corp and DaimlerChrysler AG, will participate in road tests.

Each automaker will provide one fuel cell vehicle for the tests. Five hydrogen supply stations in different parts of Japan will be set up to test different ways of refilling the hydrogen and examine safety issues.

Most automakers have said they plan to have limited numbers of fuel cell vehicles on the market in 2003 and 2004, although Toyota has said it will have some available for government institutions by the end of this year.

But the prohibitive costs involved in developing the vehicles mean that ordinary consumers are unlikely to be able to afford fuel cell vehicles for another 10 to 20 years.

The Japanese government is keen to encourage the development of fuel cell vehicles, having set a goal of 50,000 fuel cell cars on the road in Japan by 2010. Some Japanese auto executives have said the number is unrealistic.

In another project, energy and fuel cell development firms such as Nippon Oil Corp and Sanyo Electric Co Ltd will work on assessing fuel cells designed to power homes and businesses.