Navigating the Hydrogen Economy: Opportunities and Roadblocks
Karolina Lewandowska
Co-Founder @ StarBeam Capital | Oxford Private Markets Investments
Hydrogen: A Clean Energy Frontier
Hydrogen, often hailed as a beacon for the future of clean energy, stands at a crossroads of high expectations and practical challenges. As the world seeks sustainable alternatives to fossil fuels, hydrogen emerges as a compelling solution, particularly for high-energy applications and industries where direct electrification is challenging. Despite its potential, hydrogen's journey in 2023 fell short of expectations, leading to a re-evaluation of its future role. Proponents argue that by 2050, hydrogen could be pivotal in achieving net-zero emissions, while sceptics question its impact and scalability. This highlights a pressing need for a more thorough investigation into hydrogen’s future role.
Why Hydrogen?
Hydrogen stands out for its high energy content per unit of weight, making it an attractive alternative to fossil fuels. Unlike traditional energy sources, hydrogen combustion releases only water vapour, thus eliminating pollutants and greenhouse gases at the point of use. This characteristic as well as hydrogen's capacity to store and transport energy across a wide range of applications positions hydrogen as a cornerstone for sectors striving to diminish their carbon footprint. Some of the applications include:
·?????? Power and heat generation: Generation of electricity and heat in power plants and fuel cells.
·?????? Hydrogen for space heating: Natural gas accounts for almost 85% of the fuel used for heating and cooking in UK homes, and around 40% in US homes. The heating sector could represent a major market for hydrogen.
·?????? Transportation: As fuel for transportation, from cars to buses, trucks, trains, ships and aeroplanes. Especially, hydrogen fuel cells offer an exciting solution for heavy transportation where battery-electric solutions may be impractical due to weight and range limitations.
·?????? Chemical production: The chemical industry, particularly in ammonia production, represents a significant market for hydrogen. The transition to green ammonia, produced via electrolysis-driven hydrogen from renewable energy, could spearhead the growth in this sector.
·?????? Steel Manufacturing: Hydrogen holds the promise to revolutionise steel production by replacing coal in the reduction of iron ore, thus significantly reducing carbon emissions.?
This versatility opens up a range of opportunities for hydrogen to integrate into and complement existing energy systems, bridging gaps between renewable energy production and diverse energy needs across sectors.
The Scepticism
Scepticism about hydrogen’s role in the future energy landscape stems from several factors. First, the production of truly green hydrogen requires a massive and reliable supply of renewable energy, which is not yet available at the necessary scale. There are concerns about the efficiency and cost-effectiveness of hydrogen production, storage, and transportation. Critics also highlight the slow development of global markets for hydrogen, emphasising the lack of infrastructure and the need for international standards and regulations to facilitate trade and ensure safety. Moreover, for hydrogen to make a substantial environmental impact as an alternative to natural gas, emissions throughout its entire lifecycle—from production and distribution to end-use—must be minimised effectively.
These criticisms underscore the broader debate on the economic and environmental viability of hydrogen as an alternative to direct electrification, which studies suggest may be more efficient and cost-effective. Concerns by sector:
·?????? Power and Heat Generation: The hydrogen infrastructure is not there yet; production and O&Ms have not achieved economies of scale. As a result, current estimates show blue hydrogen is twice the price of natural gas, and green hydrogen is five times this price after long-distance shipping. Consequently, the price of hydrogen remains prohibitively high, undermining broader adoption and integration into existing energy systems.
·?????? Hydrogen for space heating: The use of 100% hydrogen for space heating in the UK is projected to be significantly more expensive than fossil gas, with costs potentially reaching nearly four times higher if using green hydrogen produced with dedicated offshore wind farms. The introduction of hydrogen into the gas network, even in a 20% blend, could lead to substantial increases in consumer heating bills—up to 43%—with minimal carbon emissions savings.
·?????? Heavy Transportation: The market development in this sector depends on creating an extensive refuelling infrastructure and achieving cost parity with diesel. And in shipping and aviation, cleaner hydrogen-based fuels can be up to ten times more expensive compared to regular fossil-based fuels.
·?????? Chemical Production: According to various calculations, switching from gas or oil to green hydrogen could increase the cost of production of materials such as plastic by as much as 50% in Europe.
·?????? Steel Manufacturing: The transition to hydrogen-based steelmaking processes, requires substantial market demand to justify the investment in new technologies and production facilities. Steel from green hydrogen could be twice as expensive compared to coal-based steel.
The Challenges
The concept of a hydrogen economy is not new. It has been part of scientific and environmental discourse for decades, envisioned as a system where hydrogen serves as a key energy carrier. Historically, the major barriers to this vision were technological limitations and economic viability. Similarly, the anticipated rapid growth and adoption of hydrogen in 2023 were tempered by technical, economic, and infrastructural challenges.
The dissonance between modelled scenarios for hydrogen and practical implementation could stem from the fact that most analyses treat hydrogen as a straightforward energy carrier similar to natural gas. This approach overlooks the substantial high-grade electricity required throughout its lifecycle. From production to utilisation, the process often consumes more energy than the hydrogen itself delivers, sometimes requiring double the energy output. This makes the infrastructure for hydrogen notably more energy-intensive than that for natural gas, leading to higher costs of production and higher carbon dioxide (CO2) emissions. Drawing lessons from the unintended environmental consequences of the Industrial Revolution, it's clear that the long-term impacts of a hydrogen-driven economy require thorough evaluation. Moving forward, a sophisticated approach is needed that considers the entire lifecycle of energy carriers, from generation to end-use. Such an approach would highlight the existing challenges within the hydrogen economy and help in crafting more realistic and sustainable energy strategies.
These challenges span several critical areas:
·?????? Emissions Management: For hydrogen to be a viable cleaner alternative, its lifecycle emissions must be considerably lower than those from existing fossil fuel processes. An advanced strategy would involve focusing on both a closed hydrogen (water) cycle and a closed carbon (CO2) cycle, paving the way for a synthetic hydrocarbon-based economy that moves beyond fossil fuels.
·?????? Water Scarcity: In arid regions like the Middle East, the substantial water requirements for hydrogen production through electrolysis present a formidable challenge. Ensuring water accessibility and sustainability is crucial, given the intense resource demands of green hydrogen production.
·?????? Electricity for Production: The production of hydrogen, particularly green hydrogen, hinges on the availability of clean and affordable electricity for electrolysers. With renewable energy sources not scaling up at the necessary pace to decarbonise electricity fully, this remains a critical bottleneck.
·?????? Infrastructure Development: Hydrogen infrastructure development is still in its infancy, primarily serving industrial applications without extending to broader public or commercial use. Establishing a robust hydrogen network requires significant investment in production facilities, storage units, pipelines, refuelling stations, and transportation systems tailored for hydrogen. For instance, the European Hydrogen Backbone initiative launched in 2020 aims to create a pan-European network, with the Dutch government committing €750 million in 2022 to build a 1,400 km national hydrogen transmission network, planning to expand to around 15,000 km by 2030. Despite these initiatives, the industry's investment focus remains predominantly on the supply side, particularly electrolysers. In 2022, clean hydrogen investments reached $1.11 billion, with 99% allocated to electrolysers, contrasting sharply with the meagre $13 million invested in hydrogen infrastructure like pipelines and storage, indicating a significant imbalance that needs addressing to foster sector growth.
·?????? Demand Uncertainties: Beyond its traditional roles in refining and chemicals, hydrogen’s potential in sectors like transportation, energy storage, power generation, and steel manufacturing remains largely untapped. This is compounded by limited market demand and public scepticism about the feasibility of hydrogen technologies.
·?????? Cost Competitiveness: Consequently, the price of hydrogen remains prohibitively high, undermining broader adoption and integration into existing energy systems.?
Hydrogen Technology: Production - Energy and Emission Concerns
Depending on production methods, hydrogen can be grey, blue or green – and sometimes even pink, yellow or turquoise – although naming conventions can vary across countries and over time. The colours reflect a range of resources including fossil fuels, nuclear energy, biomass and renewable energy sources that can be used in hydrogen production. Grey hydrogen, the most established and economically dominant form, is primarily produced through steam methane reforming (SMR), where natural gas (methane) is reacted with steam under high temperatures to yield hydrogen and CO2. This method, while effective and mature, is environmentally contentious due to the significant CO2 emissions it generates. These emissions, unless captured and stored or utilized, contribute to the increasing concentration of greenhouse gases in the atmosphere, undermining efforts to combat climate change. Blue hydrogen seeks to mitigate the environmental drawback of grey hydrogen by employing carbon capture and storage (CCS) technologies. In this process, CO2 emissions from hydrogen production are captured at the source and stored underground or used in various industrial processes, thus preventing them from entering the atmosphere. While blue hydrogen offers a reduction in carbon emissions, it does not represent a perfect solution. Questions remain regarding the efficiency and economic viability of CCS, the potential for methane leaks during natural gas extraction and processing, and the overall carbon footprint when considering the entire life cycle of hydrogen production. Grey and blue hydrogen is created in a process that theoretically doesn't require external energy. However, in practice, about 90% efficiency is achieved due to thermal losses, leading to significant CO2 emissions. Consequently, more CO2 is released by this "detour" process than by direct use of the hydrocarbon precursors. Even with blue hydrogen attempts to reduce these emissions through CCS, the process is not completely emission-free, with an emission intensity of about 30% of natural gas. The efficiency is even worse if applied to the heating sector, in this case, hydrogen releases more CO2 than using natural gas directly, with hydrogen production requiring up to 45% more fossil gas and increasing the greenhouse gas footprint by over 20%.
Green hydrogen is the only type produced in a climate-neutral manner, meaning it could play a vital role in global efforts to reduce emissions to net zero by 2050. Green hydrogen symbolises the pinnacle of hydrogen's environmental promise, as this method emits no CO2 in the production process. However, the process is highly energy-intensive, requiring significant amounts of electricity, which can be a constraint if not sourced from truly renewable and sustainable means.
Making hydrogen from water by electrolysis is one of the worst energy-intensive ways to produce fuel. Producing hydrogen, especially green hydrogen, demands more energy than can be contained within the hydrogen itself, a phenomenon known as the energy return on investment (EROI). The efficiency of electrolysis—converting water into hydrogen and oxygen—varies, with typical systems converting around 75% of the electrical energy into chemical energy in the form of hydrogen. This energy loss, while a thermodynamic necessity, raises the cost and decreases the overall efficiency of hydrogen as an energy carrier.
?Furthermore, it has to be highlighted that green hydrogen does not by definition lead to lower CO2?emissions compared to using fossil fuels like gas. The CO2?intensity of the power grid determines whether green hydrogen is good or bad for the climate. For green hydrogen, the ideal scenario is a closed-loop system where renewable energy is abundantly available and efficiently used, ensuring that the hydrogen produced is truly carbon-neutral. However, this is currently more an aspiration than reality. Therefore, the transition to a hydrogen-based energy system hinges on the decarbonisation of the electricity grid. If electrolysis for green hydrogen draws power from a grid still reliant on fossil fuels, the resulting hydrogen cannot be considered fully green or carbon neutral. This paradox underscores the need for a holistic approach to the energy transition, where the expansion of renewable energy capacity goes hand in hand with developing the hydrogen economy. However, the green energy production for hydrogen is currently limited, with expected renewable energy capacity dedicated to hydrogen production at only 7% of the total pledged capacity for the period leading to 2030, according to the International Energy Agency (IEA). This capacity is projected to increase by 45 GW between 2022 and 2028, 35% lower than earlier forecasts. 75% of this capacity is concentrated in China, Saudi Arabia, and the United States, which are also among the top ten natural gas producers globally. China is particularly significant in this sector, driving the majority of global growth in renewables for hydrogen production and accounting for over two-thirds of the net additions between 2023 and 2024. This growth in China is expected to slow by 2028 as other markets ramp up production.
Hydrogen Infrastructure
Hydrogen's environmental footprint extends beyond its production process, with storage and distribution contributing to the emissions and the total energy balance. Therefore, the journey towards sustainable hydrogen use is not just about choosing between grey, blue, and green hydrogen but also about ensuring the entire energy ecosystem evolves to support the large-scale, efficient, and sustainable production of hydrogen.
Hydrogen Storage and Distribution - Efficiency
Analyses of energy and CO2 emissions reveal significant energy losses from the electrical source to the higher heating value (HHV) of hydrogen delivered to consumers. Currently, about 12% of fossil energy is lost in the transition from oil wells to end-users, involving transportation, refining, and distribution. In a hydrogen-based economy, these losses could be even greater due to the complexities of hydrogen storage and transportation. Hydrogen, with its smallest molecular size and high diffusivity, presents unique challenges in storage and distribution that are quite distinct from conventional fuels. These challenges stem from hydrogen's physical properties and the requirements for its use in various applications.
?Storage:
·?????? Compression and Liquefaction
For storage and transportation, hydrogen must be either compressed to high pressures or liquefied at extremely low temperatures. Compressing hydrogen to 700 bar, which is typical for fuel cell vehicles, requires significant energy, approximately 12-15% of the energy content of the hydrogen itself. Liquefaction, on the other hand, demands cooling to -253°C and consumes around 30-40% of the hydrogen's energy content. These processes not only add to the operational costs but also to the energy footprint of hydrogen, challenging its net energy balance and environmental sustainability.
·?????? Storing Hydrogen in Hydrides
Physical packaging of hydrogen in metal hydrides requires energy for production and compression, with some energy lost as waste heat. Packaging hydrogen at 30 bar pressure minimises this energy cost, making it more efficient than compressing hydrogen gas to 200 bar pressure. Chemically, hydrogen can be stored in alkali metal hydrides, synthesised from metals and hydrogen. This method suits limited applications due to a loss of at least 60% of the input energy during the process.
Distribution Infrastructure:
·?????? Hydrogen Blending in Natural Gas Pipelines
Blending hydrogen into existing natural gas pipelines is an emerging strategy to accelerate hydrogen deployment and reduce infrastructure costs. Numerous demonstration projects are underway, testing blends of up to 20% hydrogen by volume. However, concerns persist regarding the performance and safety of equipment, especially at higher hydrogen concentrations. Hydrogen can induce brittleness in metals—a phenomenon known as hydrogen embrittlement—increasing the risk of material failure in pipelines. Furthermore, blending hydrogen with natural gas may raise combustion temperatures, potentially causing local overheating of appliances and increasing NOx emissions. The risk of flashback, where flames enter appliance hoses or cylinders, also rises.
·?????? New Hydrogen Pipelines
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New hydrogen pipelines face significant logistical challenges, primarily due to the high energy required to transport hydrogen. For instance, moving hydrogen through pipelines can consume at least 1.4% of the hydrogen flow every 150 km to power the compressors (vs. 0.3% for methane), meaning that only 60 to 70% of the hydrogen input in Northern Africa might reach Europe.
·?????? Road Delivery of Hydrogen:
Transporting liquid fuels like methanol, propane, and gasoline is energy-efficient, using less than 3% of the fuel's energy over 500 km. In contrast, delivering gaseous hydrogen requires significantly more energy—up to 32 times more diesel fuel than liquid gasoline for similar distances. Liquid hydrogen is slightly more efficient, with a factor of about 4.5, but the energy required for its initial liquefaction is substantial.
·?????? Long-Distance Hydrogen Transportation
Transporting hydrogen over long distances involves considerable logistical challenges due to its low boiling point. Cooling hydrogen to below -253°C for liquefaction consumes over 30% of its energy content, making the process both energy-intensive and hazardous. The inefficiencies become even more apparent during transportation; for instance, the first-ever hydrogen shipment from Australia to Japan used a vessel that could only carry a small fraction of the load typical for liquefied natural gas (LNG) carriers, highlighting the challenges and inefficiencies in hydrogen logistics.
To address these issues, alternatives such as ammonia, methanol, and methylcyclohexane (MCH) are being explored as potentially more viable carriers for long-distance hydrogen transport. However, none of these alternatives has yet emerged as a definitive solution, emphasizing the complex and costly nature of establishing a globally traded liquid hydrogen market, a stark contrast to the more established LNG industry.
Hydrogen Leakage and Global Warming Potential (GWP)
Finally, due to its small molecular size, hydrogen can easily escape from containment systems, leading to potential safety risks and environmental impacts. Hydrogen, while not a direct greenhouse gas, has a notable indirect GWP, initially up to 100 times that of CO2 over a decade. Its GWP is 22 to 44 times that of CO2 over 20 years and 6 to 16 times over a century. Hydrogen can prolong the life of other GHGs by interacting with atmospheric hydroxyl radicals crucial for neutralising these gases. Leakage can occur at any point in the supply chain—from production to consumption—and without rigorous control measures, it might negate efforts to curb global warming.
In summary, hydrogen does not currently offer clear advantages over natural gas in terms of generation-to-end-use efficiency or overall CO2 emissions. As a medium for energy transportation from primary sources to end users, hydrogen faces considerable efficiency losses due to energy conversion. In many practical cases, natural gas offers a more straightforward and efficient solution without the complexities involved in converting and transporting hydrogen. To fully leverage hydrogen’s potential, innovative strategies are necessary to bolster its commercial viability as a widely used energy carrier. Developing a robust hydrogen infrastructure is crucial for underpinning a sustainable hydrogen economy. These challenges fuel an ongoing debate about the merits and drawbacks of hydrogen as an energy source, underscoring the need for significant investments in future energy solutions. This complex situation marks a critical juncture in the transition to sustainable energy, emphasising the urgent need for detailed research to thoroughly assess the balance between hydrogen production and its delivery systems.
Hydrogen Market
The widespread adoption of hydrogen is hindered by more than technical, and environmental challenges, and insufficient distribution infrastructure. It also grapples with unpredictable demand and unclear regulatory frameworks. This raises critical questions: Are these hurdles merely the typical growing pains associated with a new technology, or is hydrogen being developed in the absence of genuine customer demand? Furthermore, what factors have propelled the development of this technology to date, and are they robust enough to ensure hydrogen's future growth? These considerations are crucial in determining whether hydrogen can transition from a promising concept to a pivotal component of our energy landscape.
Market Development, Demand, and Economic Viability
IEA recognises that "Slow progress on real-world implementation is a consequence of barriers that could be expected in a sector that needs to build up new and complex value chains." It also identifies a critical imbalance: the focus has largely been on boosting hydrogen supply, which has led to a significant lack of market demand, essential for economic viability. This imbalance has resulted in a slowdown in renewable energy projects, hindered by challenges in securing hydrogen off-takers or achieving financial closure. The IEA highlights a key concern: "The main uncertainties are whether there is sufficient demand and offtake, partly due to the higher costs compared to hydrogen produced from unabated fossil fuels or in applications where renewable hydrogen could be substituted." These challenges, compounded by high inflation affecting capital and operational costs, threaten the financial viability of hydrogen projects. Even China struggles with fostering demand and securing off-takers despite its ambitious hydrogen goals. In response, China is enhancing hydrogen storage technologies and promoting local usage, particularly in large oil refining and chemical sectors. In regions with insufficient industrial demand, hydrogen is converted into ammonia and methanol for export or use in high-demand areas.
Other economies are implementing strategies to manage demand and extend hydrogen's application beyond traditional sectors to more energy-intensive industries like steel manufacturing and heavy transportation. However, the high cost of green hydrogen, currently about five times more expensive than natural gas after shipping, remains a major barrier. Although prices are expected to decrease, they will not reach parity with natural gas. Forecasts suggest that by 2030, green hydrogen costs in the US might reduce to around $15/MMBtu ($2/kg), further decreasing to $7.4/MMBtu ($1/kg) by 2050. These projections need to be evaluated against expected natural gas prices, which the International Monetary Fund estimates will stabilise at about $4 per MMBtu by 2030. For consumers, transitioning to hydrogen under current pricing could significantly increase living costs, and industries would face heightened energy and operational expenses, leading to higher product prices. These economic factors are crucial for assessing the long-term sustainability of a hydrogen economy before it can gain widespread traction globally. A variety of strategies are available to enhance the economic viability of hydrogen, addressing both production efficiencies and market expansion needs:
·?????? Reducing Upfront Investment Costs: The high initial costs of green hydrogen production, driven by investments in renewable energy infrastructures and electrolysis equipment, are significant barriers. Developing an energy sourcing strategy that leverages regional advantages for low-cost renewable power and high load factors is crucial.
·?????? Technological Advancements: Enhancing electrolyser efficiency and lifespan is critical for reducing production costs. Advances in renewable energy technology will also decrease the cost of electricity, further lowering production expenses.
·?????? Leveraging Economies of Scale: Scaling up production and distribution can lead to cost reductions through bulk purchasing, optimized logistics, and streamlined operations.
·?????? Reducing Distribution Costs: Expanding the hydrogen pipeline infrastructure, which is currently only about 2,600 km in the United States and 2,000 km in Europe, can stimulate demand and lower consumer costs. Pipelines provide an efficient and cost-effective method for hydrogen transport up to 3,000 km.
·?????? Improving Long-Distance Transport: Shipping hydrogen and hydrogen carriers, though currently less efficient and riskier than transporting carbon-based fuels, offers potential cost reductions. A notable example of these challenges occurred in February 2022 when the Hydrogen Energy Supply Chain project attempted the first shipment of liquefied hydrogen from Australia to Japan. This initiative faced immediate difficulties as gas flames erupted shortly after the tanker was loaded, highlighting the inherent risks involved. Consequently, many projects are now exploring the transportation of ammonia as a safer and more practical alternative, though these efforts are still in the nascent stages. Continued advancements and optimization in the shipping of hydrogen and ammonia could potentially lower the costs and enhance the viability of hydrogen as a global energy carrier.
Strategic Global Responses
In the evolving hydrogen market, major players like the US, EU, and China are leading the way. These regions are enhancing their production capabilities and strategically positioning themselves within the global supply chain. The US is aiming to become a significant hydrogen exporter, while the EU is focused on increasing its imports. This overview sheds light on the varied strategies these global leaders are adopting to capitalize on hydrogen's potential. Let's examine the hydrogen market dynamics across different regions:
·?????? European Union: The European Union, through the H2Global program, is enhancing its green hydrogen imports from non-EU countries via a double auction system initiated by Germany. The scheme involves purchasing hydrogen at competitive prices and reselling it within Europe, supported by €900 million in public funds, with the first auction in December 2022 marking the start of ammonia imports anticipated by the end of 2024. Significant infrastructure investments, like the Dutch government’s €750 million commitment to a national hydrogen network, aim to foster a cohesive hydrogen network across Europe, facilitating imports from regions like the Middle East and North Africa (MENA).
·?????? China: China is leveraging its vast renewable resources to become a global leader in green hydrogen production. With substantial investments in electrolyser manufacturing and renewable projects, China offers competitively priced green hydrogen, supported by strong local initiatives. The China Hydrogen Alliance's Renewable Hydrogen 100 initiative, aiming for 100 GW of electrolyser capacity by 2030, underscores its commitment.
·?????? United States: In the U.S., the focus is on integrating hydrogen into the national energy strategy, emphasising innovation in electrolysis and fuel cell technologies, particularly for transportation and industrial applications.
·?????? Middle East: In the Middle East, Saudi Arabia is shifting from an oil-based economy towards becoming a clean hydrogen leader with a $5 billion investment targeting both blue and green hydrogen production for local use and extensive exports, highlighted by recent partnerships with Chinese firms.
·?????? Other countries: Countries like Japan, Chile, Brazil, and Australia are capitalizing on their natural resources to develop and export green hydrogen, reflecting a global shift towards sustainable energy solutions, and aligning local capabilities with global market goals.
Market Dynamics and Policy Support
In parallel, major economies are actively exploring a range of government policies, such as subsidies, tax incentives, and carbon pricing, to address the cost disparity between hydrogen and traditional fossil fuels. In choosing their approach the policymakers face a dual challenge: they can either penalise pollution from fossil fuels or subsidise clean technology efforts. Often, it's politically simpler to subsidise emerging technologies than to impose heavier taxes on pollutants. While subsidies could play a critical role in jumpstarting the hydrogen sector, the ultimate objective is to foster a self-sustaining market where hydrogen can compete on its own merits without perpetual financial support. This transition from subsidy reliance to market viability necessitates a careful phase-out strategy, ensuring the maturation of hydrogen technologies and the establishment of robust market dynamics.
Caution is necessary when designing and implementing new hydrogen subsidies to avoid them becoming costly and ineffective. With significant public funds involved, governments must manage these subsidies judiciously. While initially crucial for levelling the playing field between emerging and established technologies, subsidies often don't achieve their intended effects, putting considerable strain on public finances and distorting market efficiency by creating dependency. For example, despite the G20's 2009 commitment to phasing out "inefficient" fossil fuel subsidies, annual global spending of USD 300-600 billion continues. The hesitation to cut these subsidies often stems from fears of job losses, energy poverty, and social unrest. Therefore, as governments develop the hydrogen economy, they need to critically assess the long-term viability and impact of subsidy schemes, ensuring they support a transition to cleaner energy without further financial or societal complications.
Here are examples of incentives implemented by the EU, and the US:
·?????? United States: The United States, through the Inflation Reduction Act, addresses these cost barriers by offering up to $3 per kg in tax credits to producers of green hydrogen. However, these incentives are set to expire after ten years. This limited timeframe challenges businesses that need long-term certainty for substantial investments in hydrogen infrastructure, such as steel plants transitioning from coal. The transient nature of these subsidies does not provide the long-term assurance required for significant capital investments in centralised production facilities and logistics networks.
·?????? European Union: On the other hand, the European Union has adopted a regulatory approach that mandates a significant portion of hydrogen usage to be renewable. By 2030, the EU mandates that 42% of hydrogen used in industrial processes must be sourced from renewable energy. Moreover, the EU has established strict criteria for what qualifies as renewable hydrogen, excluding any hydrogen produced using grid electricity unless it is generated during periods when there is an excess of renewable production. This policy aims to ensure the sustainability of hydrogen but also increases initial costs by restricting production times and heightening reliance on variable renewable energy outputs.
Both regions are in the process of shaping further policies to support the hydrogen economy.
Hydrogen: Looking Ahead
A final question remains: What’s next for hydrogen?
Green hydrogen is still in its nascent stages within the market. Until demand rises significantly, investment will likely remain concentrated on sectors with established hydrogen uses, such as fertilisers, refineries, and speciality vehicle fuels. Co-locating projects with these industries can reduce the need for extensive new infrastructure, shorten project timelines, and minimise capital outlays. While some believe this could limit the broader deployment of hydrogen, others see the potential for its use in decarbonising these sectors, which may extend to other applications like hydrogen-powered public transport and power plants.
Major economies like the EU, the US, and China are actively shaping their hydrogen markets, investing significantly in infrastructure, and increasing their renewable energy capacities. Carbon pricing expansion and successful decarbonisation of high-emission sectors could significantly advance hydrogen’s integration into everyday uses. However, this transition depends on overcoming substantial economic and infrastructural challenges to establish green hydrogen as a viable and cost-competitive energy solution. Until market demand increases, hydrogen will likely remain confined mostly to industrial applications.
Concerns about the long-term implications of a hydrogen-driven economy echo the unforeseen environmental impacts of the Industrial Revolution, highlighting the urgent need for in-depth research to thoroughly assess the balance between hydrogen production and its delivery systems. Current infrastructure for hydrogen delivery — encompassing pipelines, liquefaction plants, and storage systems—is still rudimentary, often hindered by issues like leakage and metal embrittlement. As Keith Williams from Seeking Alpha aptly puts it, "the hydrogen economy presents a confusing picture with a lengthy timeline." This highlights the complexities and challenges of fully realising a sustainable hydrogen economy.
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