How to drive the hydrogen economy forward?

Hydrogen is an adaptable and effective energy carrier. In the eyes of many, it can address the myriad energy challenges we face as a society seeking meaningful paths to a net zero carbon emissions future.

The concept of the 'hydrogen economy’ – the production and use of hydrogen as an alternative to fossil fuels and to mitigate climate change – is a broad description for achieving such objectives. But its modern retelling is thought to have been introduced in a 1970 University of Michigan Technical Report.

Use cases now range from land transportation to petrochemicals. Although burning hydrogen does not emit CO2, its effectiveness as a carbon neutral fuel depends on the processes used to produce it. This is why hydrogen is often referred to as 'grey’, 'blue’ or 'green’ depending on the amount of CO2 produced during its production.

Everything is turning green

Most of the hydrogen currently produced worldwide is ash hydrogen produced from natural gas through a process called steam methane reforming (SMR). Next comes blue hydrogen, a low-carbon version still produced using SMR, but with carbon capture and storage, and finally green hydrogen produced by electrolysis of water using renewable energy.

However, blue and green hydrogen accounts for less than 1% of global production in 2022 International Energy Agency (IEA). This will require change for hydrogen to play a meaningful role in a net zero economy.

Encouragingly, several significant policy and development initiatives have been announced by nearly 40 countries over the past five years. Overall, the IEA predicts 115GW of new electrolyzer capacity to produce green hydrogen by 2030.

But there are likely to be many challenges along the way. According to PwCMost green hydrogen projects under construction and in operation, despite growing potential, are almost at the pre-commercial stage and have limited electrolyser capacity, typically below 50MW.

„The proposed plants have an electrolysis capacity of 100MW or more, but are still small compared to current ash hydrogen production plants,” the financial advisory firm further noted.

And it doesn’t just have to consider green hydrogen production potential. Hydrogen must be packaged by liquefaction or compression, transported by surface vehicles or by pipeline, stored and transferred.

Therefore, infrastructure barriers or opportunities require large investments before fuel for consumer or industrial use can fulfill its carbon neutral potential. It is expected to be under scrutiny and debate Hydrogen America Summit It will be held on June 11-12 in Washington DC, USA

The event – which is partnered with the US Department of Energy and is expected to see more than 4,000 international delegates – could offer a glimpse of a global response to the challenge of meeting rising hydrogen demand by keeping costs down.

Such market dynamics are critical to ensuring that hydrogen can be traded and transported in quantities that are firm enough to make a difference in reducing carbon emissions by 2030.

Taxes, Subsidies or Free Markets?

If the ultimate goal is for the hydrogen economy to play a key role in meeting 2050 net zero goals for countries and corporations, the need to act now is clear. However, the jury is still out on the best way to achieve this and put green hydrogen at its heart.

Current projections for the size of the green hydrogen production and support market are encouraging. For example, A recent Deloitte report He noted that „support” for green hydrogen could top the value of liquefied natural gas (LNG) trade by 2030 and grow to $1.4 trillion annually by 2050.

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That „support” is currently being driven by policy announcements on tax incentives and subsidies for green hydrogen in key markets such as the US, UK, European Union and China. Several Middle Eastern countries, including Australia, India, Morocco, South Africa and Namibia, have also stepped up their efforts.

Of particular importance is the US Inflation Act, enacted in August 2022, which provides numerous financial incentives for the use of green hydrogen and fuel cell technologies.

The EU has set up a European Hydrogen Bank for investment, while the UK government is on track to award bulk contracts. Electrolyzer capacity is 250 MW For various leading developers such as Phillips 66, BP, Octopus Renewables, EDF Energy and Marubeni Europower.

Multilateral financial institutions have stepped up their efforts to finance green hydrogen fuel and storage facilities in Latin America (eg World Bank initiatives in Brazil, Chile, Colombia, Costa Rica and Panama).

As things stand, there are plenty of signs of private sector interest and reasonable hope that developing a hydrogen economy can ultimately be left to free markets to decide what the low-to-zero carbon energy mix will look like.

But that’s easier said than done. At the moment, nine-tenths of global hydrogen use is for just three industrial uses—methanol production for fuel refineries, ammonia production for fertilizers and chemicals, and reducing sulfur in diesel by refineries.

Many industries considered potential users of green hydrogen in a future net-zero world do not currently use any of it. A change of this scale, especially using green hydrogen as a heat source for factories, would require a huge investment and a complete reboot of power systems to run them efficiently.

As the market enters a critical phase, taxation or subsidies will be needed to attract the private sector in the current decade. But a dynamic mix of tax breaks, subsidies and private-sector investment could propel the green hydrogen industry to a trillion-dollar business by the turn of the decade. At that time the spirit of private enterprise will be ready to seize control of the market.