Hydrogen Economy (Getty Creatives)
Hydrogen is an adaptable and useful energy carrier. In the eyes of many, it can address myriad energy challenges we face as a society seeking meaningful pathways to a net zero carbon emissions future.
The concept of a ‘hydrogen economy’ – a broad descriptor for the production and use of hydrogen as a substitute for fossil fuels and mitigating climate change – to achive such objectives has been around for over a hundred years. But its modern reiteration is thought to have made its debut in a technical report by the University of Michigan in 1970.
Use cases now range from ground transportation to petrochemicals. Although burning hydrogen does not emit CO2, its efficacy as a carbon neutral fuel depends on the processes used for producing it. It is why hydrogen oftentimes referred to as ‘gray’, ‘blue’ or ‘green’ depending on the amount of CO2 generated during its production.
All about going green
Bulk of hydrogen currently produced around the world is gray hydrogen made from natural gas through a process known as steam methane reforming (SMR). Next comes blue hydrogen, a lower carbon version still made using SMR but with carbon capture and storage, and finally there is green hydrogen generated through electrolysis of water using renewable power.
However, blue and green hydrogen accounted for less than 1% of global production in 2022, according to the International Energy Agency (IEA). This will need change for hydrogen to play a meaningful role in a net zero economy. Encouragingly, several noteworthy policy and development efforts have been announced by nearly 40 countries. Overall, the IEA is forecasting 115GW of new electrolyzer capacity for the generation of green hydrogen by 2030.
But there are likely be many challenges along the way. According to a recent PwC report, most current green hydrogen projects under construction and in operation are, despite growing capacities, almost exclusively at pre-commercial phase and have limited electrolyzer capacities, typically well below 50MW.
“Proposed plants have larger electrolyzer capacities of 100MW or more, but those are still small compared to current grey hydrogen production plants,” it added.
And it’s not just green hydrogen generation capacity that needs to be considered. Hydrogen needs to be packaged by liquefaction or compression, transported via surface vehicles or pipelines, stored and transferred.
Infrastructural impediments or opportunities will also require investments before the fuel can fulfill its carbon neutral potential for consumer or industrial use. It is a subject that is expected to be under scrutiny and deliberation at the Hydrogen Americas Summit scheduled to be held on June 11-12 in Washington D.C., U.S.
The event – which the U.S. Department of Energy has partnered with and is expected to see over 4,000 international delegates – may offer a glimpse of the global response to the challenge of potentially meeting rising hydrogen demand in step with lowering costs.
Such a market dynamic is crucial for ensuring that hydrogen can be traded and transported in quantities tangible enough to make a difference in lowering carbon emissions by 2030.
Taxation, subsidies or free markets?
The need to act now is clear, if the end-goal is to have the hydrogen economy play a pivotal role in meeting 2050 net zero targets for nations and corporations alike. However, the jury is still out on the best way for achieving this and placing green hydrogen at the heart of it.
Current projections for the size of the green hydrogen production and support market remain tantalizing. For instance, a recent Deloitte report noted that rising “support” for the green hydrogen may see it top the value of the liquid natural gas (LNG) trade by 2030 and grow further to $1.4 trillion per year by 2050.
That “support” is currently being driven by policy announcements on tax incentives and subsidies for green hydrogen in key markets like U.S., U.K, European Union and China. Several Middle Eastern nations, Australia, India, Morocco, South Africa and Namibia have also upped their efforts.
Of particular significance, is the U.S. Inflation Reduction Act enacted in August 2022 which offers numerous financial incentives for the deployment green hydrogen and fuel cell technologies.
The European Union has set up a European Hydrogen Bank for investment while the U.K. government is on track for awarding contracts totaling up to 250MW of electrolyzer capacity to a diverse range of lead developers such as Phillips 66, BP, Octopus Renewables, EDF Energy and Marubeni Europower.
Multilateral financial institutions have stepped up their efforts on green hydrogen fuel and storage financing facilities in Latin America (e.g. World Bank initiatives in Brazil, Chile, Colombia, Costa Rica and Panama).
As things stand, there are ample hints of private sector interest and a reasonable belief that promoting the hydrogen economy could well be left to free markets deciding what the eventual low-to-zero carbon energy mix may look like.
But that’s easier said than done. At the moment, nine-tenths of global hydrogen usage is merely for three industrial applications – production of methanol for fuel blenders, manufacturing ammonia for fertilizers and chemicals, and lowering the sulfur content in diesel by refineries.
Several industries hypothesized as feasible potential users of green hydrogen in a future net zero world currently use none of it. A change of this scale, especially the usage of green hydrogen as a heat source for industries, will require a massive amount of investment and a complete retooling of power systems to run them effectively.
It means that taxation or subsidies will still be needed to attract the private sector in the current decade as the market enters a pivotal phase. But a dynamic mix of tax incentives, subsidies and private sector investment may just propel the green hydrogen industry to a trillion dollar business by the turn of the decade.
