As the global push to fight climate change gains momentum, the demand for decarbonizing hard-to-abate industries is also intensifying. With limited options available for sectors where electrification is not feasible, green hydrogen is seen as a potential solution for a lower carbon future.
To better comprehend the potential of green hydrogen in these challenging industries, Broadpeak collaborated with energy experts and investment advisors to answer the following questions: What role can green hydrogen play in decarbonizing energy-intensive industries? Can it help these industries meet their emission goals? What are the major obstacles blocking its growth?
This is the third and final article in our Green Hydrogen Trilogy exploring the potential of green hydrogen as we seek to move towards Net Zero. The first two articles can be found here (part 1) and here (part 2).
The hardest nut to crack
One of the biggest challenges facing the global energy transition is decarbonizing fossil energy uses that are either prohibitively costly or impossible to reduce with currently available abatement technology. Hard-to-abate (HTA) sectors comprises energy-intensive industries that are challenging to decarbonise as they rely heavily on fossil fuels for high-temperature energy. Sectors like iron and steel, aviation, chemicals, cement, and shipping contribute about 30%of total global greenhouse gas (GHG) emissions and hence, pose significant hurdles to meeting the Net Zero goal. Green hydrogen is increasingly being recognised as a sustainable alternative fuel that has the potential to bridge the gap between renewable electricity generation and these energy-intensive sectors.
“Green hydrogen will have an important role to play in the energy transition,” saidThorsten Schneider, Head of Division at KfW Development Bank, in an interview with Broadpeak. “The synthetically generated energy carriers enable the decarbonisation of applications that are difficult or impossible to supply directly with renewable energy or directly with electricity generated from renewables. These mainly include high-temperature generation in industry and the use of carbon in industrial production processes such as the steel and chemicals industry.”
One of the biggest emitters in HTA sectors is the steel industry, responsible for around 5% of the carbon emissions in Europe and around 7% globally. Considering the existing carbon-intensive production methods, the steel industry faces a number of questions: How can the goal of zero emissions be achieved without slowing down the industry’s growth? Which low-carbon technology can help achieve the Net Zero target most effectively? Many are now looking at Green Hydrogen as one way of reducing carbon emissions in the steel sector. ArcelorMittal, the largest steel manufacturer in Europe and America, recently announced that it has successfully tested the use of green hydrogen in the production of direct reduced iron (“DRI”) at its steel plant in Quebec. However, it also mentioned the use of blue hydrogen until enough green hydrogen is ready. Therefore, to shift current DRI plants to cleaner fuel, we need sufficient quantity of green hydrogen at affordable pricing.
Another major HTA sector that green hydrogen may help decarbonise is heavy-duty transportation such as trucking, aviation and shipping.
A Green Hydrogen economy will offer numerous benefits for countries that have huge renewable potential. Some of these additional benefits could be renewable expansion, employment generation and economic growth. Nadim Chaudhry, Founder and Director at World Hydrogen Leaders, told us, “As we leave the fossil fuel era and given the difficulties and inefficiencies of moving clean energy, either as electrons or clean molecules, industries will be incentivised to move where the fuel is cheapest. This would mean the industrialization of areas with high renewable capacity like the Middle East, Morocco and Australia. These countries would benefit tremendously as now they could produce their own clean fuel, retaining value in their own country and boosting their economic growth.”
Given the rising energy crisis and the pressures to meet the Net Zero target, many countries are now moving towards decarbonizing HTA industries by creating a new market for green hydrogen. Many countries like Saudi Arabia and Australia seek to leverage their high renewable energy resource potential to become global exporters of green hydrogen. On one hand, countries want to de-risk their energy portfolio by doing away with ever-soaring carbon prices. On the other hand, a more volatile gas market boosts the potential role of hydrogen. Hence, many countries are now examining pathways towards the decarbonisation of hard-to-abate industries through green hydrogen.
The Middle East is aiming to emerge as a significant exporter of green hydrogen, due to its abundant renewable resources and strategic location. Despite the growing interest in the region's hydrogen potential and numerous hydrogen projects underway, a comprehensive strategy is yet to be unveiled. However, many nations in the region like the UAE are actively working on formulating their individual hydrogen strategies. Jan Frederik Braun, Senior Expert Hydrogen Economy at Fraunhofer while speaking to us said, “Well-informed hydrogen strategies at the national level will enable the Middle East to experience growth and reduce the cost of production. Furthermore, it can establish itself as a pioneer in cutting-edge research and development of hydrogen technologies and become a leading producer and exporter of low-carbon hydrogen.”
Green hydrogen comes with its own challenges
Despite the growing traction, green hydrogen faces several impediments in its development and implementation. Currently, the availability of green hydrogen at affordable price is limited. Therefore, many projects for grey hydrogen and natural gas use the argument of being ‘hydrogen-ready’, meaning that they are capable of shifting their current production methods to green hydrogen as and when it becomes widely available. The German energy company EnBW (Energie Baden-Württemberg AG), for instance, is currently building hydrogen-ready gas-fired plants that will be commissioned in 2025 and switched to run on hydrogen by 2030. However, the challenge remains – availability in sufficient quantities at affordable pricing.
The estimated cost of green hydrogen is between USD 3/kg to USD 6.55/kg which is considerably higher than the cost of its alternatives like grey hydrogen which is around USD 1.80/kg. One way to reduce the cost of green hydrogen would be to focus on the engineering side by looking at how to improve the technology while pulling down the cost. In this regard, renewable energy will need to be scaled up while the cost of electrolyzers will have to be reduced significantly. Another way is to focus on decarbonising the existing use cases for hydrogen. “Ammonia and oil refinery are two major markets that can be leveraged to scale up green hydrogen and pull it down its cost curve,” highlighted Chaudhry.
There are political, economic and ecological costs attached to green hydrogen that must be addressed if it is to play a key role in the sustainable energy transition.
Transitioning from fossil fuels to a green hydrogen economy is associated with significant infrastructure, political and domestic economic consequences. “Green hydrogen may come at a great cost to the environment and local communities,” says Andreas C. Goldthau, Director of the Willy Brandt School of Public Policy at University Erfurt. “If not done correctly, it might hamper energy transition in emerging economies, impact the habitat and harm the natural environment. Therefore, we must recognise and internalize the ecological and political cost of producing green hydrogen.”
Additionally, the absence of effective strategies and institutional design to support the growth of green hydrogen significantly hinders its widespread adoption. There is a lack of incentives and standardization for green hydrogen, making it difficult for industries to integrate it into their operations. “We need to incentivize the production and use of green hydrogen through subsidies and tax credits, similar to what is being done in the United States. Also, we should focus on human resource development, providing training and education to industry workers and ensuring the necessary skills are in place to support the growth of the green hydrogen sector,” emphasized Braun.
Where do we go from here?
Going forward, we need to reduce the cost of green hydrogen by establishing a supportive market structure that allows for its growth. This design must provide sufficient support to develop financial and technical capacity and de-risk green hydrogen production, distribution and use. “Renewables did not become cost-competitive all of a sudden. They were ring-fenced and treated as a nascent industry. They were protected using subsidies until they became cost-competitive with existing alternatives. We need a similar market design for green hydrogen with subsidies for technological innovations to develop cheaper electrolyzers and scale it up,” explained Goldthau.
We also need to strengthen international cooperation and partnerships to accelerate green hydrogen uptake. There is a niche for greater collaboration among governments, industry and academia to foster technological innovation. In addition, global partnerships are needed to pioneer green hydrogen solutions for rapid decarbonisation. The climate crisis provides us with an opportunity for international cooperation. No country will be able to succeed by shining its shoes only. Collaboration with other nations, particularly emerging economies, is necessary to realize the potential of hydrogen.
In short, green hydrogen is not a single solution to all energy problems, but it does have a crucial role to play in the decarbonization of hard-to-electrify industries.
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Simon Gupta is the Founder & Managing Director of Broadpeak, an International Advisory company specializing in Impact Finance. He has 20 years of experience in development finance in Latin America, Africa and Asia. He is also a Partner at investment firm Investment Associate AG, where he leads social and environmental impact investing. Simon has been involved in the set-up of multiple blended finance structures on the LP side as well as the GP side. Before founding Broadpeak, he worked for financial institutions DEG, KfW, and ResponsAbility Investments AG.
Fatima Farooq Murawat is Policy Analyst at Broadpeak, a Swiss-based International Advisory company specialised in Impact Finance. Fatima is dedicated to researching the most pressing issues of our time including climate change, energy transition and sustainable development. She has previously worked at the Iqbal Institute of Policy Studies, the National University of Science and Technology and the Civil Society Coalition for Climate Change in Pakistan.