Key messages from the IEA global hydrogen review

Yes, take-off is happening

Early October the IEA launched the long awaited Global Hydrogen Review (GHR) at the 4th Hydrogen Energy Ministerial Meeting. In this blog I will focus on the key messages to take away from the new ‘hydrogen bible’. The first key message is that the unprecedented momentum for clean hydrogen is turning into action. A growing number of countries have launched hydrogen strategies or roadmaps and have started to implement concrete policies. Industry is stepping up to the plate by increasing its hydrogen-related investments. The amount of announced clean hydrogen projects is increasing quickly, particularly in Europe, Australia, Canada, the US and the Middle East. China is rapidly catching up after a slow start. The GHR estimates that the current pipeline of projects may result in 17 Mt of low-carbon hydrogen – 8 Mt from electrolysis and 9 Mt from fossil fuels with CCUS– in 2030, which is already huge progress compared to where we were just a few years ago. It is very encouraging to see how eager banks and investment funds are to jump on the bandwagon. The growing number of commitments to net-zero emissions in 2050 by both governments and companies is an important driving factor explaining the hydrogen boost.

The Net Zero by 2050 roadmap launched by the IEA In May this year demonstrates clearly that low-carbon hydrogen is an indispensable contributor to a net-zero energy system, in addition to green electrification and other low-carbon technologies. In IEA’s  Net Zero by 2050 Roadmap hydrogen demand will double by 2030 and grow sixfold by 2050, taking a major role in decarbonizing heavy industry (like refineries, chemicals and steel) and long-distance transport (trucks, ships, planes etc.), as well as longer-term energy storage. Another sign of concrete action emerging is the rapid multiplication of hydrogen projects implying international cooperation and new trade routes. The pioneering Japanese import projects in the Asia-Pacific region using different carriers (ammonia, liquified hydrogen, liquid organic hydrogen) and the German program H2Global eyeballing a double-auctioning system of hydrogen production/import & offtake contracts are inspiring examples in this regard. It is already clear that a global market in clean hydrogen is emerging with net-importing countries (Japan, Korea, Germany e.g.) and net-exporting countries (Chile, Australia, Saudi Arabia etc.). Global trade in hydrogen will take off a lot sooner than anticipated just one or two years ago.

Mind the gap: much more is needed

After applauding the good news that clean hydrogen is finally really taking off, we need to ask the critical question: are we on track for achieving Net Zero Emissions in 2050? Unfortunately, the answer is no and this is the bad news that the GHR is bringing the world. Basically, the task for clean hydrogen is two-fold: firstly, to decarbonize the current hydrogen production from fossil fuels in industry (refineries, chemicals etc.) and secondly, to expand into new application areas in industry, transport as well as buildings and the power sector. Under current trends, the pace of projected clean hydrogen production growth is too low in the next decade. Even if we include the government pledges, this is the still the case according to the GHR. The second key message from the GHR is therefore that we clearly need much more ambitious and concrete policy efforts in order to achieve an expansion at the scale required to get on track for net-zero emissions in 2050. In particular, there is an urgent need for strong demand signals that create clearly defined markets for clean hydrogen in 2030 and beyond. This will be very helpful to investors. In other words, we are faced with a double gap: an ambition gap and a policy gap. Governments need to bring their ambitions for clean hydrogen use and production in line with what’s required for the net-zero emissions roadmap. In addition, they need to implement concrete and effective policies to realize these ambitions. In both domains, countries are struggling to catch up with the unprecedented challenge. The GHR has helpfully identified some key milestones for 2030 to stay on track with the Net Zero by 2050 roadmap. They include 212 Mt hydrogen demand, 850 GW electrolysis capacity and 410 Mt CO2 captured and stored in hydrogen production in 2030.  The uplifting news from the GHR, however, is that the low-carbon hydrogen costs are falling and that ambitious deployment policies could make hydrogen from electrolysis competitive with hydrogen from fossil fuels within this decade. In other words, it is doable, provided the appropriate measures are taken: the technologies are ready. What are those appropriate measures?

Fire from all cylinders & act bolder and faster

The third key message from the GHR is that only a comprehensive set of strong policies can deliver the required rapid scale-up of clean hydrogen production and use. And, very important: immediate action is already required now to make the 2020s the decade of clean hydrogen expansion. The lead times in energy and hydrogen are such, that without a significant scale-up before 2030, we will no longer stand a fair chance to stay on track for clean hydrogen to deliver its required contribution to achieve net-zero emissions in 2050. The policy package recommended by the IEA in the GHR is worth presenting here:

• Develop strategies and roadmaps on hydrogen’s role in energy systems.

• Create strong incentives for using low-carbon hydrogen to displace fossil fuels.

• Mobilise investment in production assets, infrastructure and factories.

• Provide strong innovation support to ensure critical technologies reach commercialisation quickly.

• Establish appropriate certification, standardisation and regulation.

There is obviously a high degree of interconnectivity between these policies. Let me elaborate on a few key points included in the policy recommendations. The GHR flags that in a growing number of countries carbon prices or taxes do help to narrow the cost gap between the current cost of low-carbon hydrogen and fossil-based alternatives. Even where these carbon prices are already quite significant and expected to rise over time (like in the EU, Canada etc.), this will not be enough to drive the scale-up of clean hydrogen at the speed required. Therefore, temporary support schemes like carbon contracts for difference that help industry de-risk investments and improve the bankability of projects will need to be put in place, as some European countries are already working on. Other powerful instruments include gradually raising mandatory quotas for low-carbon hydrogen and low-carbon public procurement policies. The EC’s ‘Fit for 55 package is a concrete step in that direction. All of this is not unlike how we managed to get down the cost of solar and wind energy in the last decades. We can learn from these successes. What is different, however, is that building the clean hydrogen market requires establishing entire new value chains. That’s why the GHR pays a lot of attention to the need to mobilize timely investment in hydrogen infrastructure and storage to connect supply source to demand centres. A useful first step is interconnecting major industrial clusters which are often located in port areas and ideally positioned to become low-carbon hydrogen hubs or valleys. This is the case because they combine high volumes of existing fossil fuel hydrogen production screaming for decarbonization with logistical operations ready to be turned into new application areas. As many industrial clusters typically have natural gas infrastructure in place, repurposing of gas pipelines is a low-cost option to initiate a hydrogen infrastructure. An example is the Netherlands, where the government has tasked the state-owned gas infrastructure company Gasunie to develop a hydrogen backbone through repurposed gas pipelines connecting the major industrial clusters by 2027, while providing the necessary funding. In Germany similar plans are under development. Providing tailor-made support to selected shovel-ready flagship projects can kick-start the scaling-up of low-carbon hydrogen value chains, including infrastructure connecting supply sources to demand centres. This time-saving approach is already quite common in Japan and Korea, but much less so in e.g. Europe where legislative and regulatory procedures can be long and cumbersome.

To race down the learning curve of low-carbon hydrogen cost as fast as we can, it helps a lot if we combine the rapid scale-up of deployment with an even stronger innovation push by doubling the public R&D investment in low-carbon hydrogen. At a global scale this amounts to roughly $ 45 billion. To facilitate the establishment of a global market in low-carbon hydrogen international standards are required. This is an area where the International Partnership for Hydrogen & Fuel Cells in the Economy (IPHE) has been active over many years. High safety standards are obviously very important to maintain public acceptance, in particular for new application areas that involve citizens (vehicles, buildings). International cooperation and harmonisation is already happening in this area. Another concrete example is the need for an internationally agreed standard to measure the carbon footprint of different pathways of hydrogen production. IPHE launched a proposal for this last week.  On the basis of such a standard, certification schemes and markets can develop. This includes low-carbon hydrogen premium markets, e.g. for cars produced by green steel. The good news is that the end-consumer price impact of low-carbon production is often limited to just a few percent. In the area of regulation a flexible and dynamic approach is critical. On the one hand, governments need to avoid the creation of market fragmentation and new monopolies. On the other hand, however, regulation should take account of the embryonic stage of the clean hydrogen market development and avoid regulatory failure.  When I mentioned the need for comprehensive policies, I also had my eye on the many policy domains not directly linked to the hydrogen market, but potentially very impactful on the business cases of concrete projects. The GHR mentions examples ranging from grid fees and levies, state aid rules and spatial planning and licensing to trade barriers, energy taxation, fossil fuel subsidies and sustainable finance. Why is this so important? Because these things can be either show-stoppers (if they create strong headwinds) or accelerators (if they create tailwind). They play out very differently in different constituencies. That’s why it is very important to give them sufficient attention and learn from best practices. My favourite example is the high tax on driving diesel trucks in Switzerland, while exempting zero-emission trucks. This simple measure alone made the business case for a project now underway putting 1000 hydrogen trucks on the Swiss roads.

Stronger international co-operation = key to success

International cooperation is critical to accelerate the energy transition in general, as the IEA clearly demonstrated already in the Net Zero by 2050 roadmap. This also applies to clean hydrogen. IPHE is the oldest existing inter-governmental network for hydrogen and the IEA has facilitated technology cooperation in hydrogen technologies for a long time. Japan has played a global leadership role in organizing the Hydrogen Energy Ministerial Meeting since 2018. Since then we have also seen the Clean Energy Ministerial (CEM) Hydrogen Initiative, the Hydrogen Mission of Mission Innovation (MI) and the Global Partnership for Hydrogen of UNIDO. With the great momentum in clean hydrogen now turning into action, it becomes critical that all the international hydrogen partnerships and initiatives are more strongly coordinated to ensure sufficient progress in a timely manner, consistent with the required contribution of clean hydrogen to net zero emissions in 2050.

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