Wake-up call for security of supply
The recent invasion of Ukraine by Russia has been labelled by EU leaders as ‘a tectonic shift in European history’ . For EU energy policy it was also a very rude wake-up call in terms of its over-reliance on imported natural gas from Russia. In coal and oil, the EU is also heavily dependent on supplies from Russia. All of a sudden, the security of the energy supply is back at the top of the policy agenda, with a vengeance.
The IEA proposed a suite of measures in its 10-Point Plan to reduce the EU’s reliance on Russian natural gas, ranging from demand reduction, to diversification and fuel switching, with accelerating investment in clean technologies at the heart of the plan . The EC subsequently proposed a very ambitious policy package RePowerEU, containing measures both for the short and the medium term . The short-term measures are focused on demand response, mitigating the price impact on consumers, ensuring sufficient gas storage for next winter and diversifying gas suppliers. For the medium term, the EC recommends the acceleration of the Fit for 55 proposals. This makes a lot of sense. Even when the immediate urgency of addressing energy security understandably takes precedence today, the climate change urgency still needs to be tackled at the same time. And accelerating the energy transition does at the same time help tremendously in reducing the medium-term dependence on imports of gas, oil and coal.
The key question, however, is how to ensure that this proposed acceleration of the Fit for 55 proposals is really going to be achieved. We want to focus on one key component here: what the EC has aptly called the ‘Hydrogen Accelerator’.
The EC proposes an additional 15 million tonnes (mt) of renewable hydrogen that could replace 25-50 billion cubic metres (bcm) per year of imported Russian gas by 2030. This implies an additional 10 mt of imported hydrogen from outside of Europe and an additional 5 mt of fossil-free hydrogen produced in Europe, including nuclear-based. These new proposed targets obviously go beyond the previously-existing targets of the EU hydrogen strategy. On how to achieve this, the EC document is, understandably, rather brief. It mentions further development of the regulatory framework to promote a European hydrogen market, supporting the development of an integrated gas and hydrogen infrastructure, hydrogen storage facilities and port infrastructure, speeding up of state aid notification procedures for hydrogen projects and the process of assessment of the first Important Projects of Common European Interest on hydrogen. In addition, it suggests Green Hydrogen Partnerships and a Global Hydrogen Facility. All of this seems very useful. More concrete implementation proposals will probably still follow soon. In the meantime, let us share some reflections on what to do next.
Time for rapid concrete measures to kick-start an investment wave
Many experts have observed that this moment in time mirrors the oil crisis of the 1970s. History may not repeat itself, but it often rhymes. Let us hope that we can avoid the economic recession that so often follows oil price spikes. The oil crisis of the 1970s did trigger important energy policy shifts, both at the international level, with the creation of the IEA and strategic oil stocks, and at the national level in many countries by diversifying away from oil e.g. electricity generation. France decided to launch an unprecedentedly successful nuclear programme that made this country also one of the lowest carbon-intensive economies in the world. If this is indeed a ‘tectonic shift’ moment in European history, then perhaps it is also time for a ‘tectonic shift’ in European energy policy. The unprecedentedly high fossil fuel prices have already significantly diminished the cost gap with green hydrogen in many applications. With this state of mind, we suggest the following 10 measures that potentially ensure the rapid achievement of the increased EU hydrogen targets.
- Set a mandatory target of 10% zero-carbon hydrogen by 2030, i.e. replacing 10% of EU gas consumption with zero-carbon hydrogen. This target can be achieved either by physical blending or by virtual blending, making use of a certificates market. Given the aim of the development of a dedicated hydrogen market, a virtual blending target is preferable. This strong measure ensures demand, certainty for investors and guarantees meeting the required scale-up of the zero-carbon hydrogen market in 2030.
- Set mandatory zero-emission standards for all vehicles in Europe by 2030.
- Phase-out existing grey hydrogen production by 2030.
- Work with relevant member states and the EIB to turn the EU steel industry into a frontrunner as Green Steel Industry by 2030, taking into account the investment cycles in this industry. There is ample demand for green hydrogen which could further incentivise investments.
- Consider a temporary state-aid waiver for zero-carbon hydrogen projects.
- Fundamentally reconsider the proposed gas decarbonisation package legislation by shifting the focus to the need for rapid hydrogen market creation, scale-up and expansion and avoiding premature barriers. All market players willing to invest in growing this market should be welcomed. Once the market is more mature, gradually the tested concepts for the mature electricity and gas markets can be applied.
- Fast track EU subsidies (if necessary tailor-made) to greenlight the big European hydrogen projects (IPCEI and others) before the summer of 2022. This pipeline of relatively FID-ripe projects can enable the rapid scale-up of zero-carbon hydrogen by reducing the time to market.
- Mandate that all public procurement across the EU should be zero-carbon by 2025.
- Boost hydrogen imports by Europeanising the German H2Global scheme; provide adequate EU funding to organise the first big auctions in the summer of 2022 and ensure through energy diplomacy the upstream development of green hydrogen as well as reliable and mutually beneficial interconnectivity.
- Reserve EU funds for repurposing gas pipelines, constructing new hydrogen pipelines where needed, develop large-scale storage in salt caverns and construct H2 (ready) import terminals. An accelerated implementation of the European Hydrogen Backbone Plan helps to create an integrated European hydrogen market.
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