Green hydrogen is likely to play a pivotal role in a carbon-free future, as its adoption will enable the decarbonization of energy-intensive industrial processes whose emissions are hard to abate through simple electrification—such as steel and cement production. However, to take advantage of the economic opportunities created by its adoption at scale, countries will need to rethink the roles they could play in a new energy landscape and define strategic industrial policies accordingly.

Nicola De

Laima

The global transition to a low-carbon economy and adopting the needed clean energy technologies at scale will significantly impact existing value chains[1] and transform production-to-consumption lifecycles. Regulatory and business models will need to rapidly evolve to manage the resulting substantial cost challenges and dramatic shifts in stakeholder interactions while continuing to create value.
Green hydrogen[2] is likely to play a pivotal role in a carbon-free future, as its adoption will enable the decarbonization of energy-intensive industrial processes whose emissions are hard to abate through simple electrification&mdash;such as steel and cement production. However, to take advantage of the economic opportunities created by its adoption at scale, countries will need to rethink the roles they could play in a new energy landscape and define strategic industrial policies accordingly.
Our research[3] shows how successful industrial policies must reflect a country&rsquo;s potential value chain positioning in future green hydrogen markets and elucidates macro geopolitical trends that could reshape international relations as countries compete for industrial leadership, market shares, and opportunities for job creation.
<h2>Country groups</h2>
Focusing on three key industrial applications&mdash;ammonia, methanol, and steel production, which today account for about 41% of global hydrogen demand and which are expected to increase their shares due to global decarbonization efforts (IRENA, 2022)&mdash;we identify five country groups based on the three key variables of resource endowment, current positioning in hydrogen markets, and economic relatedness.[4]
While individual countries in each group face unique challenges and opportunities, nascent dynamics between these groups could spur a green race for industrial leadership impacting international relations.
Frontrunners. Countries with vast resource endowments and considerable market shares in today&rsquo;s hydrogen industrial applications could evolve into frontrunners by integrating the green hydrogen value chain segments of production and industrial applications. Potential frontrunners should focus on industrial policies that foster upscaling along value chains.
Upgraders. Countries with adequate resources for green hydrogen production and highly related economic activities could upgrade their value chain position and attract green hydrogen-based industries. Potential upgraders could benefit from strategic partnerships with frontrunners to foster technological and knowledge transfer. Policies should focus on attracting foreign capital&mdash;for example, by lowering market risk, developing public-private partnerships, and forming joint ventures.
Green hydrogen exporters. Resource-rich countries without upgrading potential should prioritize green hydrogen exports and would benefit from partnerships with green hydrogen importers to deploy enabling infrastructure and reduce market risk. Furthermore, coordination on international standards for green hydrogen production and use could avoid conflict and facilitate trade at a global scale.
Green hydrogen importers. Resource-constrained countries with hydrogen-based industrial applications must develop strategic partnerships to ensure secure and stable green hydrogen supplies. Furthermore, stimulating innovation and knowledge creation through targeted policies will be critical to sustaining competitiveness during the transition to a low-carbon economy and avoiding industrial relocation to frontrunners or upgraders.
Bystanders. Countries with significant constraints along all mentioned three key variables of resource endowment, current positioning in hydrogen markets, and economic relatedness should assess the techno-economic feasibility of removing some of these limitations. Figure 1 depicts the overall geopolitical and market potential for green hydrogen industrial applications.
<img src="https://illuminem.b-cdn.net/articlebody/a916def858b2f019bfc33059e72168bce2781f32.png" alt="Figure 1. Source: Authors&rsquo; elaboration." />
<h2>Conclusions and recommendations</h2>
Our research highlights how only a few countries, like China, Canada, and the United States, could emerge as clear frontrunners. Locating industrial facilities close to low-cost green hydrogen production would allow these nations to create significant added value by increasing control over supply chains and minimizing hydrogen transportation costs. These countries could thus reap the most extensive benefits and become geopolitical and market winners in the global race for green industrialization, market shares, and opportunities for job creation.
Competition for green hydrogen-based industries could foster market tensions between green hydrogen importers and upgraders, resulting in trade barriers or conflicts. Resource-rich countries, like Thailand and Mexico, have the potential for green industrialization and would likely compete with import-dependent industrial powers for market shares and jobs, leading to new geopolitical tensions.
New dependencies could also emerge. Most countries with highly developed ammonia, methanol, or steel industries, such as Saudi Arabia, Japan, and Germany, are also resource-constrained and would depend on green hydrogen imports to meet their demand. From a geopolitical perspective, this means that today&rsquo;s dependencies and supply disruption risks would likely shift, but not disappear, in a low-carbon energy world.
Finally, tensions between higher-income countries in the Global North and lower-income countries, often located in the Global South, could intensify. Although there are opportunities for economic gains in all world regions, most frontrunners are middle- to high-income countries. Many lower-income countries, especially in Africa, could not easily compete in value-added segments of future value chains and would thus be limited to green hydrogen exports. Hence the promise of &lsquo;sustainable development&rsquo; and green industrialization, often associated with the energy transition, might not be replicable everywhere.
Going forward, addressing the opportunities and challenges of green industrialization will require countries and regions to:
<ul>
<li>Identify the roles they want to play in future green hydrogen industrial value chains. Countries with significant green hydrogen potential could prioritize hydrogen exports (green hydrogen exporters), foster value creation opportunities by upgrading along value chains (upgraders), or both (frontrunners).</li>
</ul>
<ul>
<li>Prioritize detailed analysis and planning now since the effects of policy choices made today will be felt decades in the future. Identifying infrastructure bottlenecks and addressing financial gaps in specific markets and applications will also be critical. Synchronizing infrastructure investments with growth in supply and demand will be essential but challenging.</li>
</ul>
<ul>
<li>Foster public-private partnerships. Deployment of hydrogen at scale faces significant challenges that neither the private nor public sector can address alone. For example, private finance will be key in supporting commitments from governments and will increase competition for new decarbonization solutions. At the same time public support will be key in reducing first mover and development risks.</li>
</ul>
<ul>
<li>Evaluate the need for technology transfer and financial support to enable sustainable development and green industrialization for all. This will require a concerted effort by the Global North to deploy technological innovation and financial support to the Global South to drive decarbonization and reduce overall industrial emissions.</li>
</ul>
<h6>[1]&nbsp;Unlike the term supply chain, which is typically used to define a set of operational relationships designed to benefit a single stakeholder and deliver products or services, the term value chain refers to a more conceptual design of business relationships between stakeholders that support the development and adoption of a market or technology at scale.</h6>
<h6>[2]&nbsp;Green hydrogen refers to hydrogen produced by water splitting using renewable electricity.</h6>
<h6>[3] See Laima Eicke and Nicola De Blasio, &ldquo;The Future of Green Hydrogen Value Chains: Geopolitical and Market Implications in the Industrial Sector,&rdquo; Belfer Center for Science and International Affairs, Harvard Kennedy School, October 2022.</h6>
<h6>[4] Economic activities that are highly related to a specific industrial application increase the potential for this application to be developed in a given country due to existing transferrable skills, business networks, raw materials availability, and infrastructure.</h6>
This article is also published by the <a href="https://www.belfercenter.org/publication/green-hydrogen-industrial-value-chains-geopolitical-and-market-implications">Harvard Kennedy School Belfer Center.</a> illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.
<h6>Cover photo by <a href="https://unsplash.com/@eprev?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Anton Eprev</a> on <a href="https://unsplash.com/photos/SQEo2zSXB04?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a>​</h6>

Green hydrogen industrial value chains: geopolitical and market implications

The transition from energy systems dominated by fossil fuels to ones based on renewable electricity and carbon-free molecules will significantly impact existing value chains and forge new pathways and transformation steps from production to consumption. This transition will bring not only substantial cost challenges but also promises to dramatically alter stakeholders’ interactions along value chains.

The transition from energy systems dominated by fossil fuels[1] to ones based on renewable electricity and carbon-free molecules will significantly impact existing value chains[2] and forge new pathways and transformation steps from production to consumption. This transition will bring not only substantial cost challenges but also promises to dramatically alter stakeholders’ interactions along value chains.
Technological innovation is driving dynamics not seen in the energy sector since the Industrial Revolution, and it will be key to accelerating the transition to a low-carbon economy while sustaining growth and achieving prosperity for all. But as new technologies develop to meet growing energy needs, understanding how these technologies will impact existing energy value chains is crucial for navigating the energy transition successfully. To elucidate these dynamics, we must first identify the key technologies[3] driving disruptive change and then understand how their deployment at scale might impact existing value chains or cause new ones to emerge.
<h1>Value Chain Integration or Segmentation</h1>
An analysis of existing energy value chains highlights many reasons for how stakeholders position their offerings—including adopting sustainable business models, specializing in key technologies to gain a competitive advantage, or responding to regulatory constraints. However, these decisions generally result in two outcomes: integration or segmentation.
Integration is a process by which multiple stakeholders at different points along the value chain form sustained collaborations. Integrated scenarios generally occur when there is a need for intense coordination between stakeholders to develop and adopt a market or technology at scale. On the other hand, segmentation refers to activities that create unique markets or differentiation in services, where individual stakeholders realize a competitive advantage through specialization. In segmented areas of the value chain, competitors maximize profits by offering unique products or services to multiple clients.
But what does this mean in practice? Take renewable hydrogen (produced by splitting water with renewable electricity). Both integration and segmentation scenarios will emerge depending on the use case.
Due to its versatility, hydrogen is often described as the “missing link” in global decarbonization efforts and can be used in both stationary and mobility applications. As a readily dispatchable means of storing energy, hydrogen can help address growing intermittency and curtailment challenges associated with expanded renewable energy capacity. It can serve as a fuel in stationary systems for buildings, backup power, distributed generation, or high-temperature industrial heat. As a sustainable mobility energy carrier, hydrogen can power fuel-cell electric vehicles or be the base for synthetic fuels, thus complementing ongoing efforts to electrify road and rail transportation and provide a scalable option to decarbonize the shipping and aviation sectors. But this versatility also creates significant uncertainties that must not be overlooked. The infrastructure needed in an economy where hydrogen is used as a transport fuel is very different from one where its primary value is as a heating fuel for buildings.
On the one hand, stationary applications drive integration scenarios because the development and adoption of hydrogen at scale necessitate close coordination between all stakeholders from production to consumption. Similar to the emergence of liquefied natural gas markets where players along regional natural gas value chains had to work together to deploy the required infrastructure and drive adoption globally. On the other hand, hydrogen technologies will drive segmentation scenarios in the mobility sector. While the light-duty vehicle market will be dominated by lithium-ion battery- powered electric vehicles, the heavy-duty segment will be powered by hydrogen or hydrogen derivatives like ammonia.
<h1>Recommendations and Conclusions</h1>
As we move toward a more decarbonized and decentralized future spurred by technological innovation, the public and private sectors must work together to rethink their roles within value chains.
This will require a concerted approach to:
<ul><li>Acknowledge and address the new geopolitical dynamics of a world less reliant on fossil fuels and the political push for self-sufficiency and strategic independence. For example, if renewable hydrogen were to be adopted at scale, future market dynamics will likely resemble today’s regional natural gas markets—with the corresponding potential for geopolitical conflict. Countries will assume specific roles in global renewable hydrogen systems based on their renewable energy resources and water endowment levels, as well as their infrastructure potential. Therefore resource-rich countries will need to implement policies to trigger technology innovation and infrastructure investments. On the other hand, importing countries must prepare and embrace strategic long-term supply diversification to increase national energy security.</li></ul>
<ul><li>Recognize key technologies driving disruptive change and examine how existing value chains will evolve or new ones emerge. This will require a concerted effort by all stakeholders to identify integration and segmentation scenarios and their impact on market dynamics along with any associated infrastructure needs.</li></ul>
<ul><li>Define clear government policies and regulations based on the detailed analysis of value chain scenarios. Only a more profound understanding of these dynamics will allow policymakers and corporate investors to better navigate the opportunities that decarbonization will bring. In order to build the resilient energy systems of the future and tackle climate change, countries will need to develop industrial policies designed to leverage their comparative advantages while incentivizing internal competition in high-value-added sectors. Policymakers will need to facilitate the creation and growth of new markets, address capital misallocation across sectors, promote innovation to drive robust growth, and strengthen participation and integration in global value chains.</li></ul>
Success is possible, but only a cohesive and collective understanding of how energy value chains will evolve will enable each participant to take the best course of action to prepare for and succeed in the energy transition. Stakeholders who are able to embrace the new energy landscape will gain significant competitive advantages, while the others risk fading into obsolescence.
This article is also published by the <a href="https://www.belfercenter.org/publication/technological-innovation-and-future-energy-value-chains">Belfer Center for Science and International Affairs</a>. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.
<h3>Footnotes</h3>
[1] Today coal, oil, and natural gas still account for 80% of global energy demand. [2] We use the term value chain to define a more conceptual design of business relationships between stakeholders that support the development and adoption of a market or technology at scale. Unlike the term supply chain that is typically used to define a set of operational relationships designed to benefit a single stakeholder and deliver products or services. [3] Examples of disruptive technologies include renewable hydrogen; carbon capture, utilization and sequestration; blockchain; and nuclear fusion.

Technological Innovation and the Future of Energy Value Chains

As countries around the world pledge to remove nearly all carbon emissions from their economies within the next forty years, the spotlight has moved to the deep decarbonization of all energy sectors. This aggressive push to decarbonize has sparked renewed interest in clean hydrogen—defined as hydrogen produced from water electrolysis with zero-carbon electricity.

Alejandro

As countries around the world pledge to remove nearly all carbon emissions from their economies within the next forty years, the spotlight has moved to the deep decarbonization of all energy sectors. This aggressive push to decarbonize has sparked renewed interest in clean hydrogen—defined as hydrogen produced from water electrolysis with zero-carbon electricity. While hydrogen has been a staple in the energy and chemical industries for decades, renewable hydrogen is now enjoying unprecedented political and business momentum as a versatile and sustainable energy carrier that could be the missing piece in the carbon-free energy puzzle. While success is possible, this transformational effort will require close coordination between policy, technology, capital, and society to avoid falling into the traps and inefficiencies of the past.
This report focuses on the market and geopolitical implications of renewable hydrogen adoption at scale in the European Union (EU) and presents long-term strategies based on three reference scenarios. Each scenario focuses on one key strategic variable: energy independence, cost (optimization), or energy security.
Our analysis shows that only by working together can the EU become a global leader in clean hydrogen innovation and simultaneously contribute to the EU’s climate and energy security goals, a more robust economy, and a more integrated union.
What would it require to become hydrogen independent? Where should production be located for cost-competitive supplies? What is the enabling infrastructure that needs to be developed and deployed at scale? How could supply risks be mitigated? Only a thorough analysis of future scenarios can provide policymakers and investors with answers to these key questions, as well as a deep understanding of the associated market and geopolitical implications.
<h1>Why renewable hydrogen?</h1>
Hydrogen produced from renewable electricity by splitting water has a variety of potential uses, both in mobility and stationary applications. But most importantly, renewable hydrogen has the potential to tackle hard-to-abate emissions in sectors such as iron and steel production, high-temperature industrial heat, aviation, shipping, long-distance road transportation, and heat for buildings. These sectors account for over one-fourth of global carbon dioxide (CO2) emissions.1
While renewable hydrogen’s production costs are still higher today than those from fossil fuels, renewable electricity and electrolyzer costs are forecasted to decrease significantly as deployment grows.
<h1>Why the European Union?</h1>
The EU aims to become carbon neutral by 2050 and sees renewable hydrogen as key to achieving this objective.
In July 2020, the EU published its hydrogen strategy, setting electrolyzer deployment targets to 2030 and outlining the ambition to develop an open and competitive EU hydrogen market. The strategy forecasts that renewable hydrogen will reach maturity and be deployed at scale in all hard-to-decarbonize sectors by 2050 but sets no targets beyond 2030 and provides few details on how the EU could meet this hydrogen demand.
The EU stands at a crossroads. Today, it is no doubt at the forefront of the global hydrogen race. But to maintain its leadership, the EU needs to quickly define and implement a cohesive long-term strategy for developing competitive and secure hydrogen markets.
Our prior work on renewable hydrogen&#x27;s global geopolitical and market implications2 shows that while some resource-rich member states, like Spain, can evolve into regional exporters, no member state can become a global export champion. On the other hand, regional partners like Morocco have this potential and could play a significant role in EU hydrogen markets.
As discussed, to shed light on alternative development pathways, this report considers three reference scenarios in which the EU prioritizes one of three strategic variables: energy independence, cost (optimization), or energy security:
<ul><li>Hydrogen Independence: the EU prioritizes energy independence and develops internal, self-sufficient renewable hydrogen markets.</li></ul>
<ul><li>Regional Imports: the EU prioritizes cost optimization by complementing the lowest-cost internal production with imports from neighboring export champions (Morocco and Norway) and renewable-rich countries (Iceland and Egypt).</li></ul>
<ul><li>Long-Distance Imports: the EU prioritizes energy security and cost optimization by combining long-distance imports from export champions (Australia and the United States) with regional imports and internal production.</li></ul>
Each scenario analysis consists of three steps. First, overall renewable hydrogen potentials are calculated for each country (based on renewables, freshwater, and land availability; infrastructure potential; and competing demand for renewable electricity). Second, each country’s production cost curves are computed (based on local renewable electricity and electrolyzer costs). Lastly, trade optimizations are carried out (based on production cost curves and transportation costs).
Our study highlights how all three scenarios are viable pathways to meeting the EU’s projected renewable hydrogen demand. However, hydrogen independence would only be possible if member states traded significant amounts of hydrogen between them, which would require deploying integrated enabling infrastructure and harmonizing standards and regulations, including certificates of origin.
Furthermore, the analysis of cost-curves shows that renewable hydrogen supplies in the Regional and Long-Distance Imports scenarios are more cost-competitive than the Hydrogen Independence scenario thanks to significantly lower production costs attainable outside the EU. While member states like Spain and Ireland could develop their full potentials cost-effectively, other states like Denmark would see costs rise as production increases, leading to higher supply costs overall.
As shown in the trade optimization step, while the Regional Imports scenario allows for meeting demand at the lowest cost, member states—even when accounting for the higher transportation costs—may rely on a single regional partner to supply a significant fraction of their hydrogen needs. This reliance on a single regional partner would replicate past patterns of energy dependence and security risks.
Supply diversification from long-distance export champions like the United States would be an effective way to increase overall energy security for the EU while maintaining low supply costs.
While all three scenarios are viable pathways to meeting projected EU renewable hydrogen demand, the overall market and geopolitical implications are significantly different in terms of the above key strategic variables and enabling infrastructure investment allocations.
In the end, today’s policy choices will determine which scenario will unfold, but policymakers need to evaluate alternative requirements and competing needs carefully. Overall renewable hydrogen adoption at scale in the EU will require policymakers to:
<ul><li>Lower market risk and remove commercialization barriers to achieve the required economies of scale.</li></ul>
<ul><li>Define clear policies to stimulate strong growth in renewable energy sources, particularly in member states that could become regional exporters.</li></ul>
<ul><li>Fund innovation and pilot projects to accelerate progress towards cost-competitive renewable hydrogen technologies.</li></ul>
<ul><li>Coordinate enabling infrastructure development and deployment across the continent.</li></ul>
<ul><li>Harmonize standards and regulations, including certificates of origin, to ensure that renewable hydrogen flows seamlessly across borders.</li></ul>
Implementation of the Regional Imports or Long-Distance Imports scenarios will also require the definition of:
<ul><li>Long-term contracts and direct investments to help reduce market risk for producers.</li></ul>
<ul><li>Transparent regulations and long-term investments in enabling infrastructure to send strong signals to investors in producing nations and trigger production-capacity investments.</li></ul>
<ul><li>International standards for renewable hydrogen production, transportation, and use.</li></ul>
Renewable hydrogen offers a unique opportunity to accelerate the EU’s transition to a low-carbon economy. Still, deployment at scale faces fundamental challenges that neither the private nor public sector can address alone. Only by working together can the EU become a global leader in renewable hydrogen innovation and simultaneously contribute to its climate and energy security goals, a more robust economy, and a more integrated union.
<img src="https://illuminem.b-cdn.net/articlebody/2eeca135afc25fbdcb2242e93d27035c1539fb5c.png" alt="Figure 1: Renewable hydrogen potentials by 2050. Source: authors' analysis">
This article is a summary of the &quot;The Future of Renewable Hydrogen in the European Union: Market and Geopolitical Implications&quot; report of the Belfer Center for Science and International Affairs, Harvard Kennedy School, co-authored by:
Nicola De Blasio and Alejandro Nuñez-Jimenez
To read the full report please click <a href="https://www.belfercenter.org/publication/future-renewable-hydrogen-european-union-market-and-geopolitical-implications-0">here</a>.
Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.
<h3>References</h3>
[1] Davis et al. (2018) &quot;Net-zero emissions energy systems,&quot; Science, 360(6396). <a href="https://doi.org/10.1126/science.aas9793">https://doi.org/10.1126/science.aas9793</a>​ 
[2] Pflugmann and De Blasio (2020) Geopolitical and Market Implications of Renewable Hydrogen: New Dependencies in a Low-Carbon Energy World, Belfer Center for Science and International Affairs, Harvard Kennedy School of Government, March 2020. <a href="https://www.belfercenter.org/publication/geopolitical-and-market-implications-renewable-hydrogen-new-dependencies-low-carbon">https://www.belfercenter.org/publication/geopolitical-and-market-implications-renewable-hydrogen-new-dependencies-low-carbon</a>​

The Future of Renewable Hydrogen in the European Union: Market and Geopolitical Implications

A rainbow of colors currently dominates almost every conversation on the transition to a low-carbon economy: green, grey, blue, turquoise, pink, yellow - an ever-increasing palette to describe the same colorless, odorless, and highly combustible molecule, hydrogen. The only difference is the chemical process used to produce it.
Therein lies a critical challenge for the successful transition to a low-carbon economy. As energy systems increasingly evolve from centralized to decentralized, from “grey” to “green,” stakeholders will need to efficiently account for and track emissions and green molecules in a transparent, secure, and standardized way, and must be able to do so along value chains from production to consumption.

A rainbow of colors currently dominates almost every conversation on the transition to a low-carbon economy: green, grey, blue, turquoise, pink, yellow[1] - an ever-increasing palette to describe the same colorless, odorless, and highly combustible molecule, hydrogen. The only difference is the chemical process used to produce it. The colors of hydrogen are crucial for the energy transition because each production pathway generates different amounts of greenhouse gas emissions. For example, while grey hydrogen, produced from fossil fuels, yields up to 20 tons of carbon dioxide per ton of hydrogen, green hydrogen, produced from renewable energy sources like solar and wind, yields no emissions. Furthermore, although these colors all refer to the same molecule, production costs differ: green hydrogen remains substantially more costly today.
With aggressive development and deployment of electrolyzers and other hydrogen technologies at scale, green hydrogen could become cost-competitive with blue hydrogen, produced from natural gas with carbon capture, by 2030 in many countries.[2] Overall, the rate at which green hydrogen costs decrease will also depend on government policies and incentives, such as carbon pricing and tax credits. Therein lies a critical challenge for the successful transition to a low-carbon economy. As energy systems increasingly evolve from centralized to decentralized, from “grey” to “green,” stakeholders will need to efficiently account for and track emissions and green molecules in a transparent, secure, and standardized way, and must be able to do so along value chains from production to consumption.
<h1>Tracking emissions and green molecules along value chains</h1>
Stakeholders must be appropriately credited for investing in the current premium required to produce carbon-free hydrogen. Therefore, the ability to verify a hydrogen molecule’s origin from clean energy sources amidst a dynamic energy landscape presents both a sizable challenge and a tremendous opportunity. Addressing this dilemma will require managing large volumes of multi-party transactions, which need to be settled quickly, securely, and inexpensively.
Today, the origin of a commodity is certified through certificates of origin. However, the certification process can be complex, requiring many intermediaries that add time, labor, and cost burdens. Furthermore, concerns over whether commodities are accurately counted and traded pose challenges to scalability. Innovative technologies like blockchain could significantly simplify carbon accounting and green certification processes.
A blockchain is a shared, decentralized, and immutable digital ledger that securely stores transactions and enables the automated execution of “smart contracts”[3] among parties without a central authority or intermediaries.[4] At its core, the technology consists of a distributed network of independent computers, or nodes, that manages the blockchain; the nodes receive new transactions, review their legitimacy based on consensus protocols, and integrate them into a chain.
Blockchain technology is already demonstrating its innovation potential in the financial sector, thanks to its unique structural advantages of trust, efficiency, control, and security. These properties make blockchain well-suited to optimize processes, enable novel business solutions, and promote greater access to services for a broader range of users by significantly reducing costs. However, significant challenges need to be addressed to foster adoption, such as interoperability between blockchain networks, trust among users, and energy consumption.
Many trends driving profound changes in the energy sector can also benefit from and further unlock blockchain&#x27;s full potential. Pilot applications are emerging in many developed and developing countries. For example, US-based Brooklyn Microgrid runs a community energy market within a microgrid[5] where members can buy and sell energy from each other using smart contracts on a blockchain.[6]​ 
Overall, the increased adoption of distributed generation, energy storage, and smart devices, together with the need to track emissions and green molecules along value chains, creates new complexities and challenges for energy markets designed for centralized control. Indeed, blockchain technology can help policymakers and regulators address concerns over measurement, certification, and tracking.
<h1>Conclusions and Policy Recommendations</h1>
As technology and policy pathways to decarbonization will need to rely on processes that accurately measure and record emissions and green molecules across global markets characterized by limited transparency, uneven standards, different regulatory regimes, and trust issues, blockchain can greatly accelerate the transition to a low-carbon economy. But significant barriers to adoption remain, including policy, regulatory, and technological hurdles.
Due to the substantial public and national security interests ingrained in the energy sector, policymakers and regulators will need to fully assess all opportunities and challenges, including the integrity of information on a blockchain, rules of access, transparency issues, and privacy requirements. Furthermore, blockchain’s full potential will not be realized until a critical mass of users embraces the technology.
Going forward, adoption at scale will require a concerted approach to:
<ul><li>Convene stakeholders across the value chain and foster collaboration in addressing first-mover risks, strategic barriers, and opportunities.</li></ul>
<ul><li>Educate stakeholders about blockchain technology and its value proposition. Many still have limited understanding or misconceptions about its true potential (for example, conflating the concepts of blockchain and cryptocurrency). Address stakeholder concerns associated with transparency of transactions and cybersecurity risks.</li></ul>
<ul><li>Develop a stable regulatory framework for users and adopters and structured markets and incentives to support key players, particularly utilities, in adopting blockchain and investing in digital infrastructure.</li></ul>
<ul><li>Identify design principles, best practices, and standards for robust blockchain platforms that achieve shared agreement among key stakeholders (including mandating reasonable energy consumption levels associated with blockchain adoption).</li></ul>
<ul><li>Support research and development efforts and pursue pilot and demonstration projects.</li></ul>
As governments and corporations increasingly prioritize green hydrogen in the energy transition, and as new policy, business, and regulatory models for a rapidly changing energy sector are developed, blockchain is poised to play a prominent role in supporting these strategies. If blockchain succeeds in disrupting the energy industry, stakeholders throughout the energy value chain will reap substantial benefits for years to come.
This article is a policy brief co-authored by Charles Hua and Nicola de Blasio.
This policy brief is also published by the <a href="https://www.belfercenter.org/publication/role-blockchain-green-hydrogen-value-chains">Belfer Center for Science and International Affairs, Harvard Kennedy School</a>. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.
<h4>Footnotes</h4>
[1] The colors of hydrogen correspond to different production pathways. Green hydrogen is produced from renewable energy by water electrolysis, grey from fossil fuels, blue from natural gas with carbon capture and sequestration (CCS), turquoise from natural gas pyrolysis, pink from nuclear, and yellow from solar.
[2] IRENA (2020), “Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5⁰C Climate Goal” International Renewable Energy Agency, Abu Dhabi.
[3] Smart contracts are programs stored on a blockchain that run when predetermined conditions are met. They are typically used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when specific conditions are met.
[4] Swan, M. (2015), “Blockchain: Blueprint for a new economy” O&#x27;Reilly Media Inc.
[5]A small network of electricity users with local sources of supply that is usually attached to a centralized national grid but is also able to function independently.
[6]Brooklyn Microgrid, <a href="https://www.brooklyn.energy/">https://www.brooklyn.energy/</a>, accessed October 2021.

The role of blockchain in green hydrogen value chains

To accelerate the global transition to a low-carbon economy, all energy systems must be actively decarbonized. While hydrogen has been a staple in the energy and chemical industries for decades, clean hydrogen – defined as hydrogen produced from water electrolysis with zero-carbon electricity – has captured increasing political and business momentum as a versatile and sustainable energy carrier in the future carbon-free energy puzzle.

To accelerate the global transition to a low-carbon economy, all energy systems must be actively decarbonized. While hydrogen has been a staple in the energy and chemical industries for decades, clean hydrogen – defined as hydrogen produced from water electrolysis with zero-carbon electricity – has captured increasing political and business momentum as a versatile and sustainable energy carrier in the future carbon-free energy puzzle. But taking full advantage of this potential will require a coordinated effort between the public and private sectors focused on scaling technologies, reducing costs, deploying enabling infrastructure, and defining appropriate policies and market structures. Only in this way can we avoid replicating the system-wide inefficiencies of the past that have characterized regional approaches to deploying new energy infrastructure.
<h1>Key findings </h1>
<ul><li>Clean hydrogen could play a significant role in an accelerated transition to a low carbon economy, particularly for hard-to- abate sectors, and offers a path toward meeting national and international climate and pollution goals while avoiding reliance on imported fuels.</li></ul>
<ul><li>The two key challenges to clean hydrogen adoption and use at scale are currently its cost and limited infrastructure availability. Public concerns around safety might also present additional challenges to deployment.</li></ul>
<ul><li>From a market perspective, clean hydrogen, like natural gas, will initially flourish in regional markets with the corresponding potential for geopolitical conflicts.</li></ul>
<ul><li>A country’s role in clean hydrogen markets will depend not only on its ability to produce and distribute renewable hydrogen cost-competitively and at scale, but also on its policy choices. Nations will likely assume specific roles in future clean hydrogen markets, which can be classified into five groups: export champions, water constrained producers, major importers, self-sufficient producers or regional exporters, and infrastructure constrained producers. For example, our analysis on China (Section 4) suggests that Beijing still has a long way to go before a hydrogen society could reach fruition, but if the country were to replicate the success it has had with other clean technologies (like solar PV) China could significantly lower production costs and accelerate adoption around the world, while emerging as a renewable hydrogen superpower.</li></ul>
<ul><li>Clean hydrogen can help address renewable energy intermittency and curtailment issues and open new avenues for developing clean technology manufactured goods for both domestic and export markets, thus providing substantial additional benefits to local economies.</li></ul>
<ul><li>In the mobility sector, hydrogen can complement existing efforts to electrify road and rail transportation, especially in long-distance and heavy-duty sectors, and provide a scalable option for decarbonizing shipping and aviation.</li></ul>
<ul><li>Blockchain can greatly accelerate the transition to a low-carbon economy as technology and policy pathways to decarbonization will need to rely on processes that accurately measure and record emissions and green molecules across global markets characterized by limited transparency, uneven standards, different regulatory regimes, and trust issues. Addressing these challenges will require managing large volumes of multi-party transactions, which need to be settled quickly, securely, and inexpensively. These processes can be aided greatly by blockchain.</li></ul>
<h1>Recommendations</h1>
Based on these findings, we recommend the following set of actions:
<ul><li>The G20 should institute a “Technology 20” official engagement group that brings together leading global stakeholders from the private and public sectors across entire value chains to serve as a technology sandbox and provide technology and policy recommendations to accelerate innovation cycles. The case of hydrogen highlights how adopting new clean technologies can offer unique opportunities to accelerate the transition to a low-carbon economy. Still, deployment at scale faces significant challenges that neither the private nor public sector can address alone.</li></ul>
<ul><li>Governments pursuing clean hydrogen should increase investments in innovation, convene stakeholders across value chains, and foster collaboration in addressing first-mover risks, strategic barriers, and opportunities.</li></ul>
<ul><li>Nations and regions that wish to adopt clean hydrogen at scale should prioritize detailed analysis and planning now since the effects of policy choices made today will be felt decades in the future. As our research highlights, nations will need to carefully consider their role in future clean hydrogen markets from a geopolitical and market perspective. It will also be critical to identify infrastructure bottlenecks and address financial gaps in specific markets and applications. For example, building a pipeline network to deliver hydrogen to homeowners who have yet to install hydrogen-fueled stoves and heating systems would be financially disastrous. Hence, synchronizing infrastructure investments with growth in supply and demand will be essential but challenging.</li></ul>
<ul><li>Addressing the price gap between clean and fossil-based hydrogen will require active policy interventions. Such policies could include measures to incentivize the value and use of clean hydrogen, such as implementing clean hydrogen standards and carbon pricing.</li></ul>
<ul><li>Stakeholders must be appropriately credited for investing in the current premium required to produce carbon-free hydrogen. This will require concerted efforts to identify design principles, best practices, and standards for robust blockchain platforms that achieve shared agreement among key stakeholders (including mandating clean blockchains) and to educate stakeholders about blockchain technology and its value proposition.</li></ul>
<ul><li>Nations and regions should implement market-aligning policies, together with production and safety standards, to accelerate clean hydrogen adoption and enable transnational trade.</li></ul>
Clean hydrogen offers a unique opportunity to accelerate the global transition to a low-carbon economy, but deployment at scale faces important challenges. We believe that only a deeper understanding of the underlying dynamics will allow policymakers, investors, and other stakeholders to better navigate the challenges and opportunities of a low-carbon economy without falling into the traps and inefficiencies of the past. Stakeholders need to thoroughly assess clean hydrogen’s economic, environmental, and geopolitical implications, develop strategies to address them, and define long-term implementation plans – and it is essential to do so now.
This article is a summary of the &quot;Mission Hydrogen: Accelerating the Transition to a Low Carbon Economy&quot; report of the Belfer Center for Science and International Affairs, Harvard Kennedy School, co-authored by:
Nicola De Blasio, Fridolin Pflugmann, Henry Lee, Charles Hua, Alejandro Nuñez-Jimenez and Phoebe Fallon
To read the full report please click <a href="https://www.belfercenter.org/publication/mission-hydrogen-accelerating-transition-low-carbon-economy">here</a>.
Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

Mission Hydrogen: Accelerating the Transition to a Low Carbon Economy

Clean hydrogen is experiencing unprecedented momentum as confidence in its ability to accelerate decarbonisation efforts across multiple sectors is rising. New projects are announced almost every week. Despite the optimism surrounding clean hydrogen, key uncertainties remain.

Clean hydrogen is experiencing unprecedented momentum as confidence in its ability to accelerate decarbonisation efforts across multiple sectors is rising. New projects are announced almost every week. For example, an international developer, Intercontinental Energy, plans to build a plant in Oman that will produce almost 2 million tons of clean hydrogen and 10 million tons of clean ammonia.[<a href="https://www.theguardian.com/world/2021/may/27/oman-plans-to-build-worlds-largest-green-hydrogen-plant">1</a>] Dozens of other large-scale projects and several hundred smaller ones are already in the planning stage. Similarly, on the demand side, hydrogen is gaining support from customers. Prominent off-takers such as oil majors like Shell and bp, steelmakers like ThyssenKrupp, and world-leading ammonia producers like Yara are working on making a clean hydrogen economy a reality.
Despite the optimism surrounding clean hydrogen, key uncertainties remain. One of hydrogen’s attractions is that it can provide carbon-free energy in multiple sectors—transport, heating, industry, and electricity generation. But this advantage also creates uncertainties. The infrastructure needed in an economy in which hydrogen is primarily used as a transport fuel is very different from one in which its primary value is as a heating fuel. Today no major hydrogen pipeline networks exist, and no liquified hydrogen ships are in commercial operation. There is a true chicken and egg problem. If there is no infrastructure to move hydrogen, will investments in supply and demand happen at the pace needed to meet national decarbonisation targets? This challenge raises an even more pressing question: what should be the respective roles of the public and private sectors in deploying enabling infrastructure at scale?
While market economics must be the driving force behind production and demand decisions, regulatory incentives will play a pivotal role in both shaping and deploying enabling infrastructure at scale. Realising hydrogen’s full potential will require careful policy consideration to address competing needs. It is essential to plan for the future now, since the effects of policy choices made today will be felt decades in the future. For example, building a pipeline network to deliver hydrogen to homeowners who have yet to install hydrogen-fuelled stoves and heating systems would be financially disastrous. Hence, synchronising infrastructure investments with growth in supply and demand will be essential but will be very challenging.
An ongoing debate is how hydrogen will be delivered to demand centres, or in other words, what will be the preferred energy carrier. One option would be to generate carbon-free power and transmit it to residential, commercial, and industrial users. The electricity would then be used to produce hydrogen directly onsite. This approach eliminates hydrogen transmission costs at the expense of overburdening power grids already constrained by the need to transport increasing shares of renewable energy. Another option would be to pipe hydrogen directly to customers. While not impacting power grids, this approach requires upgrading existing natural gas pipelines to allow for increasing shares of hydrogen or building new hydrogen-dedicated infrastructure. Each of these options would cost billions, and each would face significant risks in the form of uncertain markets, operations, and regulatory regimes.
Countries without existing natural gas networks will need to invest in new hydrogen pipelines or upgrade their power grids. The most viable solution will depend on the required volumes and the geographical distribution of production and demand sites. In extreme synthesis, pipelines are usually the most cost-efficient solution when volumes are large, and many demand centres are located along the pipeline route.
Admittedly, the use of natural gas infrastructure could significantly lower the overall cost of transporting hydrogen, both in terms of reduced investment in pipeline infrastructure and avoided investment in the expansion of the electricity grid. Still, a careful case-by-case evaluation is needed to determine the technical and economic feasibility of competing options together with the overall value chains implications of a transition from natural gas to hydrogen. 
In the early stages, hydrogen could be blended at low percentages with natural gas in existing networks, in most cases without the need for any upgrades. However, even this approach comes with challenges and costs due to the regional nature of natural gas systems. While some networks and uses can manage higher hydrogen shares, others can deal with only limited percentages. Furthermore, from a market perspective, countries have different blending limits, significantly hindering cross-border trade opportunities. In later stages, either new infrastructure or the widespread conversion of existing gas networks and end uses (industrial, commercial, and residential) to pure hydrogen would be required.
But herein lies the ultimate challenge of operationally managing the final step in this conversion process. It is a never-addressed point that reiterates the importance of solid policy guidance for a hydrogen economy to fully take off: the conversion to pure hydrogen would require all end uses in the distribution zone —including residential appliances— to be ready almost overnight. However, how this process should work from an operational point of view is unclear. What is clear, though, is that the public and private sectors will need to coordinate their activities at the planning, financing, and implementation stages.
From a global market perspective, governments will need to proactively synchronise national regulatory regimes so that hydrogen can flow between countries. Within countries, regulators and policymakers will need to address key challenges, such as:
<ul><li>how to define the regulatory regime, ownership, and sharing of enabling infrastructure </li></ul>
<ul><li>how to incentivise customers to install new uses, compensate for rendering existing equipment worthless, and handle conflicts of stakeholders not cooperating in the transition </li></ul>
<ul><li>how to synchronise demand ramp-up, production build-out, and infrastructure availability, especially given that natural gas demand might not decline complementary to hydrogen rise </li></ul>
<ul><li>how to ensure uninterrupted energy supply to end-users, particularly residential consumers, during the transition process</li></ul>
To stimulate the needed investments from the private sector, policymakers and regulators will need to create a levelled playing field with clear market structures and regulations, recognising the pros and cons of all alternatives and a concerted effort to synchronise investments in supply, demand, and infrastructure. Only in this way can we avoid replicating the system-wide inefficiencies which characterised regional approaches to the deployment of new energy infrastructure.
This policy brief is the fourth in the Mission Hydrogen series, a collaboration with the Italian Institute for International Political Studies (ISPI) on the future of hydrogen for the G20.
It has been co-authored by Fridolin Pflugmann​, Henry Lee​ and Nicola de Blasio.
This policy brief is also published by the <a href="https://www.belfercenter.org/publication/hydrogen-deployment-scale-infrastructure-challenge">Harvard Belfer Center for Science and International Affairs</a>. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

Nicola De Blasio

Nicola De Blasio

Green hydrogen industrial value chains: geopolitical and market implications

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