The next decade will be of decisive importance in determining whether producer economies will succeed in reinventing their business models to ones compatible with the drive to achieve net-zero emissions by mid-century

Noé van

<h2>Introduction</h2>
From Dutch Disease to Energy Transition was launched in Paris on 30 June 2023. My book provides a personal assessment on the economics &amp; politics of resource-rich countries, based on a review of the vast academic literature, as well as on personal memories and reflections gathered in roughly 35 years of working for the Dutch government and international organisations (IEA, IEF, IPHE). This article provides some key excerpts and insights from the last chapter on lessons learned and conclusions.&nbsp;
<h2>Navigating the narrow path of tackling Dutch Disease &amp; the resource curse</h2>
Is the abundance of natural resources the equivalent of the biblical &lsquo;manna from heaven&rsquo; that provides a country with a permanent economic advantage compared to resource-poor countries? In practice, it turns out this is seldom the case, although it seems counter-intuitive. Commodity prices go through long boom-bust cycles that can be very unsettling and destabilising for countries whose economies predominantly depend on natural resources like oil and gas. Furthermore, when the exploitation of natural resources starts to dominate the economy, often other sectors such as the manufacturing industry get crowded out and suffer. This is what happened in the Netherlands after the discovery of natural gas in 1959, hence the term &lsquo;Dutch Disease&rsquo;, coined by The Economist in 1977.1 On the political side, it has often been observed that resource-rich countries seem to be less democratic and more prone to corruption and violence or even civil war, compared to resource-poor countries.2 Hence the popular term of the 'resource curse&rsquo;.&nbsp;
In the book, I demonstrate how incredibly challenging it is for governments of oil and gas producing countries to combat or avoid Dutch Disease and the Resource Curse. This is the case even for governments with the strongest determination and political support for policies pursued. I certainly agree with all experts that stress the abundance of natural resources does not need to be a &lsquo;curse&rsquo; for countries and that the destiny of these countries is not cast in stone. Leadership does matter a lot and so do sound policies. It really boils down to navigating the way along a narrow path, avoiding the numerous pitfalls while nurturing fiscal prudence and advancing steadily on economic diversification away from natural resources, including decarbonisation.&nbsp;
It is a very tough challenge. Nearly as tough as Odysseus&rsquo; journey back home after the Trojan War had ended, resisting the calling of the Sirens and sailing the narrow straits between Scylla and Charybdis, among many other obstacles. A separate chapter on case studies from around the world lays out in some detail how countries as different as the Netherlands, Norway, Saudi Arabia, Venezuela and Nigeria have paved their own path in struggling with the challenges at hand. In the chapter on the global energy transition, I conclude that the unstoppable global energy transition has stepped up the already-tough challenge by adding an emerging deadline to the process of economic diversification. With a considerable part of the global economy moving to net-zero emissions by 2050 (or soon after), the energy transition becomes the sword of Damocles hanging over the head of oil and gas producing countries. They have no time to lose and delays in economic diversification and decarbonising fossil-fuel exports are becoming potentially very costly.&nbsp;&nbsp;&nbsp;
That said, there really is no single set of clear-cut policy recommendations that can be successfully applied anywhere in the world. Very often, Norway is portrayed as the model all resource-rich countries should follow. While I agree that there are useful lessons to learn from Norway&rsquo;s experience, even Norway is also still struggling with the momentous and underrated challenge of reinventing its business model for the post-fossil fuel era. Apart from this, it is rather meaningless to recommend to the government of a developing country with huge natural resources to &ldquo;become Norway&rdquo;, as oil in Norway was discovered when the country already was fairly industrialised and blessed with strong institutions.&nbsp;
So, what are the lessons learned and which policies can we recommend?
<h2>Stabilise your macroeconomic game</h2>
Without a strong stabilising, anti-cyclical fiscal policy, the economy of any resource-rich country will ride the wild waves of the boom-and-bust cycles of commodity prices. In other words, it will show much greater macroeconomic volatility than resource-poor economies. In addition, such a resource-rich economy will risk becoming overly indebted because spending the windfall revenues during booms is so much easier than slashing expenditures once commodity prices tank. In practice, very few resource-rich countries manage to avoid this kind of volatility by saving enough money for rainy days. Botswana, Chile and Norway are among them, as well as Saudi Arabia in more recent years.
<h2>Create a big Bazooka investment fund &amp; plan for economic diversification and energy transition</h2>
It is hard to overestimate the importance of consistently building up a large, strong sovereign wealth fund to prepare for the long-term future when resource revenues start dwindling. The unstoppable global energy transition has raised the stakes even more. A big national investment fund can function as a big &lsquo;Bazooka&rsquo; to facilitate the country&rsquo;s path towards full decarbonisation. In the book, it is argued that Saudi Arabia is one of the very few countries to have made tangible progress in this direction by mandating its fund to invest in the energy transition, although there is still a lot more that has to be done.&nbsp;
<h2>Give citizens a direct stake in revenues</h2>
There is a strong case to be made for direct cash transfers (handouts) to citizens linked to resource revenues: it alleviates poverty in developing countries, instills a sense of common belonging in countries with strong divisions and encourages transparency and accountability of the government with respect to revenues and spending. Alaska is the only state that has done this annually since 1982.3&nbsp;It was seriously proposed several times in countries like Iraq, Kuwait and Venezuela, but it got rejected in every instance because governments claimed they knew better how to spend the entire sum of state oil revenues.
<h2>Tackle corruption ruthlessly</h2>
There is no escaping the conclusion that resource abundance greatly increases the opportunities for corruption. It is like a permanent headwind any government of a resource-rich country must deal with as best as they can. The example of Saudi Arabia in recent years demonstrates that an uncompromising ramp-up of anti-corruption measures can start to make a significant difference, even when still more needs to be done. Transparency and accountability are key ingredients of any effective anti-corruption policy, next to checks and balances in the government system, civil society and independent press which can also be very helpful.
<h2>Summing up</h2>
To put it simply, navigating the narrow path of tackling Dutch Disease and the resource curse boils down to finding a policy package that is both satisfactory for current and for future generations of the population and well suited to the specific circumstances of the country in question. Current generations would benefit from policies that manage to avoid excessive economic volatility, allow them a stake in resource revenues, and encourage accountability of public spending. For the benefit of future generations living in a net-zero world, nothing short of a strong economic diversification and decarbonisation strategy will do.&nbsp;&nbsp;&nbsp;&nbsp;
<h2>What the international community can do</h2>
Nothing can replace the strong domestic policy stance needed to tackle the risks of Dutch Disease and the resource curse. Still, helping producer economies to succeed in meeting the huge challenge of long-term decarbonisation is very much in the interest of the international community, if the world is to have any chance of achieving net-zero emissions by mid-century. To that end, I make the case for broadening the mission and boosting the funding for the World Bank4 and other multilateral banks, as well as the relatively new instrument of Just Energy Transition Partnerships with producer economies. I hope COP28 in Dubai will be successful in this respect.
Special attention is warranted for the &lsquo;new kids on the block&rsquo;, the countries where large oil and gas reserves have been discovered in the last decade or so (e.g. Cyprus, Guyana, Jordan, Lebanon, Surinam, Tanzania). International organisations should assist these countries to help prevent the mistakes that many other resource-rich countries have made. Beginning with avoiding the so-called &lsquo;pre-source curse&rsquo; of irresponsibly hiking government expenditures, banking on (uncertain) future resource revenues that may in reality turn out to be smaller than expected or flow in more slowly than hoped.
In addition, the global community should strengthen the global fight against corruption, money laundering and illicit financing, all of which will help counter the risks of the resource curse. Bolstering the international guidelines for Responsible Business Conduct and ESG financing can also be similarly helpful.&nbsp;
<h2>The next decade is decisive</h2>
Many experts expect an economic recession in the coming years, as well as structural shifts impacting the global economy like climate change, higher inflation rates and re-structuring of trade value chains towards &lsquo;near-shoring&rsquo; or &lsquo;friend-shoring&rsquo; (El-Erian, 2022)5, but the jury is out on the likelihood of an economic recession.6 The latest projections of the IMF do not project an economic recession, although they do foresee weak and shaky growth prospects amidst huge uncertainty.7
Leaving this issue aside, commodities appear to be at the beginning of a new &lsquo;super-cycle&rsquo; of rising prices. Arezki &amp; Mazarei (2023)8 speculate that the current oil price super cycle &ldquo;may, however, be the last one&rdquo;.9 If such a cycle would indeed materialise, that would definitely boost the economic growth of resource-rich countries. They may perform well, and even relatively better than the resource-poor economies.
The real test, however, will be whether the resource-rich economies are able to use their revenues to significantly advance economic diversification and the energy transition (IMF, 2022)10. To deploy such policies at a time when there is no urgency whatsoever will require Odyssean self-restraint and rock-solid determination of policymakers. Given the fact that so many large countries are aiming for net-zero emissions in 2050, time is running out for the producer economies. It is therefore not an exaggeration to call the next decade of decisive importance for the question of whether or not the producer economies will succeed in reinventing their business models to ones compatible with the drive to achieve net-zero emissions by mid-century (or soon thereafter). Their success is not only of critical importance for current and future generations in oil and gas exporting countries but also for global climate policy and for geopolitical stability.
<h3>References:</h3>
[1]&nbsp;&lsquo;The Dutch Disease&rsquo;, The Economist, November 26 (1977), 82-83. 
[2] L. Wenar, Blood Oil, Oxford University Press (2016) is a prominent example. 
[3] In 2022 this transfer amounted to $3,284.00, see https://pfd.alaska.gov 
[4] A good starting point is Larry Summers&rsquo; proposal of a green capital increase of $30 billion which could support an extra $100 billion of annual lending for the energy transition, see L.H. Summers, &rsquo;A New Chance for the World Bank&rsquo;, Project Syndicate, October 10 (2022). 
[5] M.A. El-Erian, &lsquo;Not Just Another Recession&rsquo;, Foreign Affairs, November 22 (2022).&nbsp; 
[6] R. Sharma, &rsquo;Economists see recession coming, so maybe it&rsquo;s not&rsquo;, Financial Times, 7 November (2022).
[7] IMF, World Economic Outlook, April 14 (2023).
[8] R. Sharma, &lsquo;Latin America isn&rsquo;t booming, but that could change&rsquo;, Financial Times, 21 June (2021).
[9] R. Arezki &amp; A. Mazarei, MENA and the Global Energy Conundrum, (2023), 6.
[10]&nbsp;IMF, Economic Prospects and Policy Challenges for the GCC Countries - 2022, Gulf Cooperation Council, Paper prepared for GCC Ministerial Meeting, October 3 (2022).
This article contains extracts from the <a href="https://www.clingendaelenergy.com/publications/publication/from-dutch-disease-to-energy-transition" target="_blank" rel="noopener">Dutch Disease to Energy Transition</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.

Excerpts from 'Dutch Disease to Energy Transition'

The successful development of a global hydrogen market must involve dialogue with many different stakeholders, but will only reach its potential if informed by a common language

Timur

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<h2 class="m-block__title f-title-5">Momentum around hydrogen continues to grow, but it has yet to fulfil its potential role in the clean energy transition</h2>
Hydrogen could play a crucial role in decarbonising sectors such as heavy industry and long-distance transport, in which emissions are otherwise hard to abate, but it remains far from fulfilling its potential. Demand for hydrogen remains largely confined to a few traditional applications, and most of today&rsquo;s hydrogen production is based on unabated fossil fuels, with production of low-emission hydrogen at a very early stage.
One major obstacle is that the existing terminology used to describe low-emission hydrogen varies among stakeholders and countries, which complicates trade and investment. An internationally agreed methodology for calculating the emissions intensity of hydrogen production could cut financing costs, bring greater visibility for investors, and enable greater economies of scale.
Policy momentum behind hydrogen is certainly building. At the end of 2022, a total of 28 governments had a hydrogen strategy in place, around one-third of which had been developed in the previous two years. Some countries envisage importing large volumes of hydrogen, whereas others are positioning themselves as future exporters in the&nbsp;<a href="https://www.iea.org/reports/global-hydrogen-review-2022" target="_blank" rel="noopener noreferrer">nascent hydrogen market</a>.
Yet despite these developments, hydrogen demand in 2022 rose around 3% to 95&nbsp;Mt, with demand concentrated in the refining and industrial sectors, with very limited use in new applications such as industry and transport. &nbsp;
There is an urgent need to create demand for low-emission hydrogen and to mobilise investment in production and supporting infrastructure. To further this aim, the IEA in collaboration with the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE) released a report for the G7 Climate, Energy and Environmental Ministerial meeting in April 2023, titled&nbsp;<a href="https://www.iea.org/reports/towards-hydrogen-definitions-based-on-their-emissions-intensity" target="_blank" rel="noopener noreferrer">Towards hydrogen definitions based on their emissions intensity</a>.
Figure 1. Global and G7 members&rsquo; hydrogen demand by sector, 2021
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Figure 2. Global and G7 members&rsquo; hydrogen production by technology, 2021
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<h2 class="m-block__title f-title-5">Projects for low-emission hydrogen are facing important bottlenecks</h2>
More than 1,200 <a href="https://www.iea.org/data-and-statistics/data-product/hydrogen-projects-database" target="_blank" rel="noopener noreferrer">new projects to produce low-emission hydrogen</a>&nbsp;have been announced to date, yet only 5% have received firm investment decisions, according to IEA analysis. Progress is lagging due to uncertainty about future demand, insufficient infrastructure to transport and deliver hydrogen to customers, and a lack of clarity on regulation and certification.
There are, of course, many reasons behind these obstacles, but the absence of unified terminology is a major impediment to investment and potential trade. At present, several different terminologies are used to categorise hydrogen based on how it is produced, including &ldquo;sustainable&rdquo; or &ldquo;clean&rdquo;. Even more common is the use of colours, such as &ldquo;grey&rdquo;, &ldquo;blue&rdquo;, &ldquo;pink&rdquo;, or &ldquo;green&rdquo; hydrogen. However, there are no agreed definitions for these terms, and they can obscure many different levels of potential emissions. For example, many electrolysers are powered by grid electricity, for which emissions intensity can vary greatly depending on how it is generated, but no colour has been assigned. For so-called &ldquo;blue&rdquo; hydrogen produced using natural gas with carbon capture, utilisation and storage (CCUS), our analysis shows that emissions per kg of hydrogen produced can vary substantially depending on the technology used and the capture rate.
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<h2 class="m-block__title f-title-5">The lack of standard terminology to describe low-emission hydrogen is a barrier to investment and scale-up</h2>
The lack of universal standards or international agreements hinders compliance with regulatory and market requirements. Multiple low-emission production routes exist, and their current high costs are set to come down significantly with technology innovation and scale-up, just as we have seen with solar PV and batteries in the last 15 years. But if potential investors and consumers are not sure whether a certain production route will comply with emissions requirements across different countries or sectors, they may hesitate to commit.
The International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE) has developed a&nbsp;<a href="https://www.iphe.net/iphe-wp-methodology-doc-nov-2022" target="_blank" rel="noopener noreferrer">standard methodology for calculating the GHG emissions intensity</a>&nbsp;of different hydrogen production routes, which could improve transparency and facilitate market development.
An internationally agreed methodology for calculating the emissions intensity of hydrogen production would have two major benefits. Firstly, numerical values that can be calculated directly for a specific production route provide transparency for potential investors and customers. Secondly, the use of a common methodology to calculate emissions intensities directly enables a degree of interoperability of different regulations, providing clarity on how different products comply with requirements for different countries.
The IPHE methodology will serve as the basis for the first international standard to calculate the GHG emissions of hydrogen supply, which is currently under development by the International Organization for Standardization (ISO), which aims to publish the standard by the end of 2024.
This methodology was used in the&nbsp;<a href="https://www.iea.org/reports/towards-hydrogen-definitions-based-on-their-emissions-intensity" target="_blank" rel="noopener noreferrer">report</a> prepared by the IEA in collaboration with the IPHE for the G7 Ministerial meeting this April, with the aim of providing a clearer picture for policy makers on calculating the emissions intensity of different hydrogen production routes and implementing a common international emissions accounting framework to define hydrogen. The next steps of designing a common methodology for calculating the emissions intensity for converting hydrogen in carriers and transporting hydrogen are already under way as well.
Figure 3. Comparison of the emissions intensity of different hydrogen production routes, 2021
<img src="https://illuminem.b-cdn.net/articlebody/f2e5d739daba0e6af7a1ba76c878fc5ccb1b0a96.png?" alt="Comparison of the emissions intensity of different hydrogen production routes, 2021" />
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<h2 class="m-block__title f-title-5">A common methodology would enable comparability in different certification systems and regulations</h2>
With an international standard for defining emissions intensity still being developed, many countries and regulatory bodies already have or are developing different certification systems or regulatory frameworks.&nbsp;
While there are some commonalities, they diverge in ways that can limit interoperability. They may differ on what supply chain steps are covered, or the emissions considered within their scope. They may limit the eligible technology and fuel options for production. Such differences can create a barrier for project developers, who need to undertake&nbsp;ad-hoc, time-consuming certification processes for each country where they want to access the domestic market.
A common, robust methodology for determining the emissions intensity of hydrogen would enable comparability between different certification systems and regulatory frameworks. Moreover, a common system for presenting the emissions intensity of hydrogen could help demystify hydrogen production and allow the public to evaluate claims and counterclaims made about its sustainability.
Implementing a common framework for determining emissions intensity could underpin existing and future systems for regulation and certification, and would allow for flexibility to accommodate different reporting criteria and potential additions in the future.
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<h2 class="m-block__title f-title-5">Referring to emissions intensity in hydrogen roadmaps is a first step towards accelerating deployment of low-emission hydrogen</h2>
Many governments around the world are setting targets for the deployment of low-emission hydrogen production technologies, with the last&nbsp;<a href="https://hem-2022.nedo.go.jp/_en/" target="_blank" rel="noopener noreferrer">Hydrogen Energy Ministerial Meeting</a>&nbsp;in September 2022 committing to a joint target of 90 Mt by 2030, which is broadly consistent with the IEA&rsquo;s Net Zero Emissions by 2050 Scenario. But the IEA&rsquo;s latest data show that we are not on track for achieving this target, and stronger and faster policy action is required. To facilitate interoperability in a growing international market, these targets and national frameworks should use a common methodology to calculate the emissions intensity of hydrogen production. This is a critical enabler of a scale-up in production and trade in low-emission hydrogen. The successful development of a global hydrogen market must involve dialogue with many different stakeholders, but will only reach its potential if informed by a common language.
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This article is also published by the <a href="https://www.iea.org/commentaries/why-clearer-terminology-for-hydrogen-could-unlock-investment-and-scale-up-production" target="_blank" rel="noopener">International Energy Agency</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.
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Why clearer terminology for hydrogen could unlock investment and scale up production

There is a growing global consensus that clean hydrogen is an indispensable vector in achieving net-zero emissions in 2050, an objective now set by close to all G20 countries and beyond. International organisations like IEA, IRENA and the EU project an increasing role for net-zero electricity in the next decades, but further electrification (now at roughly 20%) won’t cover much more than 60% of the total energy mix. This implies that ‘greening of the molecules’ (today mainly oil and gas) becomes very urgent.

Kirsten

<h2>The rising global momentum</h2>
There is a growing global consensus that clean hydrogen is an indispensable vector in achieving net-zero emissions in 2050, an objective now set by close to all G20 countries and beyond. International organisations like IEA, IRENA and the EU project an increasing role for net-zero electricity in the next decades, but further electrification (now at roughly 20%) won&rsquo;t cover much more than 60% of the total energy mix. This implies that &lsquo;greening of the molecules&rsquo; (today mainly oil and gas) becomes very urgent. That&rsquo;s where clean hydrogen comes in to help decarbonize industry (refineries, chemicals, steel etc.), long-range/heavy-duty transport (trucks, ships, planes, buses, trains) and mid to long-time energy storage (weeks/months). In those applications, there are very few practical and cost-effective alternatives.
In short, clean hydrogen&rsquo;s role in the energy transition is mainly complementary to clean electricity. The best sign of the growing global consensus on clean hydrogen is the fact that the leaders at COP26 included clean hydrogen as one of the key technologies in the Glasgow Breakthrough Agenda, thus pushing it centre stage at COP27 and beyond.
<h2>New global commodity</h2>
Countries around the world have embarked on formulating hydrogen strategies or roadmaps in the last few years. Japan, Korea and France already in 2017/2018. Australia, The Netherlands, Germany and the EU in 2020. By now over 30 countries have hydrogen strategies or roadmaps and this number is still growing, not even counting regions and cities. More recently, a number of countries with a significant production potential in the Middle East, Africa and Latin America have joined the game: Saudi Arabia, the UAE, Oman, Morocco, Egypt, Namibia, Mauritania, India, Chile, Uruguay, Brazil e.g. These countries see clean hydrogen not only as important for their own domestic energy transition, but also as a potential new export sector providing sustainable jobs and growth. Concrete import-export projects between continents are already under development. Australia and Brunei have delivered their first shipments of hydrogen to Japan in pilot projects. The Inflation Reduction Act in the US includes powerful fiscal incentives to boost investment in clean hydrogen, possibly even for exports.
Based on the country strategies and trade project plans, one can already see a new global commodity market emerging with net-importing countries (Japan, Korea, Germany, Netherlands, Belgium) and net-exporting countries (Australia, MENA countries, Chile, possibly Namibia, South Africa, the US and Canada). It will take decades to grow and mature, of course, but according to some projections the volume of the global clean hydrogen trade by 2050 may be comparable to the current gas trade. India and China are also working on hydrogen strategies, with India also positioning itself as a future net-exporter. According to a report from IRENA, this may also have important geopolitical implications.
<h2>European Union</h2>
The clean hydrogen strategy of the EC launched in 2020 is very ambitious. The EC strategy has a target of 40 GW electrolyser capacity in Europe by 2030 (mainly using solar and offshore wind), in addition Member States aim to scaling-up low-carbon hydrogen production from gas with CCS and nuclear. After the Russian invasion of Ukraine, the EC launched RepowerEU which doubled the EU&rsquo;s hydrogen targets for 2030, both for ramping up European hydrogen production &amp; consumption, as well as imports. REPowerEU targets a production of 10 million tons of renewable hydrogen by 2030. Using clean hydrogen for significant decarbonisation of Europe&rsquo;s industry, heavy-duty transport and seasonal energy storage will require such high volumes in 2030.
Beyond that, the EU matches its own production targets with aims to import 10 million tons of hydrogen and derivatives annually by 2030. For this, the EC is particularly focused on potential imports from Northern Europe, North Africa and Ukraine along three corridors (see graph).
<img src="https://illuminem.b-cdn.net/articlebody/c05c87c00a5cf4c50257e5543c32a4aaf46ddbd8.png" alt="Natural gas import pipelines with their potential hydrogen import capacities. Source: Gas for Climate, " />
The EC strategy has been welcomed by the European industry and broadly supported by member states. European energy infrastructure companies have developed a plan to create a European Hydrogen Backbone Infrastructure, largely based on the repurposing of gas pipelines, thus enabling clean hydrogen transport across Europe, including connections to North Africa (Morocco, Tunisia, Algeria). Having the infrastructure in place is a necessary, but not yet sufficient precondition to the kick-off and ramp-up of hydrogen. Repurposing enables efficient circular use of the existing infrastructure and makes use of an existing public good. The necessary integrated network planning for electricity and hydrogen grid is not only conducive to energy security but can also alleviate the burden on budgets.
Currently, the EC is working on the implementation through subsidy programs and putting in place the regulatory framework. Germany and the Netherlands are both also considering doubling their domestic renewable hydrogen targets. Clean hydrogen is now seen not only as indispensable for the energy transition, but also for reducing the dependence on fossil fuel imports from Russia. Energy security has become a second important driver for clean hydrogen, increasing the urgency. The need for accelerating implementation is commonly acknowledged. However, this is proving to be a huge challenge to act upon. The current obstacles include a tendency to overregulate, a business-as-usual attitude to policy-making, a lack of prioritising large projects (like NortH2) that can deliver most of the required scale-up by 2030 and a lack of strategic alignment between key member states. Whereas Germany and the Netherlands consider clean hydrogen imports as absolutely critical and already joined hands in the import program H2Global, France eyeballs a European hydrogen future based on sovereignty and production within Europe. The same dichotomy applies to the need for constructing a European Hydrogen Backbone. The latest German-French summit statement of 21 January 2023 about extension of the announced Barcelona-Marseille hydrogen pipeline to Germany may indicate a possible &lsquo;rapprochement&rsquo; between the German and French strategy, though. There is in our view still a very serious risk that the EU will not be able to achieve its ambitious hydrogen objectives due to slow implementation, fragmentation and lack of strategic alignment between key member states. The consequence of a failure of the hydrogen strategy for Europe may well be severe deindustrialisation if European manufacturing industry is not able to decarbonise before 2050. The implication will also be that the EU will be severely limited in playing its role in the geopolitical hydrogen game in Africa and the Middle East, thus leaving the field for other major players. The most recent reports of the IEA, both the Global Hydrogen Review 2022 and the Northwest European Hydrogen Monitor 2022, show clearly that the EU is falling behind in implementation of the clean hydrogen objectives with less than 5% of planned projects in the phase of Final Investment Decision (FID) or under construction. And this while the majority of announced and planned clean hydrogen projects are actually in Europe, as every Hydrogen Council report is consistently showing. How to advance against this background? We propose three concrete steps that can be implemented already in 2023.
<h2>Closer cooperation between Germany &amp; The Netherlands</h2>
In the current situation, the EU member states that are already well aligned, Germany and the Netherlands, could consider a number of bold steps to accelerate the scale-up of the North-West European clean hydrogen market required to achieve the ambitious German and Dutch targets:
<ul>
<li>Build on the existing close integration of the energy systems of both countries (e.g. from Rotterdam to the Ruhr) and look towards integrated rather than nationally optimised solutions. Therefore:</li>
</ul>
<ul>
<li>Prioritize cross-border German-Dutch hydrogen infrastructure building, linking the Dutch hydrogen backbone directly to re-purposed German gas pipelines connecting to German ports. Governments have an important role to help finance the investment of infrastructure companies upfront and ahead of the projected ramp-up of hydrogen demand and supply in the next 10 years. They have to mitigate evident performance risks and create and enable new learning and experimental spaces for new technologies. Speed is of the essence. The Dutch government has already committed 750 million euros of public funding to help develop a national hydrogen transmission network by 2030. The state-owned gas infrastructure company Gasunie has been tasked to execute this. Public sector risk-taking is not only unavoidable, but also warranted in shaping a new innovative market, as we have learned from professor Mariana Mazzucato. It has an indispensable role in working towards public and common goods. Sending the market signal that the required infrastructure will be available in time can solve the infamous chicken-and-egg-problem and thus de-risk private investment in supply and demand. Hydrogen-derived products (green ammonia, green methanol and sustainable aviation fuels) should also be able to flow seamlessly from Dutch ports to German industrial customers, as well as from German ports to Dutch industry users. The planned German and Dutch storage sites in salt caverns need to be operational in time to accommodate the projected volumes of clean hydrogen use. If and where required, cracking installations in port areas need to be built to crack ammonia back into hydrogen that will flow into the backbone. German and Dutch plans for building offshore hydrogen infrastructure should also be coordinated to achieve adequate interconnectivity with the planned onshore infrastructure. A strong upfront hydrogen infrastructure development is also critical to bring clean hydrogen to the unsung small and medium-sized enterprise heroes in Germany and the Netherlands. Hydrogen can and should not be limited to a &ldquo;big-company Spiel&rdquo;, otherwise it will never have the necessary broad impact on helping to decarbonise the manufacturing industry in all its multi-faceted variety.</li>
</ul>
<ul>
<li>Construct tailor-made co-funding public-private partnerships for the funding and execution of large-scale German-Dutch clean hydrogen projects that cover large parts or even the entire value chain (from renewable hydrogen production to industrial off-take) and are often located around industrial clusters in port areas, e.g. NortH2 and Aquaventus. 2023 can and should be the Year of Final Investment Decisions on large-scale projects. There is really no time to lose if we want to mirror the US IRA approach and maintain the competitive position of European industry. The announced relaxation of EU state aid rules for clean hydrogen should allow for speedy approval.</li>
</ul>
<ul>
<li>Shorten and simplify the German and Dutch planning and permitting procedures dramatically, taking the recent fast-tracking of permitting for new LNG terminals as an inspiring example of what can be done if it is considered urgent.</li>
</ul>
<ul>
<li>Produce a roadmap for the next 5 years towards joint German-Dutch hydrogen infrastructure transmission system operation, planning and regulation. The current set-up is entirely based on national geographical borders; we need a reset that takes an integrated North-West European hydrogen market as a starting point and the facilitation of seamless flows.</li>
</ul>
<h2>Establish a North Sea Hydrogen Taskforce</h2>
The second step could be a new initiative in the existing framework of North Sea countries cooperation, aiming at building an integrated cross-border offshore hydrogen infrastructure, where planned offshore renewable hydrogen production on artificial islands is connected to an extensive pipeline infrastructure that may include Germany, the Netherlands, Belgium, the UK with Scotland as a potential renewable hydrogen exporter, Denmark, Norway and Iceland. Countries could establish a special taskforce to produce a roadmap for the next 10 years to realize this. The graph below is an inspiring illustration of what this may look like.
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://illuminem.b-cdn.net/articlebody/632e0ab381b361e3017ffac8dfce7fd42e8d3013.png" alt="Source: presentation professor Ad van Wijk, Wind Meets Gas, 7 October 2022" />
<h2>Doubling and tripling efforts - from bilateral to transregional cooperation</h2>
To be very clear, Dutch-German cooperation as described above is only the nucleus and starting point. The third and next steps that have to follow are expanding the collaboration regionally with Belgium, Denmark etc. and working together with other transnational regions in Europe across the Baltic Sea and with Southern and Southern East Europe. Such a sequential regional collaboration will be conducive to build a European hydrogen infrastructure, e.g. with Spain, Italy and Portugal. This dialogue can be focused on planning and executing concrete joint projects that establish clean hydrogen trade corridors by ship and pipelines.
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.
<h3>Footnotes</h3>
[1] Clean hydrogen is here defined as near-zero carbon hydrogen, produced by renewable or nuclear electricity or gas with very high rates of Carbon Capture &amp; Storage (95% or higher).
[2] See IEA, An updated roadmap to Net Zero Emissions by 2050, 2022.
[3] <a href="https://energy.ec.europa.eu/topics/energy-systems-integration/hydrogen_en">Hydrogen (europa.eu)</a>​
[4] See e.g. Marcel Fratscher, &lsquo;Droht Deutschland jetzt die Deindustrialisierung?&rsquo; , Handelsblatt, 10/01/2023.
[5] See e.g. Marcel Fratscher, &lsquo;Droht Deutschland jetzt die Deindustrialisierung?&rsquo; , Handelsblatt, 10/01/2023.

How to kick-start the North-West European clean hydrogen market

Mid-September 2022 has seen two moves from Brussels towards the implementation of the Hydrogen Accelerator. The European Parliament voted to remove the controversial “additionality principle” in order to boost the production of Green Hydrogen from renewable energy. Ursula von der Leyen declared in her State of the Union Speech the creation of a “Hydrogen Bank” backed by EUR 3 bn. These are steps, but not yet a leap forward.

Mid-September 2022 saw two moves from Brussels towards the implementation of the Hydrogen Accelerator. The European Parliament voted to remove the controversial “additionality principle” in order to boost the production of Green Hydrogen from renewable energy. Ursula von der Leyen declared in her State of the Union Speech the creation of a “Hydrogen Bank” backed by €3 billion. These are steps, but not yet a leap forward. The regulation and methodology under RED II will now be discussed in the trilogue and the details of the bank are yet to be clarified.
Meanwhile the hydrogen world around Europe is gaining its own momentum. It is time for the EU to raise its awareness of the global acceleration where the pace and the paths are set by others. China is a universe on its own, that has set ambitious targets for 2025 of green and climate-neutral hydrogen production, Japan and South-Korea are expanding their hydrogen import supply chains. The Biggest Bang, however, is to be heard from the U.S. With the Inflation Reduction Act of August 2022, the Biden Administration has set up a simple framework and regulation to push a hydrogen economy. In the Earth Shots of summer 2021 the U.S. formulated the goal for the cost of low-carbon hydrogen to be at 1USD per 1kg in a decade. The Infrastructure Law of November 2021 provides $8 billion for 4 Clean H2 Hubs, $1 billion for a Clean H2 Electrolysis Program, $500 million for Clean H2 Manufacturing &amp; Recycling Initiatives. This was complemented by the powerful Inflation Reduction Act that provides a 10-year tax- credit, also for hydrogen production and an investment tax credit (including for hydrogen storage), as well as clean-vehicle credits etc. The U.S. has also introduced clear carbon intensity limits with the tax credits being higher the lower the carbon intensity. The tax credit can reach $3 per kilo of hydrogen, including for exports. Last but not least, the tax credits for renewable energy generation sites can be combined with tax credits for green hydrogen production. This is an ultimate boost the economic viability of projects in the U.S. and will fill the order books for electrolysers.
This is a Big Bang in terms of hydrogen production ramp up and good news for the global climate, as well as the U.S. industry. For the EU this should serve as a wake-up call in terms of its ambitions, its support schemes but also its approach to regulation and carbon-pricing. The U.S. regulation and support schemes are straightforward and simple, the EU’s is not (yet). The EU’s approach of a sophisticated sector by sector regulation that is directed to meet its renewable targets, as well as its emission trading scheme, represents globally a special path and a solo run, that may risk being assessed as less attractive by global investors and potential hydrogen exporting countries in North Africa, the Middle East, Latin America, India and Australia.
No other big economic bloc is trying to achieve its energy and industrial transformation by a complicated (and still in flux, hence unclear) mixture of regulation for direct and indirect electrification from renewables, unbundling regulations for hydrogen TSOs, support schemes and CO2 prices. This policy approach stems from regulatory path dependencies, is slowed down by seemingly eternal discussions among member states about the definition of green and low-carbon hydrogen and a navel-gazing approach that misjudges the rapidly changing realities outside Europe. The EU’s regulatory machinery has been conducive to achieve an internal market for electricity and gas by very sophisticated regulation based on existing structures, mature markets and meshed infrastructure. Hydrogen is really different: for the first time we have to introduce a new energy carrier under competitive conditions and at an unprecedented pace. We are not starting from scratch, but have to transform our industry and energy systems under the extreme conditions of an unprecedented full-scale energy crises. We will need much more hydrogen (also as a back-up for renewables in electricity generation), sooner than we thought, and also as derivatives. And we will need to import even larger amounts of climate-neutral hydrogen from abroad than previously imagined. This calls for the development of a genuine European hydrogen diplomacy, eyeballing new long-term export-import partnerships that can only flourish if developed through mutual respect and win-win cooperation agreements. Such an approach deviates fundamentally from the current inclination of the EU imposing its standards on potential hydrogen exporting countries.
The global hydrogen revolution has started, and it will take off where the most attractive sites and the biggest markets are and where business models can be created across the whole value chain. If the EU does not get its act together, <a href="https://illuminem.com/illuminemvoices/a08ea94d-6b64-4008-ae4d-657b5117d337">the EU risks missing a great opportunity</a> to improve its position as an industrial and economic power and technology leader, in competition with others over scarce climate-neutral hydrogen flows.
The wake-up call cannot be louder and the alarm bells have to be heard. Unlike other big hydrogen markets that span across large territories and combine production and demand within a jurisdiction such as China and the U.S., the EU will have to rely on functioning global trade flows and rules-based trade. The EU will have to shape the global market and attract climate neutral hydrogen and derivatives flows into the bloc by positioning itself as a true partner.
The EU will need to rapidly fix the necessary, but not yet sufficient preconditions for a hydrogen technology and market ramp up: infrastructure and a regulatory framework.
<ul><li>Adapt a regulation that is simple, coherent across all sectors and internationally inter-operable with schemes of other big players with regard to certification.</li></ul>
<ul><li>Set up a hydrogen diplomacy for long-term partnerships and engage on a mutual understanding of common value creation, shared norms and mutual acknowledgement of certification schemes.</li></ul>
<ul><li>Provide the necessary funding / security guarantees for building the hydrogen backbone and the corridors into the EU. The Global Gateway should serve the highways of climate-neutral molecules into the EU.</li></ul>
<ul><li>Realize imports to back up the creation of regional hydrogen hubs and market areas in Europe.</li></ul>
<ul><li>Clarify the role of the Hydrogen Bank and the Hydrogen Facility and use existing instruments to flesh out the EU’s tool box such as H2Global. This will save time and avoid costly competition.</li></ul>
<ul><li>Allow for a stacking of support schemes for a transitional period of time, and allow hydrogen produced, transported under support schemes to be counted under quota schemes.</li></ul>
<ul><li>Select and fast-forward a handful of large-scale projects to Final Investment Decisions that can really kick-start the scale-up of low-carbon and renewable hydrogen.</li></ul>
With so many promising plans in Europe for both domestic clean hydrogen value chain development and for pioneering new hydrogen trade routes, it should be possible to re-position Europe in the appropriate way and to bring these plans to successful completion, as a true partner for ambitious hydrogen exporting countries across the world.
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.

Towards a true hydrogen partnership between the EU and hydrogen exporting countries

The unprecedented high fossil fuel prices have already significantly diminished the cost gap with green hydrogen in many applications. With this state of mind, Noé van Hulst and Kirsten Westphal suggest the following 10 measures that potentially ensure the rapid achievement of the increased EU hydrogen targets.

<h2>Wake-up call for security of supply</h2>
The recent invasion of Ukraine by Russia has been labelled by EU leaders as &lsquo;a tectonic shift in European history&rsquo; [<a href=" https://consilium.europa.eu ">1</a>]. 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&rsquo;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 [<a href="https://www.iea.org/reports/a-10-point-plan-to-reduce-the-european-unions-reliance-on-russian-natural-gas">2</a>].&nbsp;The EC subsequently proposed a very ambitious policy package RePowerEU, containing measures both for the short and the medium term [<a href="https://ec.europa.eu">3</a>]. 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 &lsquo;Hydrogen Accelerator&rsquo;.
<h2>Hydrogen accelerator</h2>
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.&nbsp; 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.
<h2>Time for rapid concrete measures to kick-start an investment wave</h2>
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 &lsquo;tectonic shift&rsquo; moment in European history, then perhaps it is also time for a &lsquo;tectonic shift&rsquo; 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.
<ol>
<li>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.</li>
<li>Set mandatory zero-emission standards for all vehicles in Europe by 2030.</li>
<li>Phase-out existing grey hydrogen production by 2030.</li>
<li>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.</li>
<li>Consider a temporary state-aid waiver for zero-carbon hydrogen projects.</li>
<li>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.</li>
<li>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.</li>
<li>Mandate that all public procurement across the EU should be zero-carbon by 2025.</li>
<li>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.</li>
<li>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.</li>
</ol>
&nbsp;
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.

Now is the time to get hydrogen off the ground in Europe

The headline surely is that clean hydrogen is one of the four topics of the Glasgow Breakthrough Agenda agreed by World Leaders at the COP26 Summit, next to power, road transport and steel. This agenda calls for affordable renewable and low-carbon hydrogen to be available by 2030. With the leaders of 33 countries signing up to the hydrogen breakthrough in Glasgow, this was reportedly the most popular of the four breakthroughs. 

<h1>Glasgow Breakthrough Agenda</h1>
In the many assessments of what happened at COP26 the story of the meteoric rise of clean hydrogen needs reporting. EU President Ursula von der Leyen even called clean hydrogen’ among the hottest topics’ at COP26 in her opening speech at this week’s European Hydrogen Week [<a href="https://ec.europa.eu/commission/presscorner/detail/en/speech_21_6421">1</a>].  It’s hard to capture everything that happened on this front, so my assessment is by necessity an incomplete and personal impression focusing on what struck me as most significant. From my perspective, the headline surely is that clean hydrogen is one of the four topics of the Glasgow Breakthrough Agenda agreed by World Leaders at the COP26 Summit, next to power, road transport and steel. This agenda calls for affordable renewable and low-carbon hydrogen to be available by 2030. With the leaders of 33 countries signing up to the hydrogen breakthrough in Glasgow, this was reportedly the most popular of the four breakthroughs. The main G20 countries are on board already ensuring a great global coverage, but hopefully even more countries will sign up later. The IEA has the lead in reporting to subsequent COPs on the global progress towards the clean hydrogen breakthrough, including on cost, volume, investment and GHG abatement.  All the relevant international initiatives and organisations, including the IPHE, are asked to help achieve this breakthrough.
<h1>Clean hydrogen trade</h1>
On behalf of IPHE, I had the privilege to participate in two meetings. The first meeting was a high-level event organised by the government of global hydrogen leader Japan and the IEA. The energy Ministers of Canada, Jonathan Wilkinson, and Chile, Juan Carlos Jobet, emphasized the huge potential of clean hydrogen for decarbonisation, while also flagging that both countries will be developing into net exporters. A high-level representative of the Japanese government explained how much clean hydrogen Japan would need to import to contribute to achieving net-zero emissions by 2050. IEA Executive Director Fatih Birol stressed the importance of defining ‘the rules of the game’ in order to rapidly scale-up the global hydrogen market in the next decade.
The second meeting I participated in was  the UK Presidency Science &amp; Innovation Day highlighting the importance as well as huge potential of the Glasgow Breakthrough Agenda. In the hydrogen session, the rapidly increasing momentum in developing countries was illustrated eloquently by James Mnyupe, a close advisor to the President of Namibia, one of the African countries eyeballing the build-up of a green hydrogen export-industry. I myself highlighted the recent proposal of IPHE to establish a global standard for the methodology on how to calculate the carbon footprint of different pathways to produce clean hydrogen [<a href="https://www.iphe.net/iphe-working-paper-methodology-doc-oct-2021 ">2</a>].  Furthermore, IPHE has started to take a close look at potential tariff and non-tariff barriers to clean hydrogen trade. A report will soon be published on this.
<h1>Mobilising demand for clean hydrogen</h1>
In the session on steel during the Science &amp; Innovation Day, the Austrian Minister Gewessler  launched a powerful new Industrial Deep Decarbonisation Initiative (IDDI) together with the governments of the UK, Germany, the UAE and Canada. This initiative, under the umbrella of the Clean Energy Ministerial (CEM), is coordinated by UNIDO and aims to create a thriving market for low-carbon industrial steel, cement and concrete [<a href="https://www.unido.org/IDDI">3</a>].  The five countries announced their intention to buy low-carbon steel and cement with specific targets to be revealed at the next CEM Ministerial by mid-2022. The public procurement of steel and cement in the five countries represents 25-40% of the domestic market for such materials. Steel and cement are among the most carbon-intensive industrial materials, responsible for around 15% of global energy-related CO2 emissions, with the world expected to build the equivalent of another New York City every month for the next decades.  In my view this initiative is a very welcome example of creating strong demand signals in the clean hydrogen market, as discussed in my last blog. Hopefully, many more countries will join this great initiative. Public procurement is still an underrated instrument in the policy toolbox for accelerating the transition to net zero emissions.
Another important global initiative announced at COP26 is H2Zero spearheaded by the World Business Council for Sustainable Development  (WBCSD) and the Sustainable Market Initiative ((SMI) where 28 companies, including oil majors like BP, Shell, Equinor and TotalEnergies, pledged to accelerate the replacement of unabated fossil-fuel produced hydrogen by renewable and low-carbon hydrogen.  According to WBCSD these announced pledges could equate to nearly 200 million tonnes per annum of CO2 avoided in 2030. 
<h1>Various other initiatives to accelerate clean hydrogen</h1>
In the area of renewable hydrogen, IRENA and WEF launched jointly-developed ‘Enabling Measures Roadmaps for Green Hydrogen’ for Europe and Japan at COP26. These roadmaps are based on input from industry and intend to enhance public-private dialogue on how to accelerate the implementation of green hydrogen for decarbonising the hard to abate sectors in the economy.
Under the umbrella of the Clean Energy Ministerial Hydrogen Initiative (CEM-H2I) the H2 Twin Cities was launched that aims to foster collaboration among communities at the forefront of clean hydrogen deployment. This highlights how much clean hydrogen has also risen to the top of the decarbonisation agenda at the local and regional level across the world.
Furthermore, the Hydrogen Council presented two new reports at COP26: Hydrogen for Net Zero [<a href="https://hydrogencouncil.com/en/hydrogen-for-net-zero/">4</a>] and a Policy Toolbox for Low Carbon &amp; Renewable Hydrogen [<a href=" https://hydrogencouncil.com/en/policy-toolbox-for-low-carbon-and-renewable-hydrogen/">5</a>]. The message was that clean hydrogen can contribute over 20% of global carbon abatement by 2050 provided the appropriate policies and public-private collaboration are put in place. Already by 2030 clean hydrogen can abate 730 Mt of CO2, mainly by phasing-out 1/3 of unabated fossil-fuel-produced hydrogen and new applications in steel and heavy-duty transport (trucks, maritime and aviation). The strong momentum and private investment appetite are alive and kicking according to the Hydrogen Council.
It is impossible to even list all the clean hydrogen initiatives and pledges of (groups of) individual countries, companies, ports and other institutions. Furthermore, clean hydrogen was also a key component of many important broader public-private decarbonisation initiatives, like the First Movers Coalition of the US and the WEF, and the EU’s new partnership with Bill Gates’ Breakthrough Energy Catalyst and the EIB. This fact in itself demonstrates clearly that clean hydrogen has moved ‘from footnote to centre stage’ at COP26, as one participant aptly expressed it. Given the fact that renewable and low-carbon hydrogen is now cemented into the Glasgow Breakthrough Agenda and that its progress will be reported upon to subsequent COPs by IEA, clean hydrogen looks likely to remain positioned at the centre stage of future COPs.
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.

Clean hydrogen at COP26: moving from footnote to centre stage

In this special article, Noé van Hulst, Hydrogen Advisor to the IEA, highlights the key messages of the latest IEA Global Hydrogen Review.


<h2>Yes, take-off is happening</h2>
Early October the IEA launched the long awaited <a href="https://illuminem.com/post/b3147903-6276-4b9b-aa01-73cb61582f08">Global Hydrogen Review</a> (GHR) at the 4th Hydrogen Energy Ministerial Meeting. In this blog I will focus on the key messages to take away from the new &lsquo;hydrogen bible&rsquo;. 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 &ndash; 8 Mt from electrolysis and 9 Mt from fossil fuels with CCUS&ndash; 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&rsquo;s&nbsp; 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 &amp; 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.
<h2>Mind the gap: much more is needed</h2>
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&rsquo;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.&nbsp; 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?
<h2>Fire from all cylinders &amp; act bolder and faster</h2>
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:
<ul>
<li>Develop strategies and roadmaps on hydrogen&rsquo;s role in energy systems.</li>
</ul>
<ul>
<li>Create strong incentives for using low-carbon hydrogen to displace fossil fuels.</li>
</ul>
<ul>
<li>Mobilise investment in production assets, infrastructure and factories.</li>
</ul>
<ul>
<li>Provide strong innovation support to ensure critical technologies reach commercialisation quickly.</li>
</ul>
<ul>
<li>Establish appropriate certification, standardisation and regulation.</li>
</ul>
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&rsquo;s &lsquo;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&rsquo;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&amp;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 &amp; 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. <a href="https://www.iphe.net/">IPHE launched a proposal</a> for this last week.&nbsp; 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 href="https://illuminem.com/energyvoices/440d1f1b-9349-4802-8a0a-2b6113f38b0a">a flexible and dynamic approach</a> 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.&nbsp; 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&rsquo;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.
<h2>Stronger international co-operation = key to success</h2>
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.&nbsp;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.
illuminem 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.

Key messages from the IEA global hydrogen review

The need to regulate hydrogen transport networks is becoming increasingly urgent, but legislation needs to be designed in a way to give the market flexibility to overcome the challenges ahead, writes Noé van Hulst.

How to regulate hydrogen networks is one of the key questions this year as the EU implements its Hydrogen Strategy. It’s also becoming urgent.
The International Energy Agency’s (IEA) recent Net Zero Emissions 2050 Roadmap clearly shows the indispensable role of clean hydrogen to help decarbonise the ‘hard-to-abate sectors’ like industry and heavy-duty transport and provide zero-carbon seasonal storage.
The main policy message of the IEA report is that governments need to act more boldly and faster to make it happen. The scaling-up of clean hydrogen needs to start yesterday in order to reach significant penetration in the 2030s and 2040s.
The EU electrolysis capacity targets for 2024 (6 GW) and 2030 (40 GW) are rightly very ambitious. To achieve this, we need to speed up putting in place the regulatory frameworks and appropriate support schemes to de-risk private investment.
Globally, more than $1 billion of clean hydrogen projects are announced every single week, according to recent data from the Hydrogen Council! Many of those in Europe, and investors from around the world are keen to provide funding, provided the EU can clarify the rules of the game as soon as possible.
One of the hotly debated issues in the EU is how to regulate the future hydrogen networks. It’s also becoming increasingly urgent. Not only because it’s one of the missing pieces in the regulatory framework that needs to be put in place. But also because in June this year European gas infrastructure companies have presented a detailed plan for a European Hydrogen Backbone.
This plan is predominantly based on repurposed existing gas pipelines, connecting clean hydrogen supply to demand centres across Europe. A European Hydrogen Backbone is essential to create in time a truly integrated and liquid EU clean hydrogen market.
Obviously, it should be ensured that the Hydrogen Backbone transports only overwhelmingly decarbonised hydrogen. The promising European Hydrogen Backbone plan also raises the question of the longer-term future regulation of the repurposed gas pipelines.
And in case you have missed the big news: the Dutch government officially announced in early July that it will task the state-owned gas infrastructure company Gasunie with developing a hydrogen backbone in the Netherlands on the basis of repurposed gas infrastructure.
The investment required for reuse is estimated to be roughly 4 times lower than the investment that would be needed for new pipelines, <a href="https://www.hyway27.nl/en/latest-news/hyway-27-realisation-of-a-national-hydrogen-network">which is in line with international benchmarks</a>.
A national transmission grid can be realised for around €1.5 billion. Companies with hydrogen projects in the Netherlands have widely welcomed this step, as this eliminates one key uncertainty from the equation of the new hydrogen value chain.
As all the stakeholders in the European hydrogen scene understandably battle for the attention of the European Commission and European policymakers on how the future regulation of hydrogen networks should be shaped, it might be wise to take a step back and listen to the most independent experts in regulation of energy networks: CEER and ACER.
In a paper in early February 2021 that didn’t make the headlines, they recommend a gradual and dynamic approach to the regulation of hydrogen networks, <a href="https://documents.acer.europa.eu/Official_documents/Position_Papers/Position%20papers/ACER_CEER_WhitePaper_on_the_regulation_of_hydrogen_networks_2020-02-09_FINAL.pdf">in line with the market and infrastructure development</a>.
CEER &amp; ACER kindly remind us that the current situation with hydrogen is very different from the situation when regulation for gas and electricity networks was introduced.
Why is that the case? Well, gas and electricity networks were already in place in most EU member states when regulation was introduced, while hydrogen infrastructure and maybe more importantly a large scale hydrogen market still needs to be developed.
Clearly, CEER &amp; ACER are thinking here of the plans for repurposing gas pipelines, but they do mention the existence of a few private hydrogen networks that have been constructed as business-to-business networks decades ago.
Apart from those sparse private networks, the entire hydrogen infrastructure is still in its infancy, with a view of growing rapidly in the decades to come. This radically different starting position should be kept in mind, in particular by those who quickly state that ‘hydrogen is a gas, so we should simply copy-paste the current gas legislation to hydrogen’ and apply it immediately.
This view overlooks that clean hydrogen is very much still a nascent market at this point in time. As one European hydrogen expert asked some time ago: ‘does it really makes sense to install traffic lights and police before we even have more than a few cars on the road?’
Probably not, I would say.
The other side of the coin, of course, is that a hydrogen network in principle does have the characteristics of a natural monopoly and can be considered as an essential facility. Once serious volumes of hydrogen will flow through the repurposed pipelines, we need to be wary of the risk of congestion and abuse of market power by hydrogen network owners.
How do we know when those risks become serious? That requires the expert assessment of national regulators, as they monitor how the market evolves, while applying established EU-wide principles like unbundling, third-party access, non-discrimination and transparency.
That’s why ACER &amp; CEER talk about a dynamic approach. They also make a helpful recommendation to look at the model of the existing EU regulation of telecommunications which has proven capable of dealing in a flexible yet predictable way with changing market circumstances by allowing national regulators to evaluate regularly the need and appropriateness of regulatory interventions.
This dynamic approach would thus enable national regulators to intervene, if and where needed, to curb significant market power by specific regulatory obligations. It also reflects the fact that the development of hydrogen networks will vary both in speed and dimension.
Looking at the plans, it seems that towards 2030 dedicated hydrogen networks will be mainly needed in north-western Europe. Also there we can learn from experience. The natural gas markets in this region took a lead in developing and shaping what was ultimately transformed into binding rules in the current gas directive and regulation.
Doesn’t this basically mean that we will end up in the same place as with gas when it comes to regulating hydrogen networks? That could well be the case if the European hydrogen strategy is successfully implemented, eventually.
But it may take 15 years or more for the clean hydrogen market to become mature enough. In these 15 years, unexpected developments will take place which require agility. Therefore, we can’t set in stone in 2021 how a dynamic market will or should develop.
Therefore, a gradual and dynamic approach could be very helpful in getting us there sooner rather than later.
The European Commission and European lawmakers can do a lot worse than take the advice of the most competent and independent voice of ACER &amp; CEER when it comes to regulating hydrogen networks.
This article also appeared on <a href="https://www.euractiv.com/section/energy/opinion/how-to-regulate-hydrogen-networks/">Euractiv</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.

Noé van Hulst

Noé van Hulst

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