Senior European Commission leaders want to introduce rules that would help prevent EU subsidies for green hydrogen from being used to buy Chinese electrolysers — in order to protect European electrolyser manufacturers — but opposition from Germany is stopping the idea from gaining traction, Jorgo Chatzimarkakis, CEO of trade association Hydrogen Europe, tells Hydrogen Insight.

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The EU’s first green hydrogen auction, which opened yesterday, offers subsidies of up to €4.50 ($4.80) per kilo of H2 to producers, but winners will be selected on the basis of the lowest bid price. And with Chinese electrolysers often being far cheaper to buy than those made in Europe, the continent’s manufacturers fear that a large part of the taxpayer-funded subsidies will go to Chinese rivals.

As Hydrogen Insight reported earlier this week, Håkon Volldal, CEO of Norwegian electrolyser maker Nel, told European Hydrogen Week on Tuesday: “We [in Europe] could make a lot cheaper electrolysers if we used child labour, if we didn’t have pension plans, if we had horrible working conditions... [and] cheap state financing.”

He said that the accumulated effect of lower labour costs throughout the value chain — from raw materials to electrolyser production — meant that Chinese companies had an unfair advantage, particularly as China was not open to European companies.

Chatzimarkakis agrees with such sentiment.

“So if you're trying to have a European sector where everyone's well paid and everyone's treated nicely, they get their pensions and everything, but [a European electrolyser is subsequently] twice as expensive as buying a Chinese electrolyser, and then the European Union is saying you have to buy the cheapest electrolysers, it doesn't make any sense,” he tells Hydrogen Insight, arguing that such rules have damaged Europe’s solar and wind manufacturing industries.

“So it's not only affecting the electrolyser business or the hydrogen technologies, it's affecting clean tech in general. And if we don't have a U-turn, a 180-degree U-turn situation here by policymakers, we will have a problem.”

The European Commission is due to hold a second, €2.2bn green hydrogen auction next spring, and Chatzimarkakis hopes that the tender rules can be changed by then.

He points out that one Europe-based green steel manufacturer receiving hundreds of millions of euros in state aid, “didn’t buy European electrolysers — they bought Chinese”.

“We asked these guys, members of ours, ‘why are you doing that?’. ‘Price’, they said. ‘If the funding mechanism tells me to go for the cheapest price, then I go’.

“You might have the same thing now because the auction is all about the lowest price… this is something we need to fix.”

Chatzimarkakis, who was previously a German member of the European Parliament, says that he has discussed this issue with European Commission President Ursula von der Leyen and executive vice-president Maroš Šefčovič, who is in charge of the European Green Deal and emissions reduction.

“The good thing is that Šefčovič and von der Leyen understand. They really understand and they want to deliver. The problem is with some member states,” he says, before singling out Germany.

“[They say] we need to abide by the rules of the WTO [World Trade Organization], or otherwise retaliation will come we won’t have access to Chinese markets. But we don’t have access to those markets [now]. They [the Chinese] don’t abide by these [WTO] rules. They have their mechanisms to do whatever they want. And we are stupidly still believing naively in [WTO fairness]. That needs to stop. That needs to stop immediately.”

Both Chatzimarkakis and European electrolyser makers believe that it is possible to abide by WTO rules and protect European electrolyser makers at the same time — by creating ESG [environmental, social, governance] rules around equipment purchasing.

As Raphael Tilot, CEO of Belgium-based John Cockerill Hydrogen, argued at European Hydrogen Week in Brussels on Tuesday, “we believe we need qualitative [criteria] — [on the] social dimension, wages, adherence to European labour principles, trainings, commitments; criteria on innovation, what extent are we working with European research centers, universities; criteria on the CO2 content, the raw material, the logistics and so on.”

For Chatzimarkakis, such “quality criteria” are essential, with Chinese companies required to provide ESG information that is signed off by non-Chinese auditors.

“The point is you need to find a smart, but simple and quick way to solve this problem. And I think to have an audit on ESG elements that needs to push the burden to the non-European OEMs, because the Europeans supposedly abide by these rules.

“This is what the Chinese do with other things. So it’s bureaucracy for them, not for us. Simple.”

The European Commission’s Net Zero Industry Act, which is still making its way through the EU's lengthy law-making process, contains a goal of meeting 40% of the bloc’s electrolyser needs with European-made equipment. But there is no mechanism to ensure this will happen, aside from commitments to drastically speed up permitting times for factories.