Italy has been cleared to hand out up to €550m ($596m) of direct grants to help its industrial giants switch to green hydrogen — as both a chemical feedstock and energy source — instead of using polluting fossil fuels.

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The EU yesterday (Tuesday) gave state-aid approval to the programme, which envisages the Italian government handing out direct grants of up to €200m per beneficiary in the industrial sector, including the production of chemicals, fertiliser and steel, and oil refining.

The cash, which will be distributed as part of Italy’s EU-funded €194bn National Recovery and Resilience Plan, must be used to shift the use of fossil fuel-based feedstocks or energy sources to renewable hydrogen.

However, the grants can be combined with wider electrification of industrial assets, along with energy efficiency improvements.

This means that, for example, a steel plant will be able to use the funds to invest both in hydrogen-based direct-reduced iron (DRI) production and electric arc furnaces.

Grants will be delivered no later than the end of 2025, must also achieve greenhouse gas emissions reductions of at least 40%, or energy efficiency improvements of 20%, compared to current levels.

Furthermore, beneficiaries will have to ensure that the plant is using 40% renewable hydrogen (calculated in terms of energy value rather than volume) as either energy or feedstock from the outset, rising to 75% by 2032 and 100% by 2036. They will also not be allowed to increase their production capacity more than 2%.

“The aim of the measure is to incentivise investments into equipment running on (renewable) hydrogen – if needs be in combination with electrification – in substitution of equipment running on fossil fuels to reduce direct greenhouse gas emissions from the industrial equipment supported,” a spokesperson for the EC told Hydrogen Insight.

The Italian plan comes after the EU finally signed off its flagship Renewable Energy Directive III (RED III) last year, which will force member states to ensure that at least 42.5% of the hydrogen used in industrial processes is renewable by 2030.

This figure rises sharply to 60% by 2035.

“This €550m Italian scheme will help industries to significantly decarbonise industrial processes that depend on a switch to hydrogen for their green transition,” said Margrethe Vestager, the EC’s executive vice-president in charge of competition policy.

“The measure will also help Italy to reduce its dependence on imported fossil fuels, in line with the REPowerEU Plan, and ensure a full switch to hydrogen by 2036 in all supported investments.”

UPDATED: to include renewable hydrogen targets and EC comment in paragraphs eight and nine.