It is often worth remembering that, despite all the talk about how clean hydrogen can help decarbonise the planet, that green and blue H2 only exists in small quantities today — and that most of the hydrogen currently used in the world comes from unabated fossil fuels.
And while most developed countries — and a lot of developing ones — are now planning large-scale clean hydrogen production and usage, deployment still seems several years away.
There are several fundamental problems holding back the industry, including:
- Defining what clean hydrogen is — because H2 molecules are the same regardless of the method of production, producers and users must be able to prove the cleanliness of their hydrogen, and definitions must be agreed internationally to allow import and export.
- The fact that grey H2 is generally considered to be cheaper than the green variety, so producers will require subsidies in the short to medium term to ensure they will not be penalised for paying more for cleaner hydrogen;
- A chicken-and-egg situation where suppliers do not want to produce clean H2 until buyers are in place, while potential users don’t want to commit to using it until a ready supply is available;
- Fears among users of expensive clean hydrogen that extra costs would make their products uncompetitive on the global marketplace, especially compared to foreign companies that use cheaper dirty H2.
How to solve these problems is of fundamental importance to the global clean hydrogen industry and decarbonisation more widely.
So after the G7 countries launched a Hydrogen Action Pact in May to accelerate the development of green and blue hydrogen and their derivatives, the International Renewable Energy Agency (Irena) looked into how these issues could best be resolved.
This investigation has resulted in a 144-page report, entitled Accelerating Hydrogen Deployment in the G7, that offers 17 recommendations for policymakers in the Group of Seven industrialised nations — the US, UK, Canada, Japan, France, Germany and Italy.
The recommendations, which were grouped together as follows, effectively represent a one-stop-shop guide for creating a thriving international clean hydrogen market.
1-3) Standards and certificates
“Since all the GHG [greenhouse gas] emissions associated with hydrogen are from its production, transport and end use, certification is crucial to ensure it contributes to climate mitigation,” says the report, adding that proving the origin of each batch of H2 is crucial to ensure “compatibility among countries” within international trade rules, as clean hydrogen would be traded across borders.
“Hydrogen can also be converted to other materials and commodities, hence hydrogen certification should be modular and certify each conversion step separately,” it adds.
The study explains that G7 countries can lead the world by agreeing on common methodology and minimum sustainability criteria that could then form the basis of globally recognised international standards.
“The set of sustainability criteria should include carbon footprint; technological, temporal and geographical additionality elements; assessment of environmental impact (eg, direct and indirect land use change and water stress); and socioeconomic impacts for the producing country (eg, job creation and energy poverty issues,” it explains.
“The development of an international harmonised certification scheme is essential to enable the swift ramp-up of hydrogen and should be completed by the end of 2023.”
As part of this, technical and safety standards — covering the handling and use of hydrogen and its derivatives, including green steel — should be also be agreed “to enable trade under uniform conditions”.
One area of attention should be the leakage of hydrogen from operations and infrastructure, as H2 itself is an indirect greenhouse gas around 11 times more potent than CO2 over a 20-year period.
Sustainability criteria, certification and technical standards are counted as three of the 17 recommendations.
4-7) ‘Hydrogen deadlock’: Building up supply and demand
The Irena report points out that while governments have made supply commitments that add up to 140-150GW — equivalent to roughly 15 million tonnes of hydrogen per year — commitments on the demand side add up to less than three million tonnes annually.
“The combination of these factors creates a ‘hydrogen deadlock’. A deadlock happens when two or more actors block each other because they are waiting for one actor to provide information or resources to the other, or vice versa,” the study explains.
“In the hydrogen sector, potential off-takers need to know the price, physical properties and quantity of the low-carbon hydrogen from the potential suppliers, who in turn cannot start the deployment of electrolysers without an offtake agreement.
“Both players need to know the support policies in place and the standard and regulation of hydrogen in the jurisdictions where they operate.”
This deadlock is also holding back hydrogen infrastructure development and financing, Irena adds.
It therefore advises G7 members to support both supply and demand for green hydrogen, and to “signal their common intent through clear support with prioritisation for specific end uses and create a bulk demand for hydrogen in the most critical hard-to-abate applications”.
Specifically, Irena recommends that the G7 governments prioritise hard-to-abate industrial applications for hydrogen demand (see separate story here), and to “jointly signal such priorities to inform determinations of the size, use and location of initial hydrogen demand”.
“This activity would then lead to agreed policy making for harmonised public procurement and common action to support decarbonisation of the identified priority areas.”
Irena also recommends that the governments should agree common actions to decarbonise shipping and aviation.
“Due to the international nature of such sectors, most of the actions to decarbonise them can be effective only if agreed on a global scale,” it points out, arguing that the G7 should “lead the process of setting clear timelines and incentives” for the uptake of green-hydrogen-based fuels.
A third recommendation in this section is to co-ordinate supply and demand, with financial assistance for offtakers to “kickstart a hydrogen market”.
And a fourth is the scaling up of finance.
“G7 members should plan the incentives to large-scale investments from mainstream debt and equity markets and share best practices regarding appropriate policy, regulatory and fiscal frameworks to de-risk investments in hydrogen,” the report says.
“The support of the closure of credit-worthy offtake agreements, in particular, would signal the commercial viability of projects. The G7 can also support risk reduction and capital mobilisation towards developing economies by working with multilateral development banks to provide financial support on top of technical support and capacity building.”
8-10) Industrial uptake of H2
Irena argues that G7 members should act as first movers, and develop and test new policies to increase the uptake of green hydrogen — such as bans, mandates, carbon contracts for difference, sustainable public procurement, “product-based fiscal incentives” and bilateral auctions (such as Germany’s H2Global scheme).
Secondly, countries need to address so-called “carbon leakage” in heavy industry, which Irena describes as “where measures to contain emissions can substantially increase production costs, making the case for relocation more appealing to producers”.
In other words, governments need to prevent companies facing higher costs from moving production to countries that have no emissions-reducing measures.
The G7 should therefore co-ordinate policies such as carbon border adjustment mechanisms or carbon-based import tariffs, Irena says.
A third recommendation on increasing industrial uptake is to adopt a “step-change” mindset, rather than a gradual approach, to “help introduce the processes needed for deep decarbonisation and align the actions of investors and business with public interest”.
11-14) Collaborate and share with other countries
Irena warns G7 nations that making deals with developing countries to import green hydrogen from future projects risks slowing down the Global South’s own decarbonisation.
“Potential exporting countries, in particular in the Global South, are looking at hydrogen as an opportunity for economic growth and industrial development,” the agency writes. “In doing so, there is the risk that new hydrogen industry is developed at the expense of domestic decarbonisation and wider economic needs. This has a risk of diverting investment from renewable electricity production for domestic use, resulting in slower emissions reduction for the power sector.
“This would undermine the decarbonisation objectives all G7 members have agreed on.”
So the first of the four recommendations in the report’s section on international collaboration is to “support the sustainable development of hydrogen in Global South [ie, developing] countries”.
“To ensure investments have positive effects on local job creation and stimulate domestic value chains, donors and countries need to address local demand creation for green hydrogen and not focus only on export opportunities.”
The second recommendation here is to share lessons learned with other countries to accelerate hydrogen development worldwide.
The third is to share the regulatory set-ups designed for hydrogen hubs — centres of mainly industrial usage of green H2 — beyond the G7.
And the fourth recommendation is to “fast-track essential technological development opportunities” and “transfer technology knowledge”, such as cost reductions, energy-system integration, limiting H2 leaks and end-use applications.
15-17) Outreach to civil society
The fifth and final “pillar” of the recommendations is to “conduct outreach to civil society and industry stakeholders” — in other words, to raise awareness of clean hydrogen’s potential to decarbonise and get both the public and business community on board.
So the first of the three recommendations here is to “adopt a unified message around hydrogen”.
“This message should go beyond the benefits hydrogen will bring and its overall safety, and clearly present how hydrogen will impact society – as well as where new skillsets are needed,” Irena explains.
“Unified messaging offers the opportunity to use the same framing across major economies and highlight the same long-term goal: decarbonisation in parallel with energy security. A unified message will provide much-needed clarity and increase public acceptance.”
The 16th recommendation in the report is to “involve civil society in the governance of the hydrogen sector” — forming advisory councils to advise governments that “could include a diverse range of actors from academia, business and civil society to ensure that all interests are considered”.
And the final recommendation is to create an international “eco-label for hydrogen-based products”.
“Eco-labelling is a necessary feature to distinguish product characteristics and differentiate goods produced with low-carbon processes,” the report says, adding that this “will both inform consumers and allow policy makrers to recognise where support is needed for selected products”.
“An international eco-label could also be instrumental in setting up CBAMs [carbon border adjustment mechanisms] or carbon-content based trade agreements,” it adds.
The full Irena report can be downloaded here.
