Is green hydrogen development in the Global South a win-win solution? Not necessarily, warns Irena

The development of projects to export green hydrogen from lower-income nations with renewable energy resources to heavily-industrialised areas of the world is often characterised as mutually beneficial for both sides.

But according to intergovernmental organisation the International Renewable Energy Agency (Irena), without active intervention by policymakers and project developers, the “unequal power dynamic” between importer and exporter could result in in developing countries shouldering environmental or socio-economic burdens with few tangible benefits.

“Various agreements and new partnerships between developing and future importing countries characterise [these] as a win-win solution: industrialised nations get green hydrogen and commodities, while developing countries gain investments, jobs and technology transfers in return,” it says.

“This positive outcome will not be automatic, however, and mutual benefits are not guaranteed.”

This is because green hydrogen production has not yet reached the scale at which any benefits can be reliably assumed.

In fact, the process also carries risks for developing countries, which in a worst-case scenario could see green hydrogen developers cannibalising a host country’s emerging renewable energy capacity for export, environmental destruction or political unrest, or powerful industrial incumbents in importing countries using their outsize power to protect their own interests at the expense of those in an exporting country.

Irena specifically warns about the dangers of forming an oligopsony (in which a few large buyers set the terms of trade with numerous smaller sellers) — a particular risk given that the main importing blocs are set to be the EU, South Korea and Japan, all heavily industrialised and “striving to maintain their local industrial clusters while reaching their climate goals by importing renewable hydrogen”.

The development of sustainable hydrogen supply chains from the outset — that also seek to stimulate industrial growth in developing countries and incorporate environmental best practice — could offset some of the risks for developing countries and accelerate the green hydrogen industry as a whole, the report argues.

This is what Irena recommends to mitigate these specific risks:

Energy access

Developers frequently cite improved energy access (connecting more people to the electricity grid) as a key benefit of hosting a green hydrogen export project, on account of the investment in new renewable energy and related grid infrastructure.

However, to ensure that this benefit is actually felt, stakeholders should ensure a portion of green hydrogen investment is directed towards the enhancement of the power grid and programmes to enhance energy access.

Policymakers could implement policies that would require power plants associated with green hydrogen exports to be deliberately oversized, with some of their output dedicated to the local grid.

Irena highlights that training the local workforce to build and commission renewable energy is essential, as it allows developing countries to then use this knowledge to build their own capacity.

“The push towards green hydrogen production can act as a catalyst for broader renewable energy adoption, driving in tandem both technological advancement and sustainable development,” notes the report.

Industrial development

Increased energy access has historically led to more industrial development, the agency continues, but green hydrogen projects should come hand-in-hand with the growth of the local value chain.

This could, for some larger markets, take the form of manufacturing capacity, such as factories making electrolysers, compressors valves and metering equipment — all of which would contribute to the local economy.

The manufacture of value-added products downstream of hydrogen production — such as ammonia, methanol, green iron or steel or fertiliser — would also expand other domestic industries and create more long-term job opportunities.

G7 countries might, the agency suggests, invest in market development, research, development and demonstration activities, and capacity building initiatives, which specifically target new ammonia and methanol facilities.

And while the decision to build new production facilities is in the hands of industrial players, it does not imply the closure of plants elsewhere, Irena argues, citing its own projection that the ammonia market alone will grow four-fold to 2050.

The intergovernmental agency also prescribes another remedy for the risk of oligopsony, namely Global South countries clubbing together to share knowledge, build infrastructure and establish joint trading relationships with Global North countries.

At present there is limited collaboration between prospective hydrogen exporters, which is a “missed opportunity”, Irena says, explaining that such partnerships can accelerate the regulatory and infrastructure development necessary for green hydrogen industry investment — as well as enhancing “collective bargaining power” when negotiating with heavily-industrialised importers.

Environmental impact

But building green hydrogen installations comes with environmental risks, especially if the project is also producing and exporting toxic chemicals such as ammonia.

Developers and policymakers should take steps to install quality infrastructure to safely transport hydrogen and its derivatives, as well as handling chemicals such as ammonia “carefully” to prevent leaks, Irena says.

Steps should also be taken to ensure the lowest-possible emissions profile of hydrogen installations, as well as championing initiatives that emphasise environmental impact, resource efficiency and water management.

“It is also important to avoid offloading negative impacts in resource-rich areas,” the agency added.

Jobs

Irena calculates that — in a world with 428GW electrolyser capacity by 2030 and 5.7TW by 2050 — green hydrogen infrastructure could support 3.8 million and 6.5 million jobs by 2030 and 2050 respectively.

However, while it is unclear how these jobs will be distributed globally, developing countries can take strategic steps to maximise the employment impacts in their respective jurisdictions.

Likewise, the decarbonisation of existing industries in developing countries — especially if supported by subsidies — can have strong employment effects and potential for long-term employment.