Renewable hydrogen, ammonia and green steel producers to be granted free EU carbon credits next year

The new rules, agreed after a long legislative passage that began last year, essentially corrects a glitch in the Emissions Trading System (ETS) rules that granted free allowances to producers of fossil fuel-intensive industries, but not their decarbonised equivalents.

The exact number of credits these producers will be eligible for will be determined by a “benchmark” set by the EU, which monitors all emissions from the sector and sets an emissions limit based on the top 10% best performers in emissions terms in any given category (eg, hydrogen-derived direct-reduced iron production, known as “sponge iron”).

However, this extra revenue stream will be temporary and continually ratchet down, as the EU is phasing out free carbon allowances as it phases in the carbon border adjustment mechanism (CBAM) over the next ten years.

The EU hopes that imposing a carbon tax on imported industrial products, such as hydrogen, steel and iron, will eliminate the need to grant free allowances to its biggest polluters — which faced being critically undermined by carbon-intensive imports, or having to move abroad entirely.

And the Renewable Hydrogen Coalition also signalled its satisfaction with the latest rules.

“[The new document] creates a much-needed level-playing field: from 2025, renewable hydrogen producers will receive the same amount of free allocations as fossil incumbents,” it said. “And as renewable hydrogen emits no carbon emissions, producers can sell their credits and offset the green premium by tens of euros per tonne of hydrogen but also green steel, iron or ammonia produced.

“This is major as it will help renewable hydrogen producers take their final investment decision and offtakers to access renewable hydrogen at least cost.”