The transition to a low carbon economy shines a new light on the role of hydrogen. It is a versatile gas which can be used in chemicals, transport, power, industry and buildings. It can transform heavy industries such as steel and cement, which currently represents around 15 per cent of global emissions, to become lower carbon emitters.1
Hydrogen today represents less than 5 per cent of the overall global energy mix.2 But the Hydrogen Council estimates that hydrogen production could increase 10x over the next 30 years, to around 15-20 per cent of total energy demand. Green hydrogen, produced using electricity from renewables, is fully zero carbon emitting, but currently represents less than 2 per cent of the total hydrogen supply3.
Currently, cost is a key barrier to building up capacity as traditional fossil fuels are 3-4x cheaper than green hydrogen. HSBC Global Research estimates that the price of zero-carbon electricity would need to fall up to 50 per cent, as well as the cost of electrolyser equipment falling around 40 per cent.4
The Hydrogen Council thinks that for green hydrogen to be competitive, it would need to reach less than USD 2.3/kg from roughly USD 5.8/kg currently.5 For instance in steel, green hydrogen would need to reach USD 2.3 kg or lower to compete with high cost coal. To compete against low-cost coal, a carbon price would help. According to Bloomberg New Energy Finance, a price well below USD 2 per kg is possible with a carbon price of USD 50/tCO2 in steel and USD 60/tCO2 in cement.6
Renewables installed capacity is also a barrier for widespread scale up, where deploying green hydrogen could mean a five-fold increase.7 More robust demand from industrial users would encourage greater production at lower costs.
The solutions to overcoming these challenges are twofold. Industrial clustering could aggregate larger quantities of demand, providing a catalyst for the number of end-use applications in heavy industry to further develop. In addition, an international hydrogen market could facilitate greater supply at lower cost by producing in least cost renewable locations and using existing infrastructure for transport.
The oil and gas sector already has relevant infrastructure for hydrogen given existing pipeline facilities. In addition, some oil and gas companies are developing off-shore wind facilities dedicated to the production of green hydrogen, for industrial sectors.8
Public policy will play the most important role in scaling up the hydrogen economy. Setting national renewable energy targets, carbon pricing and carbon intensity benchmarks could help overcome the barriers by encouraging robust demand growth and cost-competitiveness.
There is still some way to go before hydrogen is able to fulfil its contribution to decarbonising fossil fuel intensive industries. However, the combination of public policy push and market oriented pull activities would enable wider-scale deployment that could reduce their global greenhouse emissions by over 30 per cent.9
1 IEA Energy Technology Perspectives (2017)
2 IEA World Energy Outlook (2018)
3 HSBC Global Research (2020), ‘Global Hydrogen – Why the journey from grey to green is taking off’
4 HSBC Global Research (2020), ‘Global Hydrogen – Why the journey from grey to green is taking off’
5 The Hydrogen Council (2020), ‘Path to hydrogen competitiveness. A cost perspective.’
6 Bloomberg New Energy Finance (2020), ‘Hydrogen Economy Outlook’
7 Energy Transitions Commission (2019), ‘Electricity, hydrogen and hydrogen-based fuels in a zero carbon economy’
8 Source: Gasunie (2020) press release: ‘Europe’s largest green hydrogen project starts in Groningen’
9 Bloomberg New Energy Finance (2020): ‘Hydrogen Economy offers promising path to decarbonisation’