Green hydrogen: A guide to policy making

Green hydrogen is an energy carrier that can be used in many different applications. However, its actual use is still very limited. Each year around 120 million tonnes of hydrogen are produced globally, of which two-thirds are pure hydrogen and one-third is in a mixture with other gases. Hydrogen output is mostly used for crude oil refining and for ammonia and methanol synthesis, which together represent almost 75% of the combined pure and mixed
hydrogen demand.

Green hydrogen production, conversion and end uses across the energy system

DIFFERENT SHADES OF HYDROGEN

Hydrogen can be produced with multiple processes and energy sources; a colour code nomenclature is becoming commonly used to facilitate discussion. But policy makers should design policy using an objective measure of impact based on life-cycle greenhouse gas (GHG) emissions, especially since there might be cases that do not fully fall under one colour (e.g. mixed hydrogen sources, electrolysis with grid electricity).

Selected shades of hydrogen

DRIVERS OF THE NEW WAVE OF GREEN HYDROGEN

There have been several waves of interest in hydrogen in the past. These were mostly driven by oil price shocks, concerns about peak oil demand or air pollution, and research on alternative fuels. Hydrogen can contribute to energy security by providing another energy carrier with different supply chains, producers and markets; this can diversify the energy mix and improve the resilience of the system. Hydrogen can also reduce air pollution when used in fuel cells, with no emissions other than water. It can promote economic growth and job creation given the large investment needed to develop it as an energy carrier from an industrial feedstock.

BARRIERS TO THE UPTAKE OF GREEN HYDROGEN

Green hydrogen faces barriers that prevent its full contribution to the energy transformation. Barriers include those that apply to all shades of hydrogen, such as the lack of dedicated infrastructure (e.g. transport and storage infrastructure), and those mainly related to the production stage of electrolysis, faced only by green hydrogen (e.g. energy losses, lack of value recognition, challenges ensuring sustainability and high production costs).

Key cost components for green hydrogen
Green hydrogen competes both with fossil fuels and with other shades of hydrogen. It is important, therefore, to understand the factors that determine the cost of green hydrogen. The production cost of green hydrogen depends on the investment cost of the electrolysers, their capacity factor,7 which is a measure of how much the electrolyser is actually used, and the cost of electricity produced from renewable energy.

Hydrogen production cost depending on electrolyser system cost, electricity price and operating hours

POLICIES TO SUPPORT GREEN HYDROGEN

Historically, every part of the energy system has enjoyed some form of policy support. This has been and is still true for fossil fuels (which are supported with both direct and indirect subsidies) and for renewable energy sources, across all sectors – power, heating and cooling, and transport. The hydrogen sector has also received some attention from policy makers with dedicated policies. But more dedicated policy support is needed at each stage of technology readiness, market penetration and market growth.

Status of policy support for green hydrogen

By 2019, hydrogen was being promoted in at least 15 countries and the European Union with supporting policies (other than standardisation processes or national strategies).

Number of hydrogen policies at a global level by segment of the value chain

PILLARS FOR GREEN HYDROGEN POLICY MAKING

Transitioning green hydrogen from a niche player to a widespread energy carrier will
require an integrated policy approach to overcome initial resistance and reach a minimum threshold for market penetration. That policy approach should have four central pillars: national hydrogen strategies, policy priority setting, guarantees of origin, and enabling policies.

POLICY PILLAR 1: NATIONAL STRATEGIES

Recently announced hydrogen strategies result from a long process and mark the beginning of a new wave of policies. The strategy process usually starts with the establishment of R&D programmes to understand the fundamental principles of the technology, to develop the knowledge base that will inform future stages, and to explore multiple technologies and possibilities given that, at this early stage, the end applications are far from clear.

Steps leading to the formulation of a national strategy

A follow-up to the strategy is a set of analyses to assess the impact of the introduction or
change of specific policies. The analyses assess the economic, social and environmental
consequences of the implementation of the proposed measures in the strategy. They
evaluate alternative timelines and scopes, as well as interactions with other technologies.
After these analyses, the actual regulations and laws are introduced, followed by regular
revisions to adjust them according to progress and latest trends.

Government hydrogen-related initiatives announced between June 2018 and November 2020

With the arrival of the new wave of interest, the European Union finally released its overall
green hydrogen strategy with some policies scheduled for introduction in 2021.

Main aspects and instruments mentioned in the EU hydrogen strategy

ESTABLISH POLICY PRIORITIES FOR GREEN HYDROGEN

Individual countries have specific conditions. As a result, national green hydrogen policy makers should carefully assess, in order to set up their policy priorities, key factors for each
segment of the hydrogen value chain. These include the size of the country’s renewable resources, the maturity of its energy sector, the current level of economic competitiveness and the potential socio-economic effects.

Hydrogen as a complement to alternative ways to decarbonise end uses

GUARANTEE OF ORIGIN SCHEME

Molecules of green hydrogen are identical to those of grey hydrogen. For this reason, once hydrogen has been produced, a certification system is needed that allows end users and governments to know the origin and quality of the hydrogen.

Examples of guarantee of origin schemes

The previous examples show that there is still no single definition for the certification of hydrogen, meaning that schemes may be incompatible. For example, the CO2 threshold limit below which hydrogen would be considered “green” or “low-carbon” varies widely (35-100%). Some of the schemes cover multiple hydrogen production technologies (e.g. Low Carbon Fuel Standard, CertifHy), while others focus specifically on green hydrogen (e.g. AFHYPAC).

SUPPORTING POLICIES FOR GREEN HYDROGEN

Once priorities are set, policy makers need to address the barriers specific to the sectors
where green hydrogen is expected to be deployed. In this chapter, specific policies and measures are presented for selected segments of the hydrogen value chain. The policy briefs that are due to follow this publication will delve in greater detail for each of the mentioned elements.

Selected barriers and policies for segments of the hydrogen value chain

POLICY SUPPORT FOR ELECTROLYSIS
Green hydrogen is produced via electrolysis from renewable electricity. Electrolysis is a developed and commercialised process, with various technologies available, each with benefits and barriers to uptake (IRENA, forthcoming). While electrolysis technology is mature, about 95% of all the hydrogen used today is still produced from fossil fuels through SMR or coal gasification (grey hydrogen). Water electrolysis for the production of green hydrogen is limited to about 200 MW of electrolyser capacity in few hundreds demonstration projects.

POLICY SUPPORT FOR HYDROGEN INFRASTRUCTURE
Vast renewable resources are available to be exploited to produce green hydrogen. A large share of the potential, however, such as that of solar PV, is found in deserts at great distances from where the hydrogen could be used. Even when electrolysers are located closer to demand, the hydrogen may still need to be transported. As a result, various forms of infrastructure will be needed to store and transport green hydrogen and hydrogen-based synthetic fuels.

POLICY SUPPORT FOR HYDROGEN IN INDUSTRIAL APPLICATIONS
Converting to green hydrogen can significantly reduce carbon emissions from the industrial
sector, which is currently responsible for about one-quarter of all energy-related CO2 emissions (or 8.4 GtCO2/yr). Four industries in particular – iron and steel, chemicals and petrochemicals, cement and lime, and aluminium – account for around threequarters of total industrial emissions.

POLICY SUPPORT FOR SYNTHETIC FUELS IN AVIATION
Aviation accounts for 2.5% of global energy-related emissions. It is dependent on high
energy density fuels due to the mass and volume limitations of aircraft.

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