The accelerating deployment of renewables has set in motion a global energy transformation with farreaching geopolitical implications. The report “A New World”, released in 2019 by IRENA’s Global Commission on the Geopolitics of the Energy Transformation, was the first foray into this area. It highlighted how the advent of a new energy age would reshape relations between states and communities and bring about a “new world” of power, security, energy independence and prosperity.
Given the fast pace of change, it is critical to monitor the geopolitical drivers and implications of the transition, stay abreast of developments and play an active role in shaping the future. In 2020, the IRENA Assembly requested the Agency to advance this work under the Collaborative Framework* on the Geopolitics of the Energy Transformation. Hydrogen was identified as a prominent area for further analysis, given the recent surge of interest. Several times in the past, hydrogen attracted much attention but remained a niche in the global energy discourse. Today, the policy focus is unprecendented, given its central role for decarbonisation of harder-to-abate sectors.
The hydrogen business will be more competitive and less lucrative than oil and gas. Clean hydrogen will not generate returns comparable to those of oil and gas today. Hydrogen is a conversion, not an extraction business, and has the potential to be produced competitively in many places. This will limit the possibilities of capturing economic rents akin to those generated by fossil fuels, which today account for some 2% of global GDP. Moreover, as the costs of green hydrogen fall, new and diverse participants will enter the market,making hydrogen even more competitive.
Hydrogen trade and investment flows will spawn new patterns of interdependence and bring shifts
in bilateral relations. A fast-growing array of bilateral deals indicates that these will be different from the hydrocarbon-based energy relationships of the 20th century. More than 30 countries and regions have hydrogen strategies that include import or export plans, indicating that cross-border hydrogen trade is set to grow considerably. Countries that have not traditionally traded energy are establishing bilateral relations centering on hydrogen-related technologies and molecules. As economic ties between countries change, so might their political dynamics.
THE ROLE OF HYDROGEN IN THE ENERGY TRANSITION
WHAT IS HYDROGEN?
Hydrogen is the oldest, lightest and most abundant element in the universe. It is naturally present in many compounds, including water and fossil fuels. Hydrogen gas is used mainly as a feedstock for the (petro)chemical industry: crude oil refining, ammonia synthesis (primarily for fertiliser production) and methanol production for a wide variety of products (including plastics). Around 120 million tonnes of hydrogen is produced globally, twothirds of which is pure hydrogen and one-third of which is a mixture
with other gases (IEA, 2019a). China is the world’s largest producer and consumer of hydrogen (Figure 2.1). It produces almost 24 million tonnes of pure hydrogen per year, accounting for nearly one-third of dedicated global production. Hydrogen can also be used as a fuel. When burned, it can generate heat of more than 1 000°C without emitting CO2. Further, hydrogen can also be used in fuel cells, where it chemically reacts with oxygen to produce electricity without emitting any pollutants or greenhouse gases. The only by-product of this chemical reaction is water vapour.
MAIN PRODUCTION PATHWAYS
Despite its abundance on Earth, hydrogen does not exist naturally in its pure form in large quantities. There are no vast deposits of hydrogen in the ground that can be extracted. Hydrogen is found almost exclusively in compounds, notably water molecules (hydrogen and oxygen) and fossil fuels (hydrogen and carbon). Hydrogen can be released from these compounds, but doing so requires energy. A colour-code system is commonly used to refer to different hydrogen production methods (Figure 2.2). Most hydrogen today is “grey” hydrogen, which is produced using fossil fuels, notably through steam
methane reforming of natural gas or gasification of coal.7 These fossil fuel-based production methods, which account for 95% of today’s hydrogen supply, result in a substantial CO2 footprint and are not compatible with moving towards net zero emissions.
Two main routes are under consideration to replace grey hydrogen with a clean form of production: green and blue hydrogen. Green hydrogen production is fully consistent with the net zero route. It relies on technologies that have long been well known, based on water electrolysis (Box 2.1) powered by renewable electricity. Currently, hydrogen production from renewable sources is limited, but this is set to change with the global focus on its potential. Blue hydrogen is produced from fossil fuels with CCS. Retrofitting CCS to grey hydrogen production facilities would allow continued use of these assets with lower greenhouse gas emissions. However, blue hydrogen relies on fossil gas, which brings risks of upstream or midstream leakages of methane, a much more potent greenhouse gas than CO2. Blue hydrogen can thus yield very low greenhouse gas emissions, only if methane leakage emissions do not exceed 0.2%,8 with close to 100% carbon capture. Such rates are still to be demonstrated at scale (Bauer et al., 2021; Howarth and Jacobson, 2021; IEA, 2021b; IRENA, 2020b; Saunois et al., 2016).
Decarbonisation strategies require careful management to ensure that the technologies and solutions
selected are most efficiently deployed. Thus, the wide array of options calls for identification of uses in
which hydrogen can provide the most value. Its production, transport and conversion require energy, raising overall demand. Indiscriminate use can slow the energy transition, also diluting the decarbonisation efforts of the power generation sector. Hydrogen is therefore best reserved for the uses that currently have no viable alternative. Figure 2.4 compares possible end uses based on the size of application and the maturity of hydrogen solutions compared with electricity-based ones. Policy attention should be given to the more mature and centralised hydrogen solutions. This attention can involve dedicated research, planning and supporting policies (IRENA, forthcoming-b). Making the shift to a truly sustainable economy is not simply about switching energy sources and keeping the current energy system; more efficient, just and equitable ways of using energy must be developed. Doing so involves reducing unnecessary energy consumption across many final uses and changing the current economic system, which is based on continuously increasing consumption. In heavy industry, for
example, 40% of CO2 emissions could be saved by reusing steel, aluminium and plastics more effectively (Lovins, 2021a). Another example would be a modal shift from short-distance flights to electrified trains, where possible, to reduce demand.
REDRAWING THE GEOPOLITICAL MAP
Hydrogen could alter the global balance of power and bring about shifts in the relative positioning of states and regions in the international system. This chapter identifies front-runners in terms of policy, future hydrogen exporters and emerging technology leaders. It also discusses the position of fossil-fuel producer countries, which could use hydrogen to hedge against some of the transition risks as the world moves towards net zero economies.
POLICY FRONT-RUNNERS AND LEADING MARKETS
A growing number of countries and companies are engaged in intense competition for leadership in clean hydrogen technologies. This section discusses three metrics with which to identify policy front-runners and potential leading markets: national hydrogen strategies, investments and projects on the ground. In 2017, just one country (Japan) had a national hydrogen strategy. Today, more than 30 countries have developed or are preparing hydrogen strategies (Figure 3.1), indicating growing interest in developing clean hydrogen value chains.
There is considerable variation in the scope and detail of these strategies. Box 3.1 describes the vision and focus of selected countries and regions that could become early leading markets for hydrogen because of their market size and/or ambitious hydrogen plans. These large markets are well positioned to set standards and other rules of the game if their strategies and plans are operationalised.
The COVID-19 pandemic has heated up the race for leadership in clean hydrogen, as many countries
recognise the importance of hydrogen for addressing the twin challenges of climate change and economic recovery from COVID-19. Significant shares of countries’ stimulus funds have been earmarked for hydrogen projects, bringing hydrogen into the realm of geoeconomic competition.
By early August 2021, governments had allocated at least USD 65 billion in targeted support for clean
hydrogen over the next decade, with France, Germany and Japan making the most significant commitments (Figure 3.2). These amounts are sizeable, but they pale in comparison with energy sector subsidies, which amounted to USD 634 billion in 2017, 70% of which supported fossil fuels (IRENA 2020c).
On the back of these national plans and support schemes, investment in clean hydrogen has taken off in
recent years (Figure 3.3). As of November 2021, global announcements of hydrogen projects by 2030
add up to USD 160 billion of investment, with half of the investments being planned for green hydrogen
production using renewable energy sources and electrolysis (Hydrogen Council, 2021).
The pipeline of announced electrolyser projects reached over 260 GW globally by October 2021, and, if
implemented, would bring an additional 475 GW of wind and solar PV capacity online by 2030 (IEA 2021d).15 Although this is a dramatic increase from the 0.3 GW of electrolysis that was installed in 2020, it is far from the 160 GW that must be installed on average every year through 2050 to meet the 1.5°C goal (IRENA, 2021a).
A NEW CLASS OF ENERGY EXPORTERS
Countries and regions with high renewable potential and a low levelised cost of electricity can use their
resources to become major producers of green hydrogen. The ability of different regions to produce large volumes of low-cost green hydrogen varies widely. Africa, the Americas, the Middle East and Oceania are the regions with the highest technical potential; Europe, Northeast Asia and Southeast Asia have fewer resources for producing green hydrogen (Figure 3.4). Countries’ technical renewable potential is not the only factor determining how likely they are to become major producers of green hydrogen. Many other factors come into play, including existing infrastructure and “soft factors” (e.g. government support, business friendliness, political stability) and the current energy mix and industry (e.g. renewable plans, potential demand for hydrogen).
One way to foresee future importers and exporters of green hydrogen is to compare their domestic
production potential with their expected hydrogen demand by 2050, and the cost of import.16 Three groups of countries can be identified. The first group includes countries with low cost green hydrogen production that could develop into exporters. They can leverage their renewable markets to attract investments in green hydrogen production. Australia, Chile, Morocco and Spain are among such net hydrogen exporters. The second group includes countries that can become self-sufficient in green hydrogen. These countries have sufficient production potential to cater to their own needs without resorting to imports. It includes China and the United States. The third group includes countries that will need imports to satisfy domestic demand, including Japan, Republic of Korea, and parts of Europe and Latin America.
TRADE, SECURITY, AND INTERDEPENDENCE
As hydrogen becomes an internationally traded commodity, the hydrogen sector will attract growing sums of international investment. Along with these new trade and investment flows will come patterns of global interdependence different from the hydrocarbon-based energy relationships of the 20th century. The shift will change the geography of energy trade. Countries that have not previously traded energy with each other have an opportunity to establish bilateral energy relations centred on hydrogen-related technologies and molecules. As economic relations between countries change, so might their political relations. The advent of an international hydrogen market could well reshape foreign policy and bring shifts in bilateral relations and alliances (Figure 4.1).
NEW GEOGRAPHY OF TRADE
The impact of clean hydrogen on global energy trade needs to be assessed in the context of the broader
energy transformation. The shift from fossil fuels to renewables will fundamentally alter the nature and
geography of the energy trade. Trade in energy resources will gradually turn to trade in energy technologies and related components and raw materials (IRENA, 2019a). As a result, the value26 of trade in fossil fuels will decline and that in electricity, hydrogen and hydrogen-rich fuels will rise (Figure 4.2).
Energy relations are likely to be regionalised, thereby transforming the geopolitical map. Renewables could be deployed in every country, with renewable electricity exported to neighbouring countries via transmission cables. In addition, clean hydrogen could facilitate the transport of renewable energy over long distances via pipelines and shipping, unlocking previously untapped renewable resources in remote locations. However, driven by transport costs, a dual market for hydrogen is likely to emerge: a regional market, traded through pipelines, and a global market for ammonia, methanol, and other liquid fuels. In other words, hydrogen may well end up being traded in a market that is more diverse and regionalised than oil and gas markets.
Geopolitical motives loom large in these discussions. Countries have an incentive to set standards to
maintain their competitive advantages. For instance, hydrogen certification schemes that cover only
emissions generated during production would exclude those that arise during transport and would likely be favoured by producers located far from consumer markets (White et al., 2021). Similarly, countries with large natural gas reserves and transportation systems might be more lenient towards greenhouse gas emission thresholds that favour the blue production pathway or that focus solely on carbon rather than methane emissions. Even if methane emissions are included, countries could influence the methodology or values used to measure them. For example, gas producers could self-report methane emissions along with their production, which could lead to underreporting (Piria et al., 2021).
THE ROOT CAUSES OF GEOPOLITICAL INSTABILITY – AND HYDROGEN’S ROLE IN ADDRESSING THEM
In today’s interconnected world, accounts of geopolitical change must grapple with the broad and
multidimensional nature of global threats and vulnerabilities. The concept of “human security” is often used to describe the root causes of geopolitical instability. Looking beyond military threats to state security, this concept expands the security agenda to include non-traditional threats such as climate change, poverty and disease, which can undermine peace and stability within and between countries. The United Nations General Assembly (2012) has endorsed this principle, which informs the United Nations’ work in areas ranging from peacebuilding to humanitarian assistance and sustainable development. The 17 Sustainable Development Goals (SDGs) reflect the multidimensional nature of human security. Depending on how it is developed, hydrogen could have both positive and negative effects on sustainable development outcomes (Figure 5.1).
The global energy transition has social and economic consequences that could have geopolitical ripple
effects. To make the energy transition fair and inclusive, policy makers must pay attention to its impact
on jobs and industrial development, as well as its inclusiveness. On the one hand, IRENA estimates that
electrolysers alone could directly spur the creation of 2 million jobs worldwide from 2030, out of a workforce that is expected to number 137 million by that time (IRENA and ILO, 2021). On the other, hydrogen could be disruptive for certain industries by raising the risk of stranded assets. Blue hydrogen is sometimes portrayed as a safe bet, because it allows producer countries to monetise natural gas resources and pipelines that might otherwise become stranded. But the expected cost reduction in green hydrogen coupled with stricter climate mitigation policies means that investments in supply chains based on fossil fuels (blue or grey) – especially assets expected to be in operation for many years – may end up stranded.
Another risk of asset stranding looms at the end-use segment of the hydrogen value chain. Clean hydrogen is expected to play an important role in heavy industries such as steel, cement and chemicals. Existing plants in these sectors have typical lifetimes of 30–40 years, with most undergoing significant refurbishment during their lifetimes (IRENA, 2020b). If new plants and assets are built to operate on fossil fuels, they will lock in billions of tonnes of greenhouse gas emissions and risk becoming stranded in the journey to net zero. With few investment cycles left before 2050, it will be critical to make these plants future-proof. Collaboration between and among countries will be crucial for the timely dissemination of clean technologies, especially for heavy industry and transport. Assisting developing countries in deploying hydrogen projects could help lock out, rather than lock in, fossil fuels, for example. For their part, industrial countries may be better off replacing ageing infrastructure with net zero compatible solutions designed for the economy of the future.
POLICY CONSIDERATIONS AND THE WAY FORWARD
The Global Commission on the Geopolitics of Energy Transformation stated in its 2019 report that the world to emerge from the renewable energy transition will be very different from the one built on fossil fuels (IRENA, 2019a). It also noted that the precise scope and pace of the energy transformation could not be predicted. The rise of hydrogen exemplifies this point. A few years ago, hydrogen was considered
niche in the global energy discourse. Today, it is a central focus of decarbonisation strategies for harder-to-abate sectors, with a growing number of countries and industries betting on its widespread use.
Governments have a unique opportunity today to shape the advent of hydrogen, avoid the flaws and inefficiencies of current systems, and influence geopolitical outcomes. It is evident that increased adoption of hydrogen technologies will disrupt certain economic and political alliances and partnerships. If pursued with due care and caution, this suite of energy technologies also offers the opportunity to demonstrate the positive forces of disruption, enhancing national and regional sovereignty, resilience, and co-operation. Experience from the use of fossil fuels may be instructive as the race for clean hydrogen accelerates. Policy makers can also draw early lessons from trailblazers in the hydrogen sector and replicate their successful practices. Above all, international co-operation will be essential to effectively navigate the unknowns, mitigate risks and overcome obstacles in the years ahead.