Executive summary A clear understanding of the emissions associated with hydrogen production can help enable investment and boost scale-up Most large-scale projects for the production of low-emission hydrogen are facing important bottlenecks. Only 4% of projects that have been thus far announced are under construction or have taken a final investment decision. Uncertainty about future demand, the lack of infrastructure available to deliver hydrogen to end users and the lack of clarity in regulatory frameworks and certification schemes are preventing project developers from taking firm decisions on investment.

Introduction Towards hydrogen definitions based on their emissions intensity is a new report by the International Energy Agency, designed to inform policy makers, hydrogen producers, investors and the research community in advance of the G7 Climate and Energy Ministerial in April 2023. The report builds on the analysis from the IEA’s Net Zero by 2050: A Roadmap for the Global Energy Sector and continues the series of reports that the IEA has prepared for the G7 on the sectoral details of the roadmap, including Achieving Net Zero Electricity Sectors in G7 Members, Achieving Net Zero Heavy Industry Sectors in G7 Members and Emissions Measurement and Data Collection for a Net Zero Steel Industry. Achieving net zero emissions by 2050 requires large-scale deployment of clean energy technologies at an unprecedented speed. Low-emission hydrogen, ammonia and hydrogen-based fuels have an important role to play in the decarbonisation of sectors with hard-to-abate emissions, such as heavy industry and long-distance transport. However, the availability of these low-emission fuels is today limited, and efforts are needed in the short term to scale up their production and use. This would help to bring production costs down and to develop international supply chains that can support the decarbonisation roadmap of regions with limited potential to produce these fuels domestically to meet their growing demand.

Hydrogen today Hydrogen is an important element of today’s energy sector. Global hydrogen demand reached more than 94 Mt of hydrogen (H2) in 20213. recovering to above pre-pandemic levels, when it had reached its previous maximum at 91 Mt H2. Hydrogen demand is almost completely concentrated in industrial applications (mainly in the chemical sector and in iron and steel production) and refining, where it is used mainly as a feedstock. Beyond these traditional industrial uses, hydrogen can be used as a fuel in other applications where it can contribute to the decarbonisation ambitions of governments and industry, such as in long-distance transport, the production of hydrogen-based fuels (such as ammonia and synthetic hydrocarbons), high temperature heat in heavy industry and for power generation. However, demand in these applications was limited to around 40 kt H2 in 2021 (about 0.04% of global hydrogen demand).

Global and G7 members’ hydrogen demand by sector and production by technology, 2021

in 20214 The production of low-emission hydrogen, 5 was less than 1 Mt, almost all from fossil fuels with carbon capture, utilisation and storage (CCUS)6 , with only 35 kt H2 from electricity via water electrolysis. The G7 plays a significant role in the hydrogen sector today. Together, G7 members account for around one-quarter of global hydrogen demand, which is lower than their share of global GDP (around 40%) but similar to their shares of global energy demand (around 30%) and energy-related CO2 emissions (25%). However, the distribution of demand is slightly different to the rest of the world. Although the main applications are the same, within the G7 a larger share of demand is concentrated in refining (around 60% compared with 40% globally); demand in industrial applications (chemicals and steel) is more concentrated in China and the Middle East. New applications accounted for around 0.04% of demand in the G7 in 2021, largely concentrated in road transport.

The cost of hydrogen supply The cost of hydrogen production depends on the technology and cost of the energy source used, which usually has significant regional differences. Prior to the global energy crisis sparked by Russia’s invasion of Ukraine, the levelised cost of hydrogen production from unabated fossil-based sources was in the range of USD 1.0-3.0/kg H2 (Figure 1.5). In 2021, these production routes offered the cheapest option to produce hydrogen, compared to the use of fossil fuels with CCUS (USD 1.5-3.2/kg H2) or the use of electrolysis with low-emission electricity (USD 3.1-9.0/kg H2).

Levelised cost of hydrogen production by technology and by scenario, 2021 and 2030

Scope and system boundaries for emissions accounting schemes

At an SMR plant, it is also possible to capture the CO2 resulting from the use of natural gas as fuel for steam production. The capture costs are higher compared with capturing the feedstock-related CO2, as the flue gas stream from using natural gas as a fuel is more diluted. Capturing both sources of CO2 results in capture rates of 93% for SMR and emissions of 1.5-6.2 kg CO2-eq/kg H2 (with the range again depending on the upstream and midstream emissions of natural gas supply).

Impact of capture rate and upstream and midstream emissions on the emissions intensity of hydrogen production from natural gas with carbon capture and storage

In the case of using electricity from directly connected renewable plants, the emissions are assumed to be zero, while the emission impact of using electricity from the grid depends on the technology and fuel mix in the electricity system and its operation.15 If solely grid electricity is being used, reaching low emissions intensities for hydrogen also requires a low emissions intensity of the electricity grid. Limiting, for example, the emissions of hydrogen production to 2 kg CO2-eq/kg H2 requires the emissions intensity of grid electricity to be 40 g CO2-eq/kWh or lower. Within the European Union, for example, only Sweden currently has such a low emissions intensity of its electricity grid, with 10 g CO2- eq/kWh. For 1 kg CO2-eq/kg H2, the threshold falls to 20 g CO2-eq/kWh, not reached by any of the G7 members (if not taking into account Sweden as part of the European Union).

Impact of the emissions intensity of grid electricity and of the mix of grid and dedicated renewable electricity on the emissions intensity of hydrogen

Emissions intensity and costs of hydrogen production in IEA scenarios Hydrogen today is almost entirely produced from unabated fossil fuels, resulting in direct CO2 emissions of more than 900 Mt CO2. Hydrogen production from electrolysers using renewable electricity and from fossil fuels in combination with CCS covers less than 1% of global production. The higher costs of low-emission hydrogen production today compared to the production from unabated fossil fuels is a key factor in this limited share of global production. With countries making efforts to reach their climate pledges, however, this situation can change in the future, leading to wider deployment of low-emission hydrogen production technologies and a reduction in the emissions intensity of hydrogen. Policy measures to support the uptake of low-emission hydrogen will also lead to further cost reductions for low-emission hydrogen, driven, for example, by cost reductions for electrolysers and renewable electricity. The following sections illustrate these potential developments of emission intensity and costs using the IEA scenarios.

Emissions intensity for hydrogen production by scenario, 2021-2050

also considering potential for future improvement in the production technologies and fuel supply chains, such as reductions in upstream and midstream methane emissions in natural gas supply. Other potential systems could include a higher upper limit, at 23 kg CO2-eq/kg H2 to also include unabated fossil-based routes, or lower levels (in the range of 3-4 kg CO2-eq/kg H2) to reflect the ambitions by governments that have already set regulations in this respect.

Example of a potential quantitative system for emissions intensity levels of hydrogen production

Some stakeholders, such as the investment community and general public, may appreciate the simplicity of quoting the aggregated “level” of emissions intensity. For example, hydrogen on sale at refuelling stations could be presented by its level to inform consumers of their environmental choices in a manner equivalent to energy efficiency labelling of appliances and buildings. Other non-greenhouse gas sustainability criteria (see The importance of compatibility with other sustainability requirements) could, of course, also be shared. Investors would also benefit from simple terminology for communicating what they are willing to finance (for example, “hydrogen with a level no higher than level D”) and how it will vary over time, including in IEA scenarios.

Use of an internationally agreed emissions accounting framework for hydrogen production to facilitate market interoperability

Expanding an accounting framework to address all emissions associated with hydrogen supply chains For simplicity and to smooth the initial stages of implementation, an accounting framework could start with a “well-to-gate” scope, meaning that direct emissions from hydrogen production and indirect upstream and midstream emissions related to the supply of the fuels and other inputs (e.g. heat, water, steam) for the production process are included. However, hydrogen production is only one part of the supply chain. In the case of captive hydrogen production in industrial and refining applications, a “well-to-gate” scope is enough to evaluate the emissions related to the use of hydrogen. However, in the case of distributed uses or the creation of an international market to facilitate hydrogen trade, conversion into hydrogen carriers, transport and reconversion back to hydrogen (when the carrier cannot be used directly) can have a significant impact on the total emissions of the hydrogen delivered to end users. These emissions should be considered to enhance comparability of the different products delivered to final users.

Graphical representation of the possible content of a product passport for a traded hydrogen cargo

Practical considerations for effective implementation There are a number of prerequisites for a common framework to become widely adopted and add value. Above all, recognition of the system by governments as compliant with regulations is fundamentally important. There are also critical roles for other stakeholders, including standardisation and certification bodies, and key design considerations that must be taken into account to be robust in a changing technical landscape.

Source:http://IEA