China is by far the world’s largest producer of hydrogen — and also the dirtiest.

Most of the world currently sources its hydrogen from natural gas, which emits 8-12kg of carbon dioxide for every kilogram of H2. China is an outlier — it derives most of its hydrogen from coal, which results in 18-20kg of CO2 emissions per kilo of H2.

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China knows it has to clean up its act, and is currently formulating a new national hydrogen strategy.

But in the meantime, the nation — including big industrial players and influential regional governments — is sending out very mixed messages on clean hydrogen.

Li Yizhong, director of the Ministry of Industry and Information Technology, told a recent conference that China should “not consider grey hydrogen, actively use by-product hydrogen, study blue hydrogen and work towards green hydrogen”.

And both the Chinese Academy of Sciences in Beijing and the government-supervised trade body China Hydrogen Alliance (CHA) are promoting a transition from grey to blue to green.

Yet the Chinese coal industry is still expanding their highly polluting grey hydrogen production, in order to, as they say, speed up the transition to clean hydrogen.

Their argument is that this will depress H2 prices, thus enabling the wider adoption of fuel cells, hydrogen turbines, and other H2 energy generation and storage technologies. By the time industries have adopted these new technologies, in response to the lower prices, the corresponding costs of blue hydrogen, or even green, will have come down enough to reach cost parity with — and thus displace — grey hydrogen.

Many coal companies have even used the excuse of meeting hydrogen production targets to produce more coal.

But it’s not like there isn’t currently a big market for clean hydrogen. China currently produces a staggering 20 million tonnes of grey hydrogen every year — almost a third of the global total — all of which needs to be decarbonised. So the idea that demand needs to be increased to allow economies of scale is a strange kind of logic.

But it is a logic that is taking hold across China.

More than 40 provinces and cities across the country have announced hydrogen industrial parks to link upstream grey hydrogen production to new downstream industrial usage, and about 24 provinces and cities have come up with plans to develop hydrogen-related infrastructure after the central government listed hydrogen refuelling facilities as part of its economic development plan in 2019.

And as Recharge reported earlier this year, 35 projects related to fuel cells, fuel-cell vehicles and hydrogen refuelling stations — worth a combined ¥110bn were signed off in the first five months of the year, incentivised by government subsidies — despite the almost complete lack of clean hydrogen in the country.

Li told a recent conference that while local governments in China are enthusiastic about the development of hydrogen, few have thought about where supply will come from.

But that might be about to change.

This week, the CHA unveiled an ambitious new position paper that called for China to “strive” towards installing 100GW of electrolysers by 2030 — all powered by 100% renewable energy.

That sounds enormous — and it is compared to the current installed global electrolyser capacity of 76MW — but even 100GW of electrolysers would only produce something in the region of five to ten million tonnes of green hydrogen a year.

But seeing as the CHA is “supported and supervised” by a host of central government entities, it seems unlikely that the industry body would have released its Renewable Hydrogen 100 Initiative document without the tacit approval of Beijing.

And with Beijing in the process of drawing up a new national hydrogen strategy, the government could be testing the reaction to the CHA document to help guide its policymaking.

Current hydrogen supply and costs

China produces 25 million tonnes of hydrogen every year, out of a global total of about 70 million.

Some 62% of its hydrogen comes from coal gasification, 19% is from natural gas, 18% is a by-product from industrial processes (see panel below), while less than 1% is actually green — made from renewables-powered water electrolysis.

A recent white paper by the CHA says the country's demand for hydrogen will rise to 35 million tonnes in 2030 and 60 million tonnes by 2050.

The reason that China predominantly uses coal for its hydrogen is because the country has a huge amount of the black stuff — 138.8bn tonnes of reserves — and relatively little oil and gas. And it’s cheap.

According to a December 2020 scientific paper, H2 from coal — sometimes called black hydrogen — costs $0.95-1.90/kg to produce in China, with grey hydrogen derived from natural gas costing $1.27-2.37/kg, and green hydrogen at $3.95-5.54/kg.

State-owned China Aerospace Science & Technology puts the cost of large-scale black hydrogen production at about ¥9.50 ($1.47) per kg — a figure it expects to fall to ¥4.80 as purification technology advances.

Developer GCL New Energy says that the lowest-cost green hydrogen currently being produced in China today is around ¥30 ($4.64) per kilo, but its chairman Zhu Hongshan says that solar power is now so cheap that renewable H2 could be produced today for ¥11.90 ($1.84) per kg — making it competitive with fossil-fuel hydrogen.

However, the cheapest method of producing hydrogen in China is thought to be when it is a by-product of other industrial process, namely the manufacturing of caustic soda, chlorine and propylene. In these cases, it is essentially a waste product, with costs as low as ¥1 per kilo — for capturing, compressing and storing the gas. (see panel)

Blue hydrogen

Many Western oil companies are planning to capture and store up to 95% of the CO2 emissions from the methane reformation process that produces grey hydrogen, to produce so-called blue hydrogen.

China is now looking into carbon capture and storage (CCS) for its grey H2 production too — but for its coal gasification plants.

According to the CHA, CCS technology in China currently costs more than ¥350 per tonne of CO2, though that price is expected to drop to a little more than 200 by 2030 and to less than 150 by 2050. A good rule of thumb, according to the organisation, is to assume a cost of production of blue hydrogen in China of ¥16 ($2.47) per kg.

But while several Chinese companies are talking about blue hydrogen, no specific projects have yet been announced.

Questions remain as to how clean blue hydrogen would really be. CCS technology cannot capture all the carbon emitted in coal gasification or methane reforming, and both coal and natural gas result in large amounts of downstream methane emissions in China.

The US Environmental Protection Agency says China’s annual methane emissions from coal mines equate to more than 420 million tonnes of CO2 equivalent per year. This does not include the roughly 7.2 billion tonnes of carbon dioxide emitted by the Chinese coal industry annually, according to 2019 figures from Statista.

And as China plans to reach net-zero greenhouse gas emissions by 2060, blue hydrogen cannot play a long-term role in the country.

Green hydrogen

In a recent white paper, CHA predicted that green hydrogen will steadily rise as a percentage of total H2 production in China — to 10% by 2030, 40% by 2040, and 70% by 2050.

At the same time, hydrogen production from fossil fuels — the paper did not differentiate between black, grey or blue — will fall from 70% in 2025 down to 20% in 2050, with by-product hydrogen dropping slightly from 30% in 2025 to 20% in 2030.

And analyst BloombergNEF recently predicted that the electrolyser market in China will exceed 2GW in 2022.

Unsurprisingly, China is encouraging green hydrogen projects to be built in areas with low-cost renewable energy — and solar power has become particularly cheap in the country.

State Power Investment Corporation (SPIC) recently submitted a bid to build a solar farm with a levelised cost of energy of only ¥150 ($23) per MWh. By contrast, the average cost of industrial power in China is ¥600/MWh.

China’s rapidly growing renewables industry — which is seeing year-on-year growth of 13% — is well known for its overcapacity in certain regions, with wind-power curtailment in the northeastern provinces of Jilin and Heilongjiang reaching 30% and 19% respectively in 2016.

And the southwestern provinces of Sichuan and Yunnan saw a combined 4GWh of hydropower curtailed in 2019.

It would be logical to argue that this curtailed power could instead be diverted to electrolysers that would effectively produce green hydrogen for free, but there are two issues there.

Firstly, the storage and transportation of hydrogen in China is very expensive, with long-distance trucking of the compressed gas often costing more than the production of the H2 itself on a per-kg basis. And the cheapest wind and solar projects are in remote areas far from industrial demand centres.

For this reason, two cities — Chengdu in the southwest and Guangzhou in the south — are offering preferential electricity prices for electrolysers of ¥105/MWh and ¥260/MWh respectively.

And secondly, the levelised cost of hydrogen falls the more hours per year an electrolyser is in operation, so only using curtailed power could well result in more expensive green H2 than that produced by dedicated renewables projects.

This may be why China's five major power companies have all announced new investments into dedicated renewables projects for hydrogen production, rather than using curtailed power — even though Dr. Gan Yong, a professor at the Chinese Academy of Sciences, has said that using curtailed renewables would produce green hydrogen at a cost of around ¥15 ($2.32) per kg, assuming a power price of ¥200/MWh.

Despite the mixed messages over clean hydrogen production in China, and the current lack of a national H2 strategy, the direction of travel does seem clear. Hydrogen production will eventually go green — but it may take decades, and it may well become greyer, or blacker, in the short term.

Hack Heyward is a Mandarin-speaking American economist based in Shenzhen, China. Hack specialises in clean energy and has worked on hydrogen energy and fuel-cell vehicle projects around the world.

China's by-product hydrogen

China produces as much as 850,000 tonnes of by-product hydrogen per year from the chlor-alkali process, which uses an electric current to turn kitchen salt and water — aka brine — into caustic soda, chlorine gas and H2, with zero greenhouse gas emissions. The country is the world’s largest producer of caustic soda — a cleaning agent also used in the production of paper and some foods — generating about 40% of the global total.

The second most common type of by-product hydrogen in China is derived from propane dehydrogenation (PDH) — literally, removal of some H2 from propane, a colourless gas found in raw natural gas, which is also formed as a by-product in oil refining.

Removing hydrogen from propane — through steam or fluid catalytic cracking — produces propylene, a raw material used to produce polypropylene, one of the safest types of plastic.

China produces about 370,000 tonnes of by-product hydrogen from PDH annually.