Europe must increase the amount of renewable energy it consumes if it wants to meet its 2030 goal of cutting emissions by 55% and become the first climate neutral continent by 2050. But for cost or technical reasons, sectors such as steel, chemicals, food and ceramics, will not be able to rely on renewable-based electrification to decrease their emissions.
With the overhaul of EU renewable energy rules tabled as part of its “Fit-for-55” package on 14 July, the European Commission is unequivocal. An unprecedented change is upon industry.
By 2030, industrial sectors using hydrogen either as a feedstock or energy carrier will have to ensure that 50% of this H2 come from renewable fuels of non-biological origins — in other words, renewable hydrogen and derived fuels such as ammonia or methanol, all produced using renewable electricity.
This a true game changer. Such targets will boost the share of renewable hydrogen in today’s European H2 market, currently almost exclusively fossil-based. This will drive renewable hydrogen costs down and make it competitive with fossil-fuel alternatives much sooner than previously projected.
With its proposal, the Commission puts into action its July 2020 Hydrogen Strategy to develop a renewable-based H2 economy, acknowledging renewable hydrogen as the most compatible solution with its decarbonisation and climate neutrality goals. Unlike grey hydrogen produced from unabated fossil fuels, the production of renewable hydrogen via electrolysis using renewable electricity emits no carbon.
But setting targets won’t be sufficient for industry to switch to renewable hydrogen. Any target must be accompanied with dedicated support instruments to make it an economically feasible option and stay competitive.
Industry has also been calling for such support instruments to cover the capital cost of projects (capex) but also operational costs (opex).
Available tools include reducing the heavy taxation and levies on electricity for renewable hydrogen producers, which could be waived by the state or covered by Contracts for Difference.
Carbon Contracts for Difference are also important to consider, but must be designed specifically to support the uptake of renewable-based hydrogen to avoid carbon lock-in.
Other instruments to consider may include carbon pricing; reducing electrolyser costs through tax exemption or more direct investment aid; public procurement rules to ensure that state-owned industries use a specified proportion of renewable hydrogen; H2 supply contracts that incentivise supply or demand; or government guarantees covering the risk of default in the final stages of a new technology’s development.
However, using one single instrument on its own is unlikely to make renewable H2 competitive with incumbent alternatives. Innovative approaches combining multiple instruments at both the demand and supply sides will be required to give renewable hydrogen the decisive boost it needs.
Renewable H2 is a must if Europe wants to shorten its reliance on so-called transition fossil-based solutions and reach climate neutrality by 2050.
Yet ambitious targets call for enabling measures to ensure they can be met.
Dedicated support mechanisms will give industry the confidence it needs to make bold decarbonisation choice without undermining its competitiveness. Ramping up renewable hydrogen use will also require additional electricity generation capacity to produce it and avoid hampering renewable-based electrification. This means solving the permitting bottleneck today if we want to live in a renewable-based economy tomorrow.
The upcoming negotiations on the package should now be used to create these enabling conditions and confirm Europe as a global trend-setter in achieving deep decarbonisation across key sectors of the economy.