The EU aims to make green hydrogen cost-competitive with highly polluting grey hydrogen within two years, according to a leaked draft of the European Commission’s forthcoming hydrogen strategy.

“To facilitate the taking-off of green hydrogen in the next two years, we need strong policy steer at EU level to complement market and private investment,” says the document seen by Recharge, entitled Towards a hydrogen economy in Europe: a strategic outlook.

“Policy actions would aim at enabling green hydrogen to arrive at close to competitive price levels already in a couple of years. This will be possible as soon as integrated green hydrogen factories at gigawatt scale go into production.”

It adds: “The main booster has to be a significant increase in volumes to bring down the price/kg to a range of €1-2/kg [$1.12-2.24] as quickly as possible.” This is roughly the price of grey hydrogen produced from unabated natural gas and coal today.

Green v blue

The eight-page document, which sets out many questions that still need to be answered by policymakers, is clearly focused on green hydrogen derived from renewables-powered water electrolysis, but seems to suggest that blue hydrogen — produced from natural gas with carbon capture and storage (CCS) — will “play a role”, although this is still up for debate.

The draft document calls upon policymakers to “spell out what is meant by ‘clean’ hydrogen in the title of the strategy, and our objectives (in the context of decarbonisation, clear priority on green hydrogen asap [as soon as possible], accepting that blue hydrogen will play a role in the transition, no grey hydrogen)”. Grey H2 currently accounts for more than 95% of the 9.8 million tonnes of hydrogen produced each year, mainly for use in oil refining, fertiliser production and the chemicals sector.

The European Commission also wants the final hydrogen strategy to set targets for the “share of green, blue, grey hydrogen in the energy mix by 2030, 2040, 2050”.

But while the document talks of the need to support green hydrogen production, it does not specifically propose any incentives for the production of blue hydrogen — and mentions that there should be an “avoidance of lock-in” with regard to the technology, suggesting that the European Commission does not want blue H2 (and therefore fossil fuels) to play a long-term role.

Germany, the bloc’s largest and most influential economy, recently unveiled its own national hydrogen strategy, which offered zero support to blue hydrogen while admitting it may have to import some of this “clean H2” to meet demand.

Questions also remain about blue hydrogen’s ability to capture and store CO2 emissions, as CCS technology is still in its infancy and the fact that it is not possible to capture all the carbon dioxide released in the steam-methane reformation and autothermal reformation production processes. Leaks from natural-gas infrastructure are also a concern as methane is 84 times more powerful a greenhouse gas than CO2 over a 20-year period, while geopolitical issues exist over a long-term reliance on imported fossil fuels.

It is also worth pointing out that if green hydrogen is cost-competitive with grey H2, it will be significantly cheaper than blue hydrogen, which is simply grey H2 with the added cost of CCS.

But at the same time, there are doubts as to whether wind turbines, solar panels and electrolysers can be installed fast enough to meet the coming clean-hydrogen demand.

Boosting green hydrogen production

The draft strategy calls for a gigawatt-scale roll-out of green hydrogen production — splitting water molecules into hydrogen and oxygen using renewables-powered electrolysers — “mainly in dedicated green hydrogen factories with integrated solar or wind renewable facility [sic]” and that “hydrogen has to be produced in places best suited for these technologies (eg, PV in the south of the EU, wind offshore in the North)”.

However, the document does not clearly spell out how this will be achieved. It says that “solid price signals for carbon [are] needed, but not sufficient”, with the only support mechanism put forward being a “contracts for difference” (CfD) programme to “support gigawatt-scale production of clean hydrogen, [and] industrial plants for the production of low-carbon... steel, cement and basic chemicals”. (Hydrogen can replace the coal and coke used to produce the high-temperature heat required in steel and cement production.)

There are no details as to how such a scheme would work, but as part of Germany’s hydrogen strategy, it unveiled “carbon contracts for difference” in which producers would be paid a guaranteed amount by the government for avoiding CO2 emissions. This would consist of savings made by not paying a carbon price under the EU’s Emissions Trading System (ETS) plus a top-up subsidy from Berlin to reach the sum agreed in a CCfD tender.

The EU H2 strategy also seeks to boost green hydrogen by incentivising demand — “for example through targets on certain end-use sectors”, “additional incentives… through specific quotas” and “sustainability requirements in financial support to create a market pull for hydrogen use (eg, shipping such as cruise shops, aviation using hydrogen or hydrogen-based renewable fuels)”.

The European Commission wants hydrogen to be used as a fuel for aviation, shipping, trains and heavy-duty transport “either as hydrogen or as renewable fuel based on hydrogen” — probably ammonia or synthetic fuels made by combining H2 with captured CO2 — and in heating and the power sector, not only for large-scale energy storage but for dispatchable electricity too.

The document also mentions that blending hydrogen with natural gas in the bloc’s gas grids is “a transitional possibility where needed to kick-start production”. Up to 20% pure hydrogen can be injected into the gas grid without any problems for existing infrastructure and appliances.

And to boost green hydrogen demand in hard-to-decarbonise industries including fertiliser, steel, chemicals and cement, the document suggests “supporting commercial viability through temporary grant schemes for kick-start”.

But of course, scaling up green hydrogen will, to a large extent, depend on the cost and efficiency of electrolysers, as well as the price and availability of renewable energy.

The Commission acknowledges the “need to improve the scale, efficiency, durability, operational flexibility and reliability of electrolysers, as well as reducing their capital cost”. It mentions the substitution of “critical/costly materials”, which include platinum — a small amount of which is used as a catalyst in many electrolysers today.

It also calls for “coordinated EU research and innovation” to support the creation of supply chains for large electrolysers of more than 100MW and utility-scale renewables projects including offshore wind.

The amount of available renewable power “needs to rapidly scale and investments [are needed] to provide the necessary electricity to produce green hydrogen”,” the paper adds, noting that the final strategy document, to be unveiled on 8 July, should “quantify how much renewable energy is needed to reach our hydrogen goals by 2030, 2040, 2050”.

Regulatory frameworks and global co-operation

A new regulatory framework will be fundamental to the EU’s clean-hydrogen build-out, and the document points out the elements that this needs to contain.

These include a standard for clean-hydrogen classification “and associated minimum GHG [greenhouse gas] emissions”; “robust” guarantees of origin to give consumers confidence about the clean attributes of their hydrogen; and a new methodology to allow green hydrogen to contribute to EU renewables targets.

Once such regulations are in place, the EU would then help develop an international trade in clean H2 “with neighbouring countries, but also with the US, South Africa, Australia”, as well as co-operation with the African Union and the Maghreb countries of North Africa.

“The EU will work with international partners to secure open rule-based free trade in hydrogen, including based on clear sustainability criteria,” the document says, pointing to the G20 and International Energy Agency as potential forums for discussions.

While many questions remain unanswered by this draft strategy, one thing is for certain: the size of the prize is immense. It will be the first step in ensuring that hydrogen, alongside clean electricity, will entirely replace fossil fuels across the continent by 2050, with huge repercussions for the global energy industry.

As the document points out, hydrogen is “central to the European Green Deal” — which aims to achieve net-zero emissions throughout the bloc by mid-century — due to its ability to decarbonise non-power sectors. The European hydrogen sector is due to grow exponentially this decade — from having a €2bn annual turnover today to €140bn by 2030, creating 140,000 jobs in the process and boosting the continent’s post-Covid recovery.

But at the root of the European Commission’s hydrogen strategy lies one fundamental unanswered question, which it sets out under the header “The investment challenge”.

Alongside possible contributions from carbon pricing, innovation funds and energy taxation, it asks simply: “How much from the private and the public sector?”

The answer is something that an awful lot of companies across the energy value chain — from Big Oil to renewables developers and electrolyser suppliers — would dearly like to know.