Will hydrogen contribute to decarbonising the economy? Is the EU Regulation fit for purpose yet?

Jakob Wachsmuth Profile

Interview with Jakob Wachsmuth. He is senior researcher at Fraunhofer ISI Institute and lead author of a meta study for the European Parliament’s Panel for the Future of Science and Technology (STOA) about the potential of hydrogen for decarbonising the economy and hydrogen policy pathways in the EU.

There has been a lot of hype about hydrogen being a silver bullet for the climate crisis. Even Jules Verne already referred to it as the ‘coal of the future’. Do you share the enthusiasm about a possible ‘hydrogen age’ in 2050?

I am a little reserved about it and would advise scepticism. Sure, we will see a rise in hydrogen use in order to reach climate neutrality. In hydrogen production, however, energy is converted from one type into another. This conversion involves efficiency losses which result in higher costs, particularly when compared to direct electricity use. In a nutshell: there are many applications with more efficient solutions to reduce CO2 emissions.

Some say that hydrogen is the champagne of a future renewable energy mix. Would you agree with that?

Probably not as luxurious as champagne but definitely much more of a luxury than table water – hydrogen is and will remain a scarce and costly resource that should be reserved for specific applications.

What do you recommend as priorities for hydrogen technologies?

We have developed a scale of three priority levels for the use of hydrogen to decarbonise the economy.

First, we recommend supporting its use in the ‘no-regret cases’. In particular, in some industries that are probably not suitable for electrification, such as steel and ammonia production, parts of the chemical industry and refineries, as long as they can be turned into climate-neutral refineries in the long run. Moreover, there is aviation and shipping, which will need to use hydrogen-based e-fuels in the future. For these purposes, the EU already needs electrolysers with giga-capacities and hydrogen imports on a similar scale.

As a second priority, we recommend enabling the optional use of hydrogen in the ‘no-lock-in cases’ where the preferred option is still unclear. This would be mainly for heavy-duty transport vehicles, high-temperature industrial heat, and, despite crucial efficiency losses, as a backup storage medium for volatile renewable energies.

Thirdly, there are hydrogen applications we consider unsuitable because there are better options, but which could nevertheless be relevant: future technological developments could lead to broader and cheaper hydrogen applications for housing or individual mobility. You never know what households will prefer. We call these ‘game-changer’ options.

What, for example, could be a potential ‘game-changer’?

We can see an ongoing discussion about home heating technologies, for instance, in the Netherlands and UK. Hydrogen boilers are replacing gas boilers in a few demonstration areas, and existing gas pipelines are partly being repurposed for hydrogen use. This is at an experimental phase but could develop into a trend.

In other words, the study focuses on hydrogen’s valuable potential for decarbonising industries that are difficult or impossible to electrify. And in contrast, you do not consider hydrogen use in passenger car mobility or household heating. Why not?

For heating houses, we have efficient and versatile solutions readily available, most importantly electric heat pumps. Households are already connected to the electricity grid, which can supply power generated by renewables. There are lower efficiency losses and no acceptance issues with electricity.

Setting up a hydrogen grid for housing would be costly, even if gas pipelines could be partly repurposed. The necessary primary energy input for hydrogen heating would also be six to seven times higher than for electric heat pumps when these are used to supply geothermal energy. The same argument applies to individual mobility. Here, battery-electric vehicles are an option with fewer energy losses.

For a transitional period, many studies propose low-carbon hydrogen as a bridging technology. This class of fuel is produced from natural gas and is called ‘blue hydrogen’. Could you please explain the difference of ‘grey’, ‘blue’, ‘turquoise’ and ‘green’ hydrogen?

Most hydrogen used in industry or refineries as a compound or catalyst is produced by steam reforming of fossil natural gas, which leads to direct emissions of the greenhouse gas carbon dioxide. This ‘grey’ type is thus incompatible with climate neutrality.

The ‘blue’ version still uses fossil gas, but the carbon dioxide is captured, stored and not released into the atmosphere. The ‘turquoise’ version is based on pyrolysis of fossil gas, capturing the carbon in solid black carbon residues. In both cases, there are still fugitive emissions of the highly potent greenhouse gas methane throughout the process chain.

In contrast, ‘green’ hydrogen uses renewable energy from wind or sun to split water into hydrogen and oxygen, thereby obtaining the desired hydrogen in a carbon-neutral way.

That is quite confusing. Do markets and consumers need labelling to distinguish between the different hydrogen sources and their climate relevance?

A certification system that creates market transparency for investors and consumers is urgently needed. Current EU legislation such as the Renewable Energy Directive and the Green Finance Taxonomy suggest designating of hydrogen as ‘clean’ if there is a verified CO2 reduction of at least 70%.

Some initiatives propose lower standards, while others call for additional sustainability criteria. Here, the industry needs a harmonised and transparent certification. As always, the devil is in the detail. How would imports be tracked? How do you assess poor labour conditions or water scarcity in some regions, which could be exacerbated by large-scale electrolysis involving massive water use?

Europe is a technological leader in electrolysers and F-cells, with many patents or demo projects in the pipeline. Yet, there is a commercialisation gap.

The real problem is the infamous ‘valley of death’ where projects do not get beyond the demo phase due to a lack of early-stage funding. There are some promising funding and finance programmes at the EU level that help lighthouse projects be developed into something ready for commercial use, particularly the EU Innovation Fund. However, this is not sufficient to foster broader dissemination of these projects.

Therefore, we recommend instruments called Carbon Contracts for Difference. These cover the remaining cost gap, but are dynamically adapted to the future development of carbon prices. By introducing this, we will create a level playing field and incentivise investment while avoiding over-funding.

Investor uncertainty about future hydrogen demand and the size of the necessary grid infrastructure is mentioned as an obstacle several times in your study. Are there already enough EU regulations to kick-start the crucial developments?

The EU needs to set clear targets and a draw up roadmap for developing the hydrogen sector. It has definitely fallen behind on the rules for creating the infrastructure and shaping markets for hydrogen.

There are questions which we need answers to – do we want hydrogen to be regulated like gas markets? Or is it better to agree on some general principles and leave room for individual countries or regions to experiment? We expect a decisive move in the Hydrogen and Decarbonised Gas Markets Package to be published on 14 December this year.

The EU Hydrogen Strategy 2020 distinguishes three development phases from today to 2050. Can you indicate the necessary investment sums for their implementation?

At the moment, we are in Phase 1, the demonstration phase, in which clusters are testing the fields for technology, distribution, storage, contracting, pricing models or grid access. 22 hydrogen valleys across Europe function as testbeds and have to be connected with each other.

In Phase 2 a ramp-up of a Hydrogen Backbone Network until 2030 is planned, with pipelines linking regions and technology, perhaps partly reusing existing gas grids. This ramp-up already requires the mobilisation of high two-digit billion euro investments. Phase 3 lasts until 2050 and includes market growth supported by expansive hydrogen infrastructure with networks and storage facilities across the whole European map, including technology roll-outs in many sectors, which would involve several hundreds of billion euro investments.

In any case, there is an additional need to expand renewable electricity generation and electricity grids across all Europe, which also requires an investment of several hundred billion euro.

These estimates are still very vague. Why is that?

The exact amount strongly depends on the extent of hydrogen use across the three priority levels, which will also influence the infrastructure needs. While stranded investments should, of course, be avoided, we need to get started very soon. Moreover, there is a chicken-egg problem – do we have to create demand for the specific infrastructure first, or is it the other way around?

The next question is how to share the cost of investing in hydrogen infrastructure – who has to pay upfront? Suppliers, consumers or the public? It is also unclear whether other technologies will eventually prevail and thus create stranded assets.

A lot of analysis is still needed. Policymakers need to become more active in integrating climate-friendly innovations, markets, regions and people.

Useful link:
At a glance ‘What if hydrogen could help decarbonise European industry?’

Leave a Reply