The European Union's energy system has taken center stage in much of the bloc's recent political undertakings. After a European Green Deal was crafted in the first 100 days of the new European Commission, lawmakers parried an attempt to dismantle the agreement due to the Covid-19 outbreak with a €1.8 trillion recovery bill, much of which will be used to boost the clean-tech sector.
Subsequently, a number of high-ranking EU officials have noted that the full decarbonization of the economy would require the substantial use of hydrogen. Now, a draft version of the EU's hydrogen strategy, “Towards a hydrogen economy in Europe: a strategic outlook”, has been leaked. The strategy is scheduled for publication on July 8, but already some clear trends can be seen.
Green, blue and grey
The plan states that a European hydrogen strategy would maximize the use of green hydrogen, but it concedes that for cost reasons, blue hydrogen will play a transitional role. Green hydrogen is produced from renewables without any carbon emissions, while the blue and grey versions are reformed natural gas and therefore release carbon emissions. Blue hydrogen captures, stores or reuses carbon emissions to offset their impact. At the moment, grey hydrogen can be produced for as little as €1.5/kg – a benchmark the EU wants to achieve with green hydrogen, in order to attain price parity. The plan also specifies that the EU will not use any grey hydrogen.
The International Energy Agency (IEA) estimates that the price for green hydrogen is around €3.50 to €5/kg at the moment. The cost of clean energy and electrolysis are the main price drivers here. The draft strategy repeatedly mentions the potential for a hydrogen economy in the European Union, in terms of geopolitics and job creation at the domestic level. Currently, the hydrogen economy in Europe has a turnover of €2 billion. That figure is poised to jump to €140 billion by 2030, accompanied by some 140.000 jobs that could be created.
Scaling up fast is a critical part of the strategy. The paper recognizes that the EU currently produces 9.8 million tons of hydrogen per year, compared to annual global production of 74 million tons. Furthermore, only 4% of Europe's output is green hydrogen.
With targets set for the mix of green and blue hydrogen for the years 2030, 2040, and 2050, the strategy seeks to incrementally increase the share of green hydrogen in the economy. By pushing for two 40 GW green hydrogen projects fueled by the sun and wind, the strategy points to economics of scale, which could reduce the price of green hydrogen down €1-2/kg, at a stage that has yet to be defined. Reportedly, bringing green hydrogen production to a level that leaves a significant impact on price development would preclude a substantial expansion of renewable energy generators such as solar PV and offshore wind.
Still, rolling out green hydrogen at scale in Europe seems to be a long way off. Current sector support for a hydrogen economy amounts to €4 per capita in China, €3 in Japan, €0.75 in the United States, and just €0.50 in the European Union.
That lack of cash can be fixed with the help of EU bodies, such as Horizon Europe, Innovation Fund, Connecting Europe Facility, InvestEU, and structural funds. However, the extent of such help has yet to be specified. The plan foresees keeping public spending at moderate levels by fostering demand through industries with expensive means of decarbonization, or none at all. In this vein, the strategy moots the idea of using green hydrogen as a fuel for aviation, trains, heavy-duty trucks, or vessels. Additionally, the fertilizer, steel, chemical, and cement industries could become key off-takers to generate significant initial demand to boost the hydrogen economy.
It is not just about spending, however, but the authors envision that generating domestic demand will provide the European Union with the chance to assume technology leadership along the entire value chain, but especially in electrolyzer technology. In a world where green hydrogen will substitute hydrocarbon-based fuels, the EU believes it can boost its importance on international fora and its ties with its allies through technology leadership in hydrogen. The strategy mentions, for example, that green hydrogen opens the opportunity to establish a benchmark for euro-denominated hydrogen transactions, much like crude oil is mostly traded in US dollars.
To further coordinate the strategy, a European Hydrogen Alliance will be formed, also on July 8. The alliance will feature six separate technology-based sectorial CEO roundtables. The idea behind this is to represent the pillars of the hydrogen value chain: production, transmission, mobility, industry, energy, and heating. Jointly, the alliance will facilitate the implementation and of key projects, such as a clean steel program.
Overall, the strategy explicitly notes that a comprehensive hydrogen strategy for Europe can only be achieved by addressing the whole value chain, from demand to production, infrastructure, and market rules.
In any case, an uptake in green hydrogen as primary fuel will mean that the European Union can engage in new cooperations with its neighbors such as Norway, Morocco, Ukraine, Algeria, and Egypt for hydrogen, rather than fossil fuel imports. The strategy also identified trade dimensions with the United States, South Africa, Japan, Canada and Australia.
The European Commission also recognizes that it needs to evaluate the impact on relations and contracts with third-party countries with regard to LNG terminals and gas pipelines. Within Europe, the gas network could be used to transport hydrogen, especially cross-border trade, which could be facilitated through such means, although the commission does caution that the costs of doing so must be carefully determined.
Jointly with the G20, the International Energy Agency, and other international bodies, the EU seeks to establish a freely accessible, rules-based market for hydrogen, by setting out clear criteria for the sustainability of the fuel.
Moreover, the European Commission understands the strategy as a complementary document in its more extensive ensemble of climate-related policies. This September, the EU plans to unveil a new 2030 climate plan to which this hydrogen strategy contributes. In June 2021, a new legislative package on stricter climate ambitions is also scheduled, which will tap the hydrogen strategy.
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