Hydrogen’s ability to play a crucial role in the energy mix is tied up with fossil fuels, at least in the near term. Low-emission hydrogen is seen as a growth area, but significant barriers remain. Hydrogen Economist interviewed the IEA’s top hydrogen expert, Jose Bermudez Menendez, on what needs to be done to unlock hydrogen’s massive potential and what areas of the energy world may remain off limits.

How big a role is hydrogen likely to play in the global energy mix by 2030 and 2050? Estimates range from c.3pc to 20pc. How do you see it?

Menendez: Our vision of what is a feasible pathway to reach net-zero emissions by 2050 would see hydrogen covering c.12–13pc of the global energy mix. It would become an important part of the of the mix but be much less important than electrification or bioenergy. The reason is that thermodynamics are not in favour of hydrogen. It is not the most efficient solution; it is probably the least-efficient in many cases. But there are some cases in which we are not going to be able to fully decarbonise certain sectors without hydrogen. So, there are some sectors where it really will need to play a role, and these have high energy demand. There will be a huge jump for hydrogen in terms of its share of final energy consumption, which today is less than 0.1pc.

How big a challenge is the mass deployment of hydrogen in a historical context, parallel to the deployment of coal, oil, electricity and renewables?

Menendez: It is a significant challenge because something we have to keep in mind is that it is a complete change. We consume a lot of hydrogen already, but it is an industrial feedstock—used to produce raw materials. We are speaking of adopting it as a as a fuel or an energy vector, so it is a complete change of paradigm. Renewables have also involved a massive jump, but there is already infrastructure that renewables can use. That is not the case with hydrogen, where we need to develop the infrastructure. We cannot compare it either to coal or oil because those fossil fuels became the mainstays of the energy system. We do not think that will be the case for hydrogen. In fact, I hope it will not be because if it is the energy system will be highly inefficient. In the case of fossil fuels, there was also a clear economic argument that is not yet there for hydrogen because the only reason for using hydrogen as a fuel at present is the current decarbonisation objectives.

What are the main constraints on the growth of hydrogen supply and demand?

Menendez: If hydrogen is to play a role in decarbonising the energy system, we should be speaking about low-emission hydrogen production from renewables, from fossil fuels with CCS, from nuclear, from biomass—from those technologies that can be really low emission.

In the case of low-emission hydrogen, we have four big barriers. The first barrier is uncertainty around demand. Today, we consume c.94mn t/yr of hydrogen but only less than 1mn t/yr of low-emission hydrogen. We need to make sure hydrogen demand switches to the low-emission variety and that we start creating demand for low-emission hydrogen in sectors aside from refining and chemicals. This could be other heavy industries, heavy-duty transport, long-distance transport, aviation or shipping.

However, these other uses face an important challenge: technology availability. So many of the technologies involved are not commercial yet. They need to be further progressed, and we need to demonstrate them at scale before the business models can be developed.

“Regulation and certification is a critical barrier. Forget about colours of hydrogen: they are not useful when you need to set up regulations or contractual agreements”

Another big barrier has been the cost differential. Low-emission hydrogen in most regions of the world is more expensive than unabated fossil fuels. When we think about CCS, there will always be a cost differential, which is the additional cost of capturing and storing the CO₂. In the case of hydrogen from renewables, it is also more expensive, although costs are dropping fast thanks to the decrease in the cost of generating electricity from solar and wind, which scale up very fast. In many regions with abundant renewable resources and the need to import gas due to lack of fossil resources, hydrogen from renewables could soon become competitive. Moreover, in the last few months the gas crisis—particularly in Europe—has closed the cost gap significantly, making production of hydrogen from renewables already cheaper than production from natural gas, although more clean electricity is needed in the region to produce hydrogen from renewables.

Regulation and certification is a critical barrier. Forget about colours of hydrogen: they are not useful when you need to set up regulations or contractual agreements. You need more robust, technology-based metrics, and within that carbon emissions are an option. There must be regulatory clarity, and that clarity should be accompanied by certification, clarity to help developers approach investors and get finance more easily.

The fourth barrier is the lack of infrastructure. Most hydrogen production on demand is co-located and used for industrial purposes. It is produced and used in basically the same places. As we move to the production of low-emission hydrogen, output and demand may not be co-located anymore. The best places to produce cheap, low-carbon and low-emission hydrogen may not be close to industrial demand centres, in which case you would need to build infrastructure to link the two. And a lot of these new obligations—such as transport, aviation and shipping—are much more distributed than existing sources of demand. We need to create that infrastructure to send the hydrogen to those end-users, and we need to do it fast.

What will the hydrogen supply base look like in 2030 and 2050? And how will it be moved to demand centres?

Menedez: We are going to have a mix of everything. But what we need to increase significantly is low-emission hydrogen production, either using renewables—traditionally called green hydrogen—or fossil fuels with CCUS—traditionally called blue hydrogen. Nuclear could be an opportunity, but cost is a challenge. To put the world on track to meet net-zero emissions by 2050, more than half of hydrogen production should be already based on these low-emission routes by 2030. Then when we look at what is happening in the industrial sector: up to 24mn t/yr of low-emission hydrogen could be produced by 2030 if all the project pipelines that we have been tracking can be deployed.

This will mean a bit less than a quarter of the total supply being met by low-emission hydrogen, which is good news when we compare it to today, where the figure is less than 1pc, but is still very far from what will be needed for a net-zero world. The big challenge is that, out of that 24mn t/yr in the pipeline, we think that only 4pc or 5pc of the projects have reached FID or have started construction. That goes back to the barriers of regulation, demand creation, infrastructure and cost.

Government policies to support hydrogen are evolving rapidly, but how are governments doing and where do they need to strengthen, support and/or change course to ensure long-term growth?

94mn t/yr – Global hydrogen consumption

Menendez: Hydrogen policy activity has increased massively in the last two or three years, but the problem is a lack of implementation. We have seen many countries setting targets, but not forming policies to implement those targets. Now we have many announcements of support schemes, but those support schemes are still not available. For example, the US has announced the Inflation Reduction Act, but still there is a need to work out the details for the production tax credit. The policies governments have identified are good ones, and we need to reinforce those policies or adopt them more widely, but most importantly we need to implement them. It is not enough to identify them. These are policies for demand creation and are quotas, mandates, sectoral quota mandates and public procurement programmes. Such policies are not always directly for hydrogen but for creating demand for it, such as via low-emission cement and low-emission steel.

How important are big oil companies to the growth of hydrogen?  

Menendez: Oil refining alone accounts for close to half of hydrogen demand, around 40mn t/yr out of 94mn t/yr. The industry also has experience of how to produce and use hydrogen, so it can really be a game-changer in terms of the production and use of low-emission hydrogen. Another thing is that the refining sector has the economic muscle for a lot of the big projects, and particularly for production of hydrogen from fossil fuels with CCUS, they have experience with underground infrastructure in general. They should be one of the main players in this change. I cannot see the energy transition without the oil and gas companies, especially with hydrogen, given the first entry point is with existing demand.

And is it a similar story with gas, given the pipelines?

Menendez: Exactly. Because when we develop the infrastructure, we can repurpose existing pipelines or build new ones, which is not going to be significantly different to building pipelines for natural gas. Maybe the materials will change slightly, or the way of operating the pipelines, but it will be exactly the same type of infrastructure. We really need the gas companies for initial and future developments. They are critical stakeholders.

Which sectors do you think will be best decarbonised through hydrogen rather than electrification?

1mn t/yr – Global low-emission hydrogen consumption

Menendez: The existing uses—because electrification is not an alternative, and we cannot produce fertiliser without hydrogen either. These are clearly areas where we cannot rely on electrification. And then there are certain applications for which electrification would be better than hydrogen: electric cars and domestic heating. There will be others in which they probably will need to complement each other, and it will probably also be a regional decision. That is the case with trucks and high-temperature heating in industry, for example. And then when we start thinking about really long-distance transport—aviation and shipping—the role of electrification there will be smaller and it will be more, let us say, molecularly consolidated. That is where biofuels and hydrogen should play a role. It could be in the form of ammonia or it could be synthetic kerosene; it could be synthetic methanol or all the different derivatives. Electrification will not be able to meet the demands for these long-distance applications. Also, the question on how far biofuels can bring this and to make sure they are sustainable biofuels and not biofuels produced in an unsustainable manner. And that is where hydrogen is needed to balance and meet those demands that neither electrification nor CCS nor biofuels can meet.

Is a traded hydrogen market ever likely to develop? Or is it more likely that projects will be co-located with industrial centres seeking to decarbonise?

Menendez: Within a net-zero world, you really need some trade in hydrogen. The reason is that we can envision some regions that will remain highly industrialised and will have significant demand for hydrogen they will not be able to meet with their domestic production—regions such as Japan, South Korea and Europe. These regions will need a certain level of hydrogen imports. The question is how much and how it will be developed. It is very early to say. Initially, it is going to happen through ammonia, and within that ammonia is going to be traded as an energy product. Currently, it is sort of traded as a chemical commodity, but it will probably be traded as an energy product at a decent level by the end of this decade. The question is, will it only be ammonia, or at some point will we have synthetic fuels as well? Liquefied hydrogen is much more challenging due to its lower energy density and the higher costs for liquefaction and transport. But a certain level of hydrogen trading is needed if we are serious about the decarbonisation of the energy system.

How could policymakers prevent perverse incentives within hydrogen production that could increase emissions, while still stimulating initial development?

Menendez: The key questions are around how flexible you can be on the criteria and what is the size of the projects you will allow to create the initial larger demand, and subsequent larger emissions, with the idea of creating that scale. If you had asked me this question one-and-a-half years ago, I would have said it is acceptable to do that. If you ask me now, I will tell you it strongly depends on the region. For example, the EU right now cannot afford that increase in demand on fossil fuels from the electricity grid, for example, to allow hydrogen to scale in the short term if it is serious about decreasing gas demand from Russia. 

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Author: Paul Hickin, <BR>Editor-in-chief