Towards a true hydrogen partnership between the EU and hydrogen exporting countries

Mid-September 2022 saw two moves from Brussels towards the implementation of the Hydrogen Accelerator. The European Parliament voted to remove the controversial “additionality principle” in order to boost the production of Green Hydrogen from renewable energy. Ursula von der Leyen declared in her State of the Union Speech the creation of a “Hydrogen Bank” backed by €3 billion. These are steps, but not yet a leap forward. The regulation and methodology under RED II will now be discussed in the trilogue and the details of the bank are yet to be clarified.

Meanwhile the hydrogen world around Europe is gaining its own momentum. It is time for the EU to raise its awareness of the global acceleration where the pace and the paths are set by others. China is a universe on its own, that has set ambitious targets for 2025 of green and climate-neutral hydrogen production, Japan and South-Korea are expanding their hydrogen import supply chains. The Biggest Bang, however, is to be heard from the U.S. With the Inflation Reduction Act of August 2022, the Biden Administration has set up a simple framework and regulation to push a hydrogen economy. In the Earth Shots of summer 2021 the U.S. formulated the goal for the cost of low-carbon hydrogen to be at 1USD per 1kg in a decade. The Infrastructure Law of November 2021 provides $8 billion for 4 Clean H2 Hubs, $1 billion for a Clean H2 Electrolysis Program, $500 million for Clean H2 Manufacturing & Recycling Initiatives. This was complemented by the powerful Inflation Reduction Act that provides a 10-year tax- credit, also for hydrogen production and an investment tax credit (including for hydrogen storage), as well as clean-vehicle credits etc. The U.S. has also introduced clear carbon intensity limits with the tax credits being higher the lower the carbon intensity. The tax credit can reach $3 per kilo of hydrogen, including for exports. Last but not least, the tax credits for renewable energy generation sites can be combined with tax credits for green hydrogen production. This is an ultimate boost the economic viability of projects in the U.S. and will fill the order books for electrolysers.

This is a Big Bang in terms of hydrogen production ramp up and good news for the global climate, as well as the U.S. industry. For the EU this should serve as a wake-up call in terms of its ambitions, its support schemes but also its approach to regulation and carbon-pricing. The U.S. regulation and support schemes are straightforward and simple, the EU’s is not (yet). The EU’s approach of a sophisticated sector by sector regulation that is directed to meet its renewable targets, as well as its emission trading scheme, represents globally a special path and a solo run, that may risk being assessed as less attractive by global investors and potential hydrogen exporting countries in North Africa, the Middle East, Latin America, India and Australia.

No other big economic bloc is trying to achieve its energy and industrial transformation by a complicated (and still in flux, hence unclear) mixture of regulation for direct and indirect electrification from renewables, unbundling regulations for hydrogen TSOs, support schemes and CO2 prices. This policy approach stems from regulatory path dependencies, is slowed down by seemingly eternal discussions among member states about the definition of green and low-carbon hydrogen and a navel-gazing approach that misjudges the rapidly changing realities outside Europe. The EU’s regulatory machinery has been conducive to achieve an internal market for electricity and gas by very sophisticated regulation based on existing structures, mature markets and meshed infrastructure. Hydrogen is really different: for the first time we have to introduce a new energy carrier under competitive conditions and at an unprecedented pace. We are not starting from scratch, but have to transform our industry and energy systems under the extreme conditions of an unprecedented full-scale energy crises. We will need much more hydrogen (also as a back-up for renewables in electricity generation), sooner than we thought, and also as derivatives. And we will need to import even larger amounts of climate-neutral hydrogen from abroad than previously imagined. This calls for the development of a genuine European hydrogen diplomacy, eyeballing new long-term export-import partnerships that can only flourish if developed through mutual respect and win-win cooperation agreements. Such an approach deviates fundamentally from the current inclination of the EU imposing its standards on potential hydrogen exporting countries.

The global hydrogen revolution has started, and it will take off where the most attractive sites and the biggest markets are and where business models can be created across the whole value chain. If the EU does not get its act together, the EU risks missing a great opportunity to improve its position as an industrial and economic power and technology leader, in competition with others over scarce climate-neutral hydrogen flows.

The wake-up call cannot be louder and the alarm bells have to be heard. Unlike other big hydrogen markets that span across large territories and combine production and demand within a jurisdiction such as China and the U.S., the EU will have to rely on functioning global trade flows and rules-based trade. The EU will have to shape the global market and attract climate neutral hydrogen and derivatives flows into the bloc by positioning itself as a true partner.

The EU will need to rapidly fix the necessary, but not yet sufficient preconditions for a hydrogen technology and market ramp up: infrastructure and a regulatory framework.

• Adapt a regulation that is simple, coherent across all sectors and internationally inter-operable with schemes of other big players with regard to certification.

• Set up a hydrogen diplomacy for long-term partnerships and engage on a mutual understanding of common value creation, shared norms and mutual acknowledgement of certification schemes.

• Provide the necessary funding / security guarantees for building the hydrogen backbone and the corridors into the EU. The Global Gateway should serve the highways of climate-neutral molecules into the EU.

• Realize imports to back up the creation of regional hydrogen hubs and market areas in Europe.

• Clarify the role of the Hydrogen Bank and the Hydrogen Facility and use existing instruments to flesh out the EU’s tool box such as H2Global. This will save time and avoid costly competition.

• Allow for a stacking of support schemes for a transitional period of time, and allow hydrogen produced, transported under support schemes to be counted under quota schemes.

• Select and fast-forward a handful of large-scale projects to Final Investment Decisions that can really kick-start the scale-up of low-carbon and renewable hydrogen.

With so many promising plans in Europe for both domestic clean hydrogen value chain development and for pioneering new hydrogen trade routes, it should be possible to re-position Europe in the appropriate way and to bring these plans to successful completion, as a true partner for ambitious hydrogen exporting countries across the world.

Illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.