EU policy support for renewable hydrogen ramps up in Europe as global competition intensifies

Following its Fit for 55 policy package and its subsequent REPowerEU plan, the European Union (EU) is rapidly implementing policy measures that will accelerate renewable hydrogen production and use, positioning it as one of the frontrunners in the global race towards the hydrogen economy.

For the EU, renewable hydrogen will play a crucial role in enabling the accelerated transition of the bloc’s energy mix, expedited by the Russian invasion of Ukraine.

Most recently, the eagerly awaited Delegated Acts of Renewable Fuels of Non-Biological Origin (RFNBO) were adopted in June. This significant milestone provides regulatory clarity by defining under which conditions hydrogen and hydrogen-based fuels can be classified as RFNBO, as well as establishing the methodology for calculating associated greenhouse gas emissions savings.

Although not all parties are entirely content with the resulting conditions, the decision taken does provide the much needed regulatory clarity that investors have been calling for.

At the onset of 2022, the World Economic Forum, in collaboration with Accenture and the International Renewable Energy Agency, published the Enabling Measures Roadmap for Green Hydrogen Europe. The purpose of the roadmap was to identify key enablers to achieve a scaled and traded renewable hydrogen market.

Considering recent developments and building on our previous work, the World Economic Forum and Accenture have collaborated to release an updated and retitled Enabling Measures Roadmap for Renewable Hydrogen.

This roadmap serves as a valuable toolbox to keep abreast of top policy developments, funding and initiatives in Europe, and assesses the progress made toward the hydrogen economy at scale.

The EU’s resolve is strengthened by the fact it must address the wider global context head-on if it wants to protect its competitive position in the rapidly evolving hydrogen space.

In the United States, for instance, substantial subsidies are being allocated through legislative packages including the Infrastructure Investment and Jobs Act ($8 billion for clean hydrogen hubs) and the Inflation Reduction Act (tax credits up to $3/kg for low-carbon hydrogen) to clean existing hydrogen value chains and to establish new ones.

Meanwhile in China, the Long-Term Hydrogen Plan was recently unveiled, illustrating the goal to decarbonize existing hydrogen-intensive industrial clusters and scale up green hydrogen production by 2030. We take a closer look at China’s pathway toward green hydrogen here.

Similarly, Japan has positioned low-emissions hydrogen as key technology to decarbonize key sectors including power generation, industry, and transport with their Green Growth Strategy Through Achieving Carbon Neutrality in 2050” – we look at this in more details here.

How does the EU fare? There are three key building blocks of the EU’s renewable hydrogen strategy. Here are some key takeaways from the updated Enabling Measures Roadmap for Renewable Hydrogen in Europe.

EU hydrogen policies are part of a system wide policy effort directed at decarbonizing all of the bloc’s demand sectors through policy packages such as Fitfor55, REPowerEU and the Green Deal Industrial Plan for a Net Zero Age.

These policy frameworks have in common that they all address a specific role for hydrogen vis-à-vis the role of other energy carriers, such as electrification efforts and the use of (advanced) biofuels. Through sector specific renewable energy and RFNBO use targets (i.e. RED II targets) a role for each of the main energy carriers is attributed.

Hydrogen use is, for instance, predominantly envisioned as a means for decarbonizing hard-to-abate sectors such as industrial emissions and heavy-duty transport through both blending (short-term) and fuel-substitution (mid/longer-term).

Through the Critical Raw Material Act (CRMA), the resource demands associated with producing hydrogen through electrolysis is considered along with other resource-intensive technologies such as batteries. The CRMA puts forward a comprehensive set of actions to ensure the EU’s access to a secure, diversified, affordable and sustainable supply of critical raw materials.

The EU has put forward the ambitious target of 10 Mt of renewable hydrogen production and 10 Mt of renewable hydrogen import by 2030, totalling 20 Mt of renewable hydrogen use in 2030.

As a reference, current hydrogen demand in Europe amounts to 8.7 Mt yearly. As this is predominantly satisfied by grey hydrogen production (99.9%), greening existing hydrogen value chains serves as an indispensable stepping stone towards the EU’s renewable hydrogen targets.

The sheer size of the existing hydrogen market provides an opportunity for reducing carbon emissions, as well as providing a scalable offtake market for large-scale electrolyzers.

In the current hydrogen market, the bulk of the demand (50%) flows towards refineries (4.4 Mt yearly) for hydrotreating and hydrocracking, followed by the ammonia producing industry (29%) for the fertilizer industry (2.5 Mt yearly). The production of methanol and other base chemicals are responsible for 13% of demand (1 Mt yearly).

As current hydrogen applications primarily consist of large-scale industrial applications, there is an opportunity to combine supply and demand through an industrial clusters approach, which enables shared risk and economies of scale including aggregation of offtake.

Though highly substantial indeed, greening existing hydrogen value chains only brings us so far, leaving the challenge of realizing novel applications for renewable hydrogen.

To advance the significant pipeline of announced clean hydrogen production, transport and end-use projects in Europe, projects must move from announced to final investment decisions.

For reference, announced clean hydrogen production volumes in Europe already total 13 Mt per annum by 2030. With the presence of production, import and end-use targets as well as funding mechanisms in place, the EU is providing an increasingly attractive framework for hydrogen value chain development to kick off.

One example of a key initiative is the European Hydrogen Bank which has, among its key mandates, the ability to cover and fund the cost gap of renewable hydrogen through a competitive bidding mechanism, contributing to the business case for a selection of pioneering projects.

To provide further certainty to investors, some member states – such as Germany and the Netherlands – have additionally set-up both CAPEX and OPEX subsidy schemes next to the EU’s policy framework and are preparing to implement hydrogen end-use obligations instead of targets.

To facilitate widespread adoption and rapid penetration of renewable hydrogen end uses across the EU, it would be beneficial if these efforts were intensified and harmonized further beyond the member state level.

The Accelerating Clean Hydrogen initiative has developed similar enabling measures roadmaps for other regions, including Japan and China. The upcoming roadmaps for India, the Middle East and Latin American will be published between COP28 in Dubai and the Annual Meeting in Davos 2024.

Like the Europe roadmap, the additional regional roadmaps will identify key policy measures aimed at accelerating development of the clean hydrogen economy whilst being sensitive to the respective regional context, providing a unique viewpoint on the state of play of clean hydrogen across the globe.