PenInfo Desk: Over 100 announced hydrogen projects are struggling to secure offtake agreements on terms that would enable them to move to final investment decision (FID). Many projects don’t work commercially, yet. In a new sector it is natural to have an attrition rate where the business case simply isn’t strong enough. But for many, they do not work commercially because they cannot compete with incumbent carbon emitting alternatives in the sectors they are trying to fossilize.
Effective carbon pricing needs to align the costs of consuming carbon-intensive fuels or using carbon-intensive processes with the social costs of doing so. According to the World Bank, only 24% of global emissions are priced. When society doesn’t properly tax carbon emissions, new genuinely low carbon alternatives struggle to compete.
Green hydrogen is still essential. For many industries, there are no other alternatives. If only our governments gave them a fair chance.
Those that have foresight, that can afford long-term investments, are still moving forward with ambitious projects. Some governments are more visionary than others. In the US, the Inflation Reduction Act was a landmark moment even if we are yet to see detailed rules for its clean hydrogen tax credits emerge.
In the EU, a wide range of measures, both financial such as the EU Hydrogen Bank, and regulatory, are slowly creating the right incentives to transition away from unabated fossil fuels. But it is not sufficient. At the same time, in China and India, many large projects are moving ahead, often because of collaboration between the government and companies.
In the rest of the world, we have two options. We can slow down the transition, do less to prevent a climate crisis and do more to self-inflict an economic crisis. Or we can double down and accelerate out of this valley of death. If our governments only charged for externalities such as carbon and methane emissions, market forces would quickly scale up the solutions.
And don’t think that we are seeing a renaissance for blue hydrogen. One of the large projects recently cancelled was a pipeline for blue hydrogen from Norway. Last week, the British government decided to provide up to GBP 21 billion to three carbon storage projects, which, writes Bloomberg, will annually remove some 3 million tonnes of CO2, way below the 20-30 million tonnes earlier suggested. The green hydrogen economy can achieve way more with nearly USD 30 billion of government support than removing 3 million tonnes of CO2 a year. “Putting the UK on the wrong pathway could be catastrophic” warned a group of scientists ahead of the British decision, quoting a report by Carbon Tracker that “even with the best technology, blue hydrogen from imported LNG could emit up to 2.5 times more than UK’s low carbon hydrogen standard.” And imports will be necessary as British gas will soon run low.
We need a balanced perspective and calm heads. In many markets, renewable energy is already cheaper than fossil fuel alternatives. In places with a lot of sun, the use of solar energy with batteries provides the cheapest source of power. This suggests that we are getting closer to large green hydrogen projects to work. In 2024, the production of “clean hydrogen” will increase by 40 %, to one million tonnes, reported Bloomberg this week. This is of course staggering growth in normal circumstances.
The Venice Hydrogen Forum (taking place next week on October 18 and 19) aims to address the critical challenges facing green hydrogen projects, many of which have stalled due to a lack of commercially viable offtake agreements and insufficient carbon pricing. The forum will provide a platform for governments, industry leaders, and financiers to explore how to overcome these barriers in the Mediterranean by creating fair market conditions through effective policy, carbon pricing, and de-risking mechanisms. With discussions focused on scaling up climate finance, fostering cross-border collaboration, and advancing initiatives like SoutH2, H2Med and ENNOH, the forum is a crucial step in accelerating green hydrogen projects and ensuring they play a central role in the global energy transition.
Source: Green Hydrogen Organization
Peninfo/desk/13.10.24/12.15am