Bold Steps Needed to Ensure Green Hydrogen Fulfils its Transformative Potential
How do you view the role of green hydrogen in revolutionising the energy sector, and what key challenges must be addressed to achieve commercial viability?
Our energy system primarily runs on molecules. Molecules are easy to transport and store, but the issue with molecules currently is that if we burn them, they produce harmful greenhouse gases. Our analysis shows that even in a future energy system without harmful emissions, molecules are required to guarantee a functional, affordable, reliable and secure energy system. So, we must clean up those molecules and hydrogen is one of the few feasible options to replace hydrocarbons. Contrary to what some people think, hydrogen is therefore systemically important and not a nice to have.
Policy support has been identified as critical for green hydrogen development. What specific policy changes do you believe could accelerate the transition to a hydrogen economy?
There are several issues that require policy support.
First and foremost, we need to find a way to tackle and reduce the cost gap with alternatives. Several pathways in terms of sticks, for example quota, and carrots, such as subsidies, are currently being debated and implemented worldwide. Probably we will need a combination of all those measures in the short term.
A second area where policy support is needed is in providing the necessary supporting infrastructure. This involves the construction of pipelines, conversion of natural gas pipelines to accommodate hydrogen, ports, storage facilities and refueling stations. Most of these will struggle in the beginning, and the business case is difficult for years to come. Policy support can overcome this.
Thirdly, regulation that supports trade, for example standards and certificates that determine the carbon intensity of the hydrogen molecules, is a prerequisite for trade. Such standards and certificates require international coordination and harmonization.
Can you elaborate on the importance of global cooperation in the green hydrogen space, and what regions or countries are leading the charge?
Global cooperation in the green hydrogen space is very important. Green hydrogen has the potential to connect areas where it can be produced cost effectively with areas that have high energy demand, but lower potential for low-cost green hydrogen production.
Europe, Japan and Korea are all net energy importers and will remain net importers in the future, even after the energy transition. They have been actively working on global cooperation frameworks to source green molecules for their future energy demand.
These frameworks incorporate government to government agreements, including the build out of supporting infrastructure but also harmonization on trade facilitation elements, such as standardization and certification. On the exporting side, various countries and regions stand out. The MENA region has understood the significance of green hydrogen and export potential years ago but a growing number of countries such as Chile, Namibia and Australia are following suit.
In your recent paper, you advocate for a strategic hydrogen reserve. What are the primary objectives of such a reserve, and how could it address current market challenges?
Strategic energy reserves have been a feature of a secure energy system for a long time. When you consider that Europe has had strategic petroleum reserves since the IEA was founded, and has more recently upped the ante for strategic gas reserves, it is very logical that Europe will also introduce a strategic reserve for hydrogen.
It should be noted that Europe has more than 1000 terawatt hours of each oil and gas in strategic reserves, covering more than 25% of annual demand. If you understand that, you may want to consider starting with a strategic hydrogen reserve right now.
This would have several advantages. You would create an immediate pool into which potential producers could sell their hydrogen into. And we would have a solution for the current conundrum where large-scale producers are struggling to find sufficient bankable off takers that would like to lock in their demand for long enough to enable the producer to finance their investment.
Although it is not entirely clear how much hydrogen demand there will be in 2030, a fair estimate could lead to 6.8 million tons based on the obligations articulated in the Renewable Energy Directive III. 25% of that would be 1.7 million tons of hydrogen by 2030, which would kickstart the European market for hydrogen immediately.
How do you envision the infrastructure requirements, such as salt caverns and hydrogen backbones, evolving to support a strategic hydrogen reserve?
If we assume a strategic reserve of 1.7 million tons of hydrogen by 2030, we will need more than 100 salt caverns by then. This is a huge undertaking so we should start immediately. It should be noted that salt caverns are available, but not equally available across the continent. A hydrogen backbone would allow access to European strategic reserves, which may be in another EU member state.
The paper mentions disconnecting supply from demand to kickstart the hydrogen market. How can a strategic reserve play a role in stabilizing this dynamic?
Like oil and gas reserves, a strategic hydrogen reserve would be publicly mandated but would not necessarily be managed by a public entity, this could be outsourced. However, it would immediately create a buying pool into which producers could sell their hydrogen, let’s say for a period of initially 10 years. Once the reserves are full, the entity that manages the reserve could also sell from that reserve and that would allow for a decoupling of production and demand.
What lessons can be drawn from Europe’s existing strategic reserves for oil and natural gas when designing a reserve for hydrogen?
There are current mechanisms that govern the way strategic reserves are managed. But also recently, especially after the Russian invasion of Ukraine, Europe has designed mechanisms to strategically purchase natural gas on global markets as an alternative to Russian gas. This entity, AggregateEU, could be operationalized for the purchasing of green hydrogen, for example using the mechanisms designed and tested by the German entity H2global. Lastly, the European hydrogen bank has successfully carried out inner-European auctions for hydrogen, and this could be applied internationally, using the mechanisms championed by H2 global and AggregateEU.
From a commercial perspective, how might a strategic reserve impact hydrogen pricing and the bankability of green hydrogen projects?
If we kickstart a market, over time prices are expected to go down due to economies of scale and increased competition. Having a large initial off taker, a strategic reserve, serves to kickstart this market. Since the strategic reserve has sovereign backing, bankability should be guaranteed.
How do you see hydrogen storage infrastructure contributing to energy security and resilience in the face of geopolitical and economic uncertainties?
The primary nature of a strategic reserve is to provide energy security and reduce price shocks. So, it is, by definition, a buffer against geopolitical and economic uncertainties.
Looking ahead, what milestones or developments would signal that the global hydrogen market is moving toward maturity and commercial scalability?
First, I think we need broader understanding of the systemic role that hydrogen plays in any future clean energy system. Too many people still think it is a nice to have and not essential. Because molecules play such an important and crucial role in our current and future energy system, unless we introduce clean molecules such as hydrogen, we will remain with polluting hydrocarbons. So that is number one, we need more awareness.
One of the issues in the energy transition is that we don’t price external costs of pollution into our energy carriers. A study published earlier this year by Harvard economist Bilal Hammoudi, calculated the social cost of carbon emissions to be more than $1000 per ton. [1] This figure starkly contrasts with earlier estimates.
Unfortunately, 75% of all global emissions are free, making it difficult for cleaner alternatives to replace conventional energy carriers. Pricing carbon fairly would Level the playing field and make the introduction of clean hydrogen into our energy systems much easier .
