Hydrogen sector: investing in a net zero future

Hydrogen: a link in the chain for decarbonising the global economy

Whatever the scenario for achieving a net zero global economy, hydrogen has a major role to play. Hydrogen is an essential complement to renewable energies and a driving force for decarbonising heavy industries and long-haul transportation. It is also a key component in practically all the climate change strategies spearheaded by governments and the main economic players, alongside initiatives aimed at reducing energy use or satisfying energy needs with electricity produced from carbon-free sources. Hydrogen alone is not a game changer, but part of the puzzle. According to forecasts by the International Energy Agency (IEA), hydrogen represents 6% of the concerted global effort required to achieve net zero emissions by 2050.

What exactly is the hydrogen sector?

The challenge facing the uptake of hydrogen is one of scale, i.e. increasing the current production capacity of less than 100 tons a year to over 1,000 tons by 2050. In an effort to address the needs for these new uses, while decarbonising production and driving down costs, investments must be made simultaneously in several areas making up the actual hydrogen "sector":

• Promote low-carbon hydrogen production: roll out and optimise electrolysers, and increase renewable electricity production capacities and CCUS systems (carbon capture, utilisation and storage) at industrial sites.
• Develop storage and distribution capacities: refuelling stations, logistics hubs, gas pipelines, underground and surface storage facilities, etc.
• Ensure the industrial-scale development of equipment using hydrogen, such as vehicles, furnaces and boilers.

Regulations and public funding

Governments and public economic actors are in the front line when it comes to setting the wheels of this scaling-up approach in motion. In particular, the idea is to accelerate efforts to align the law and regulations with the hydrogen sector's development objectives. The amount of work required is colossal in such areas as compliance and safety.

The challenge also includes the need to adapt rules within the European Union. At the end of 2021, the EU adopted its new Climate, Energy and Environmental Aid Guidelines (CEEAG). Whereas the Treaty of Rome bans State aid for businesses, the CEEAG allows exceptions when the aim is to facilitate activities with a positive impact on the environment, and some projects combining renewable electricity and electrolysers have already received such aid.

A global movement

A second major public challenge involves granting incentivising financing packages, which can act as a lever effect for increasing private investments in R&D, demonstrators and innovative industrial projects. The movement is gaining pace on a global scale. For example, despite its name, the US Inflation Reduction Act (IRA) enacted in 2022 is initially aimed at developing climate-friendly technologies with tax credits and $7 billion in funding for creating regional "hydrogen hubs". In Europe, the European Commission proposed a strategy in July 2020 that plans to gradually increase hydrogen's share in the energy mix. This ambition was recently bolstered by the REpowerEU plan that was put forward in the wake of the war in Ukraine to end Europe's reliance on Russian fossil fuels well before 2030. Germany continues to lead the way in this particular area and is banking on a triple increase in hydrogen use by 2050 with plans to invest €7 billion in the sector. In France, major public investment plans are taking shape for the hydrogen sector. Some €7 billion over a 10-year period were set aside in the national strategy announced in July 2020, and an additional €1.9 billion package as part of the France 2030 plan presented in November 2021.