Is the development of the Green Hydrogen sector focused too much on creating exports?
A brief survey of recent news headlines about Green Hydrogen conveys a consistent message to followers of the technology: its an export product. The last six months have seen a plethora of announcements from Scotland planning green hydrogen exports to Germany, Denmark is planning a pipeline to Germany, the UK and Chile have signed an agreement enabling exports, The EU backing a green hydrogen pipeline from Tunisia and Algeria, Obayashi completing its first green hydrogen export from New Zealand to Fiji and so on. Much of the wider dialogue on Green Hydrogen has focused on how it will enable land rich countries (or those with extensive seas) to supply land poor countries with a much-needed decarbonisation technology.
However, it is striking that so many countries are planning on exporting Green Hydrogen, when currently only seven countries globally are on track to achieve their climate goals for 2030 (Morocco, Gambia for 1.5C and India, Costa Rica, Ethiopia, Bhutan, and the Philippines for 2C). So, it becomes a worthwhile question, is the current narrative around Green Hydrogen too export focused? Should countries instead be using it to decarbonise their own economy?
Hydrogen production releases over 900 Mt CO2 annually, which exceeds the combined emissions from all international shipping and aviation. Global markets and hydrogen Europe want greener alternatives, but 99% of today's hydrogen production still falls into the carbon-intensive 'grey' category.
The hydrogen market is at a vital turning point. The EU has set bold targets to produce 20 million tonnes and import 10 million tonnes of low-carbon hydrogen by 2030, which shows the growing emphasis on hydrogen exports. Green hydrogen production costs remain high at £4.4 to £7.6 per kilogramme, while grey hydrogen costs only £1 to £1.9. This raises a key question: Does the strong focus on building export capabilities take attention away from domestic decarbonisation needs?
This analysis aims to determine if the current export-focused approach to green hydrogen development helps the broader goal of industrial decarbonisation or misses important domestic opportunities.
The Current State of Global Green Hydrogen Market
The global green hydrogen market showed a value of £1.99 billion in 2022 and experts project it to reach £114.20 billion by 2032 (22).
Overview of major production initiatives
Clean hydrogen projects have grown substantially between 2020 and 2023, with over 1,400 new production projects announced (23). The number of projects reaching final investment decision (FID) jumped from 102 in 2020 to 434 in 2024. This represents an investment surge from £7.9 billion to £59.3 billion (24). Electrolytic hydrogen from dedicated production stays limited to demonstration projects, with a total capacity of just 0.7 GW (25).
Recent technological advancements are setting the stage for green hydrogen to become a cornerstone of global decarbonization efforts. Innovations in electrolysis, particularly with proton exchange membrane (PEM) and anion exchange membrane (AEM) technologies, are pivotal. These advancements have not only improved the efficiency of hydrogen production but also reduced operational costs, making large-scale deployment more feasible. Moreover, the development of advanced catalysts, which are less reliant on precious metals like iridium and platinum, promises to further decrease costs and enhance sustainability. Such breakthroughs are crucial for expanding green hydrogen's role in transitioning to a low-carbon economy.
Regional development strategies
Europe stands at the forefront of renewable hydrogen development and hosts more than half of the world's known renewable hydrogen projects (23). The region's announced capacity reaches 200 GW. Africa follows with 170 GW and Oceania with 130 GW (23). North America has become a leader in low-carbon hydrogen initiatives, thanks to strong policy incentives (24).
Investment patterns and focus areas
The investment landscape shows clear regional priorities:
North America accounts for 90% of global low-carbon hydrogen capacity past FID (24)
Asia-Pacific region pushes rapid infrastructure development, particularly in China, Japan, and Australia (26)
The Middle East and North Africa tap into their abundant renewable resources for production (26)
The sector faces major challenges despite these developments. Current investment levels need an 8-fold increase by 2030 to meet climate commitments (24). On top of that, the industry struggles with regulatory uncertainty. This especially affects project bankability when you have frameworks like RED III implementation and IRA 45V rulebook (24). Project delays and attrition mean only 12-18 Mt per annum of the announced 48 Mt annual hydrogen supply might materialise by 2030 (24).
Export-Driven Development Analysis
Green hydrogen export projects have picked up speed in global markets. The announced capacity has reached 200 GW in Europe, 170 GW in Africa, and 130 GW in Oceania (5).
Key export market opportunities
The European Union leads as the target market and wants to import 10 million tonnes of renewable hydrogen by 2030 (6). Latin America and the Caribbean will become the fourth-largest export region by 2050 (7). The major importing regions are:
European Union: Looking to import large quantities through REPowerEU initiative
Japan: Building hydrogen transport routes and import infrastructure
South Korea: Building strategic import partnerships (8)
Infrastructure requirements
Export infrastructure needs heavy investments. Port facilities need ammonia import capacity, storage facilities, and hydrogen pipelines (6). The transport costs depend on production facility size and distance (27). By 2050, international trade could meet one-third of global hydrogen demand. Pipelines will transport 55% while ships will carry 45% as ammonia (27).
Economic incentives and challenges
Green hydrogen holds a unique position in the renewable energy landscape, particularly when compared to more established renewables like solar and wind power. While solar and wind are primarily used for direct electricity generation, green hydrogen serves as a versatile energy carrier with the potential for wide-ranging applications, including heavy industry and transport sectors traditionally reliant on fossil fuels. This makes green hydrogen a pivotal element in decarbonizing sectors where direct electrification is challenging. However, green hydrogen production currently faces higher costs and energy requirements compared to these renewables, primarily due to the inefficiencies in electrolysis and the need for significant infrastructure investment. Additionally, the storage and transportation of hydrogen present logistical challenges that are not as pronounced with solar and wind energy, which can be more easily integrated into existing electrical grids. Understanding these differences is crucial for policymakers and investors to allocate resources effectively, ensuring that each renewable energy form is utilized optimally based on its characteristics and best use cases.
The yearly global export market for green hydrogen could reach £238.25 billion (10). The investments needed to meet export demand by 2050 include:
£0.79 trillion for renewable energy capacity
£714.74 billion for hydrogen conversion and export facilities
£158.83 billion for water electrolysis facilities (10)
The biggest challenge lies in matching export projects with confirmed buyers. Only 2 Mt of the proposed 12-million-tonne yearly hydrogen exports have potential or real buyers (7). The cost of hydrogen transportation involves huge infrastructure expenses. Hydrogen pipelines need 110-150% more investment than natural gas pipelines (11).
Export-focused projects' success depends on securing offtake agreements at prices that cover production and transport costs while giving commercial returns (12). Countries with abundant renewable resources like Australia, Brazil, and China focus their policies on reducing hydrogen production costs to £1.59 per kilogramme (8).
Case Studies
Incorporating detailed case studies from around the world highlights the real-world application and effectiveness of green hydrogen projects. For instance, the HyNet North West project in the UK is a pioneering initiative aimed at creating a hydrogen economy across the North West and North Wales. It focuses on producing hydrogen from natural gas with carbon capture and storage, targeting significant reductions in industrial carbon emissions. Additionally, in Portugal, the Sines Green Hydrogen Plant is set to become a significant contributor to Europe’s hydrogen economy, planning to produce hydrogen using renewable energy. These case studies not only showcase the practical implementation of green hydrogen but also provide insights into overcoming challenges related to technology integration, scaling production, and navigating regulatory landscapes. Examining these examples helps stakeholders understand the complex dynamics of project development, from securing funding and forging technological partnerships to navigating governmental regulations and market demands.
Domestic Market Potential
Clean hydrogen is a vital building block to decarbonize industries, especially where we have limited alternatives. The domestic market can do way beyond exports. It can reshape the scene of local industries and create environmentally responsible economic growth (13).
Local industry decarbonisation needs
Steel and chemical industries give us great opportunities to use domestic green hydrogen. Steel production hit 1.878 billion tonnes in 2020 and produces 1.7-2.2 tonnes of CO2 for each tonne of steel (14). The ammonia production facilities that rely on steam methane reforming cause 90% of CO2 emissions in their production process (14).
Employment and economic benefits
The hydrogen sector can create jobs in a variety of sectors:
Direct employment: 30,000 jobs by 2030 (2)
Combined direct and indirect jobs: 64,000 positions (2)
Network and storage infrastructure: 13,000 direct jobs (2)
Annual direct and indirect GVA in transport: £1,580 million (2)
Developing countries with abundant renewable energy resources can produce green hydrogen locally. This reduces their exposure to oil price swings and creates economic opportunities (13). The approach creates skilled jobs in local communities, particularly in renewable energy generation, manufacturing, transportation, and research development (15).
While green hydrogen is celebrated for its potential to reduce carbon emissions, its environmental impact extends beyond carbon footprints. The production of green hydrogen, especially through water electrolysis, is highly water-intensive. This raises concerns about water scarcity in arid regions where hydrogen production might be planned due to abundant solar energy. Additionally, the construction of large-scale hydrogen production facilities can disrupt local ecosystems, particularly if they require significant land use changes. It is crucial for policymakers and industry leaders to consider these factors, implementing strategies that mitigate adverse environmental impacts, such as using greywater or seawater for electrolysis where feasible, and ensuring that hydrogen projects comply with rigorous environmental assessments. These means that countries with water scarcity should be thinking more closely about whether generating green hydrogen for export will actually improve their own circumstances.
Infrastructure development requirements
The hydrogen infrastructure needs substantial development now. The years leading to 2030 are crucial to establish the required facilities (2). The infrastructure needs include:
Between 100km and 1,000km of pipeline by 2030 (16)
Surface storage requirements of 0.02 – 0.9 TWh by 2030 (16)
Salt cavern storage needs of 0.2 – 3.1 TWh by 2030 (16)
Domestic infrastructure development brings multiple benefits. It improves health through reduced air pollution, boosts food security with local green fertiliser production, and provides reliable energy storage (15). These advantages go way beyond immediate economic gains and support broader environmentally responsible development goals while keeping industries competitive (15).
Balancing Export and Domestic Priorities
The balance between export goals and domestic needs shapes today's hydrogen policy frameworks in major economies worldwide. The European Union shows a well-balanced strategy by aiming to produce 10 million tonnes and import 10 million tonnes of hydrogen by 2030 (17).
Policy framework considerations
Countries now realise that depending too much on imports could threaten supply security and value chain investments (18). Building strong domestic markets by 2030 ensures supply security, creates lasting jobs, and helps companies grab international market opportunities (18). The European hydrogen policy framework launched in July 2021 reflects this balanced strategy through mandatory targets for industrial and transport sector adoption (17).
Policy and regulation are pivotal in steering the green hydrogen sector towards significant growth and integration into the global energy mix. Governments worldwide are crafting frameworks that encourage the production and use of green hydrogen through subsidies, tax incentives, and direct funding. For instance, the European Union’s Hydrogen Strategy outlines ambitious targets for electrolyser capacity and infrastructure development, supported by substantial public investment and regulatory support to ensure market uptake. Similarly, countries like Japan and South Korea have established hydrogen roadmaps that include specific targets for hydrogen-powered vehicles and fuelling stations. These policies not only aim to reduce the technological and financial barriers associated with green hydrogen but also set standards for safety and emissions, ensuring that the sector's expansion aligns with environmental and public health goals.
Economic trade-offs
Market dynamics create unique challenges because companies can produce green hydrogen almost anywhere (3). In spite of that, the current market structure shows an oligopsony - where few buyers, mainly G7 nations, choose suppliers based on economic and political factors (3). This creates several key trade-offs:
Supply security at home versus export earnings
Where to invest in infrastructure
How to split resources between local industry and export facilities
Job opportunities in domestic versus export-focused projects
Strategic resource allocation
Countries need to distribute their strategic resources wisely across several priorities. The EU has started multiple programmes to support balanced growth, including:
The Clean Hydrogen Partnership (2021-2027) that backs research and innovation (17)
Important Projects of Common European Interest (IPCEIs) that focus on infrastructure and technology growth (17)
The European Clean Hydrogen Alliance that brings together industry, authorities, and civil society (17)
Energy-exporting countries see hydrogen exports as part of their economic diversification plans (3). This move requires careful planning to meet domestic industrial demands. Countries rich in renewable energy can work on cutting production costs while serving both markets (3).
Smart resource allocation should account for green hydrogen trade flows that won't likely face cartelization, unlike traditional fossil fuel markets (3). New players can enter the market more easily, but they need strong domestic infrastructure to support both local use and export capabilities (17).
Future Development Pathways
The green hydrogen economy must reach several development milestones by 2030. Annual investment needs for clean hydrogen infrastructure will need to jump from £0.88 billion in 2022 to £136 billion by 2050. This infrastructure includes electrolysers, fuelling stations, and storage facilities (4).
Sustainable growth models
Electrolyser capacity must grow from 550 megawatts in 2020 to 5.7 terawatts by 2050 to achieve sustainable growth (3). Equipment manufacturers need to meet their expansion targets while managing rising costs (4).
Successful growth models balance development instead of focusing only on export capabilities. Markets with abundant, low-cost renewable resources remain the most attractive for green hydrogen production. These markets could achieve production costs between £2.4 to £4 per kilogramme (1).
Market evolution scenarios
Market projections show significant variations across different temperature scenarios. Growth will remain steady but limited until 2030 (1). Medium and high ambition scenarios predict stronger demand after 2030, followed by another surge from 2035 (1).
Global trade patterns reveal two main demand regions:
Asia: Focusing on importing from resource-rich export hubs (19)
Europe: Developing supply chains through multiple partnerships (19)
Policy recommendations
Market analysis highlights these priorities to support sustainable sector development:
We need to implement support schemes for production and use quickly (4)
Create stronger demand signals, especially in existing hydrogen applications (4)
Remove regulatory barriers, especially for project licencing (4)
Encourage international cooperation for certification standards (4)
Support project developers during inflationary periods (4)
Green hydrogen's success in transforming the energy sector depends on collective efforts. Government strategies, innovation, and regulatory support must work together to accelerate sector growth (3). Policy frameworks should prioritise four key elements: local hydrogen use, alignment with national objectives, starting with manageable projects, and phased implementation (20).
Development finance institutions play a vital role in attracting private sector investments into projects that show high potential for sustainable development outcomes (21). These institutions must go beyond the 'do no harm' principle and add value in their lending practises (9).
Establishing a hydrogen economy requires unprecedented changes. Historical examples prove that significant energy system changes are possible with proper support. The rapid adoption of natural gas in the European Union during the 1960s and 70s serves as a prime example (19).
Conclusion
Green hydrogen development faces a vital balance between export goals and domestic decarbonisation needs. The market could reach £114.20 billion by 2032, offering export opportunities. However, the current focus on international trade might overshadow the potential risks of domestic industrial transformation.
Recent evidence shows that green hydrogen strategies work best with an integrated approach. Nation’s rich in renewable resources can tap into the full potential of both markets. This path needs careful planning of resources and strong infrastructure growth. The European Union has set practical targets - 10 million tonnes each for domestic production and imports by 2030. This framework serves as a model for other regions.
The green hydrogen trade shows promising signs of avoiding the cartelisation that plagues fossil fuel markets. Nations should build strong domestic infrastructure among other export capabilities. The industry will need £136 billion in annual investments by 2050. This highlights our need for green practises that benefit both local and international markets.
The green hydrogen sector's future depends on today's strategic choices. Nations must assess their renewable resources, industrial needs, and economic priorities. This assessment helps find the right mix between domestic use and export potential. Most important, policy frameworks should support both domestic decarbonisation and export growth. These policies ensure lasting economic benefits while meeting climate goals.
FAQs
Q1. What is green hydrogen and how is it produced?
Green hydrogen is produced through electrolysis, which uses renewable electricity to split water into hydrogen and oxygen. Unlike grey hydrogen, which is derived from fossil fuels, green hydrogen production generates no carbon emissions.
Q2. What are the main challenges facing the green hydrogen industry?
The primary challenges include improving electrolysis efficiency, reducing production costs, developing necessary infrastructure, and creating strong demand signals in existing hydrogen applications. Regulatory barriers and the need for international certification standards also pose significant hurdles.
Q3. How does green hydrogen contribute to industrial decarbonisation?
Green hydrogen plays a crucial role in decarbonising hard-to-abate sectors like steel and chemical production. For instance, it can replace carbon-intensive processes in steel manufacturing, potentially reducing CO2 emissions by 1.7-2.2 tonnes per tonne of steel produced.
Q4. What are the economic benefits of developing a domestic green hydrogen sector?
Developing a domestic green hydrogen sector can create substantial employment opportunities, with projections suggesting up to 64,000 direct and indirect jobs by 2030. It also offers potential for significant economic growth, with annual direct and indirect GVA in transport estimated at £1,580 million.
Q5. How is the balance between export and domestic priorities shaping green hydrogen development?
Countries are increasingly recognising the need to balance export ambitions with domestic needs. This approach ensures supply security, creates sustainable jobs, and positions companies to capture international market opportunities. The European Union, for example, aims to both produce and import 10 million tonnes of hydrogen by 2030, demonstrating a balanced strategy.
References
[2] - https://hydrogen-uk.org/wp-content/uploads/2024/04/Hydrogen-UK-EIA-Report-2024.pdf
[4] - https://www.iea.org/reports/global-hydrogen-review-2023/executive-summary
[6] - https://rmi.org/insight/the-value-of-green-hydrogen-trade-for-europe/
[8] - https://100re-map.net/en/policies-and-incentives-for-green-hydrogen/
[9] - https://newclimate.org/sites/default/files/2024-05/NewClimate_Green%20Hydrogen%20for%20Sustainable%20Development_may2024.pdf [10] - https://www.strategyand.pwc.com/m1/en/reports/2020/the-dawn-of-green-hydrogen/the-dawn-of-green-hydrogen.pdf [
11] - https://100re-map.net/en/green-hydrogen-market-potentials-and-challenges/
[17] - https://energy.ec.europa.eu/topics/energy-systems-integration/hydrogen_en
[22] - https://www.alliedmarketresearch.com/green-hydrogen-market-A11310
[24] - https://hydrogencouncil.com/en/hydrogen-insights-2024/
[25] - https://www.irena.org/Energy-Transition/Technology/Hydrogen
[27] - https://www.irena.org/Energy-Transition/Technology/Hydrogen/Global-hydrogen-trade
Head of Permanent Recruitment @ Petroplan | Energy Talent Solutions
7moInteresting read Steve! The technical challenges and power intensive nature of GH2 export makes it difficult to be positioned as a commercially viable option. Ammonia seems to be the short term solution as a carrier, whilst bridging the gap between being “clean” and profitable. Or at least that certainly seems to be the sentiment here in the US with the uptick in blue ammonia export projects approaching FID!
Project Development Engineer. Reinventing the wheel since 337 ppm. All views, comments, opinions, errors, omissions, and emissions! are entirely, unequivocally and wholeheartedly my own.
7moYou’re absolutely right to point this out. One of the amazing things about hydrogen is that it can be produced and consumed at source, anywhere. As an energy carrier there are hardly any better ways. If the corporate elite are determined to use it for export they need to find a way to crack it back in to hydrocarbons by sequestrating CO2 out of the atmosphere. With (allowable) available technology, this is a very energy intensive process, but one that could single-handedly solve the atmospheric CO2 conundrum, so they have my full support with realising the issue of technology availability. (Hint, it is already known how).