As clean hydrogen remains far less cost-effective than fossil fuels, the European Union (EU) needs to put in place policies that would drastically lower its production costs. Supporting the use of renewable hydrogen in line with the European Commission’s hydrogen strategy will cost EUR 10–24 billion a year until the end of this decade, according to a study conducted by think tank Agora Energiewende and its partner Guidehouse.
Even if the carbon price in the EU rose to EUR 100- 200 per ton, it would not be enough to make clean hydrogen sufficiently competitive, warns Patrick Graichen, executive director of Agora Energiewende.
The current price is around EUR 50.
Green hydrogen will remain uncompetitive even with a carbon price of EUR 100-200 per ton
The study proposes channeling the necessary funding first to “uncontroversial and no-regret” applications of hydrogen, such as steel, ammonia and basic chemicals production in the industrial sector, long-haul aviation and maritime shipping, and long-term storage in the power sector.
The study has identified the most appropriate policy instruments to this end – carbon contracts for difference in industry; a quota for aviation; auctions to support combined heat and power plants; measures to encourage markets for decarbonized materials; and hydrogen supply contracts.
The demand for clean hydrogen will increase as the EU moves towards climate neutrality
On the path to the EU’s climate neutrality, which the bloc hopes to achieve by 2050, the demand for clean hydrogen will increase even beyond the current demand for fossil hydrogen, according to the study, titled ‘Making renewable hydrogen cost-competitive: Policy instruments for supporting green H2.’
The EU uses an annual 340 terawatt-hours (TWh) of hydrogen that is almost entirely produced via fossil fuels, for example natural gas, making it a major greenhouse gas emitter. Renewable hydrogen, on the hand, is generated through electrolysis using 100% green energy, and is therefore climate-neutral, according to Agora’s press release.
Hydrogen is set to play a key role in implementing the EU’s Fit for 55 package
The authors of the report also noted that hydrogen will be a key element in the implementation of the European Commission’s Fit for 55 package, a set of legislative proposals designed to help achieve the EU’s 55% net emissions reduction target for 2030.