Can hydrogen help solve the world's dirtiest energy problems?

Hydrogen is enjoying unprecedented political and business momentum. Hydrogen offers ways to decarbonise long-haul transport, chemicals, and iron and steel-where it is proving difficult to meaningfully reduce emissions.

Hydrogen demand stood at 90Mt in 2020, practically all for refining and industrial applications and produced almost exclusively from fossil fuels, resulting in close to 900Mt of CO2 emissions.

Global capacity of electrolysers, which are needed to produce hydrogen from electricity, doubled over the last five years to reach just over 300MW by mid-2021. Around 350 projects currently under development could bring global capacity up to 54GW by 2030, according to IEA research.

Another 40 projects accounting for more than 35GW of capacity are in early stages of development. If all those projects are realised, global hydrogen supply from electrolysers could reach more than 8Mt by 2030. Most announced projects range from 1MW to 10MW in size and are close to industrial sites and ports. Europe accounts for 40% of global installed capacity, with the next-largest capacity shares in Canada (9%) and China (8%).

Current production of hydrogen from electrolysis is 30ktpa, accounting for ~0.03% of all hydrogen produced. The level is low because the production cost of electrolytic hydrogen (US$3-8/kg H2) is much more expensive compared with from unabated fossil fuels (US$0.5-1.7/kg H2).

The cost of producing hydrogen from low-carbon energy could fall 30% by 2030, according to IEA research. This would be driven by the declining cost of renewable energy, which can make up 50-90% of total production expenses, as well as a ramp-up in hydrogen production scale.

Global electrolysis manufacturing capacity was ~3GWpa in 2020, with alkaline designs accounting for 85% and PEMs for less than 15%. The largest shares of manufacturing capacity are in Europe (60%) and China (35%).

Country Targets

Since the pandemic, several European countries have committed significant sums to develop hydrogen technology in a boost to the sector's credibility as a global fuel source. A joint European hydrogen project was launched in December 2020 to pave the way for large-scale projects that cover the full value chain. Several European oil companies, including Royal Dutch Shell and BP, are backing new hydrogen projects. Airbus this year unveiled plans for a hydrogen-fuelled airplane by 2035.

The EU has named green hydrogen as a vital technology in the continent's path to net zero carbon emissions by 2050. The region is leading electrolyser capacity deployment, with 40% of global installed capacity, and is set to remain the largest market in the near term on the back of the ambitious hydrogen strategies.

The EU has set a 40GW electrolyser capacity target by 2030, producing 10Mtpa of green hydrogen to help achieve its target of a 55% cut in greenhouse gas emissions by decade-end, compared with 1990 levels. This will require a huge ramp up in renewable electricity generation, given that strict EU rules for green hydrogen production require facilities to utilise dedicated renewable generation, or curtailed generation from existing renewables.

The UK, meanwhile, is the only European country with a blue hydrogen strategy as the stepping stone to green hydrogen. It has a target of 5GW of "low-carbon hydrogen" capacity by 2030, on par with Germany and Italy, but behind France's 6.5GW. The target includes a mix of green and blue hydrogen in as-yet unknown quantities. Government analysis suggests that 20-35% of the UK's energy consumption could be hydrogen-based by 2050.

The UK's "twin track" hydrogen strategy, revealed in August 2021, pledges funding for both hydrogen and end-user sectors totalling about GBP900m (US$1.2bn), while ensuring that existing mechanisms for renewable fuels are tweaked to support green hydrogen.

France has allocated EUR7.2bn through 2030 to develop a green hydrogen production capacity of 6.5GW by decade-end. This would prevent 6Mtpa of CO2, roughly the emissions of Paris. France currently uses 900kt of hydrogen, mostly in refineries and the chemical sector, emitting 9Mtpa of CO2. Meanwhile, Germany has committed EUR9bn to have an installed electrolyser capacity of 5GW to produce 14TWh of green hydrogen by 2030. Another 5GW would come a decade later. Germany has a global market share of 20% in building electrolysers, led by Thyssenkrupp subsidiary Uhde.

Japan is looking to shift its vast industrial base, powered by imported fossil fuels, to hydrogen in one of the world's biggest bets on an energy source. Japan wants hydrogen and ammonia to make up 1% of both the primary energy and electricity supply mix in 2030 to support its goal to reduce greenhouse gas emissions by 46% by 2030, compared to 2013 levels. The effort will be supported by the country's JPY2tn (US$19.2bn) green innovation fund to accelerate efforts toward the country's target of being carbon neutral by 2050.

By 2030, Japan also aims to introduce 30% co-burning of hydrogen at gas-fired power plants or mono-burning of hydrogen for power generation as well as introducing 20% co-burning of ammonia at coal-fired power plants.

Japan is focused on expanding its hydrogen market from 2Mtpa today to 3Mtpa by 2030 and 20Mtpa by 2050. The country's mobility targets included 200k fuel-cell vehicles by 2025 and 800k by 2030, as well as 320 fuelling stations by 2025 and 900 by 2030. The government currently subsidises 135 hydrogen refuelling stations around the country, the largest number in the world.

Reducing the cost of hydrogen production is a major agenda for Japan. The work is underway to reduce the cost from about US$1 per cubic meter (Cm) in 2017 to US$0.30/Cm by 2030 and about or below US$0.20/Cm by 2050.

In the US, President Joe Biden's US$1.2tn bipartisan infrastructure bill includes US$8bn to create at least four regional hydrogen hubs to produce the fuel for use in manufacturing, heating and transportation. One hub would demonstrate production from fossil fuels, one would use renewable power, and another would use nuclear power. Coal is also listed a potential source.

The US Department of Energy set a goal this year for hydrogen made with clean power, such as renewables and nuclear energy plants, by 80% to US$1/kg in a decade. "Clean hydrogen is a game changer," US Energy Secretary Jennifer Granholm said in a June statement. "It will help decarbonize high-polluting heavy-duty and industrial sectors, while delivering good-paying clean energy jobs and realizing a net-zero economy by 2050."

Hydrogen Explainer

Hydrogen can be produced using nuclear, natural gas, coal and oil. It can be transported as a gas by pipelines or in liquid form by ships, like LNG. It can be transformed into electricity and methane to power homes and feed industry, and into fuels for cars, trucks, ships and planes. Fuel cells, refuelling equipment and electrolysers (which produce hydrogen from electricity and water) can all benefit from mass manufacturing. But hydrogen infrastructure is limited and holding back widespread adoption. This means it will take national and local governments, industry and investors to support this fuel source.

Hydrogen is almost entirely supplied from natural gas and coal today through an energy-intensive and polluting method called the steam reforming process. It uses steam, high heat and pressure to break down the methane into hydrogen and carbon monoxide. Its production is responsible for annual CO2 emissions equivalent to those of Indonesia and the United Kingdom combined. Blue hydrogen uses the same process but applies carbon capture and storage (CCS) technology.

Green hydrogen, on the other hand, uses renewable energy to split water into its constituent parts, hydrogen and oxygen. Very little hydrogen is currently green because the process involved is hugely energy intensive and renewable energy capacity is often insufficient. Going forward, however, if the world starts to produce excess renewable energy, converting it to hydrogen would be one way to store it.

The increased focus on reducing emissions to near zero by 2050 has brought into focus the challenge of tackling hard-to-abate emissions sources. These emissions are in sectors and applications for which electricity is not currently the form of energy at the point of end use, and for which direct electricity-based solutions come with high costs or technical drawbacks. Four-fifths of total final energy demand by end users today is for carbon-containing fuels, not electricity. In addition, much of the raw material for chemicals and other products contains carbon today and generate CO2 emissions during their processing.

Hydrogen has never experienced so much international and cross-sectoral interest, even in the face of impressive recent progress in other low-carbon energy technologies, such as batteries and renewables. As the cost of technologies has fallen and ambition for tackling climate change and air pollution has risen, the viability of hydrogen as a flexible complement to electricity has improved. While the level of investment today remains very modest compared to the scale of the energy system, and deployment challenges are significant, the current level of attention has opened a genuine window of opportunity for policy and private-sector action.

Hard-to-tackle emissions sources include aviation, shipping, iron and steel production, chemicals manufacture, high-temperature industrial heat, long-distance and long-haul road transport and, especially in dense urban environments or off-grid, heat for buildings. Rapid technological transformations in these sectors have made limited progress in the face of the costs of low-carbon options, their infrastructure needs, the challenges they pose to established supply chains, and ingrained habits.

While significant financial and political commitments will be necessary to realise deep emissions cuts, there is an increasing sense of urgency to start developing solutions. As a low-carbon chemical energy carrier, hydrogen is a leading option for reducing these hard-to-abate emissions because it can be stored, combusted and combined in chemical reactions in ways that are similar to natural gas, oil and coal. Hydrogen can also technically be converted to "drop-in" low-carbon replacements for today's fuels, which is particularly attractive for sectors with hard-to-tackle emissions, especially if there are limits to the direct use of biomass and CCUS.

The IEA said in May that hydrogen would be needed, along with solar and wind energy, if the world is to reach net-zero carbon emissions by 2050. Its most technically feasible road map predicted hydrogen and related fuels would make up 13% of the total energy mix that year, while investment could exceed US$470bn annually.

How do electrolysers work?

Electrolysers can range in size from small, appliance-size equipment that is well-suited for small-scale distributed hydrogen production to large-scale, central production facilities that could be tied directly to electricity production. The hydrogen can be delivered by trucks or be connected to pipelines.

Like fuel cells, electrolysers consist of an anode and a cathode separated by an electrolyte. The entire system also contains pumps, vents, storage tanks, a power supply, separator, and other components. Water electrolysis is an electrochemical reaction which takes place within the cell stacks.

Different electrolysers function in different ways, mainly due to the different type of electrolyte material involved. There are three main types of electrolysers: proton exchange membrane (PEM), alkaline and solid oxide.

Alkaline electrolysers operate via transport of hydroxide ions (OH-) through the electrolyte from the cathode to the anode with hydrogen being generated on the cathode side. It uses a liquid electrolyte solution such as potassium hydroxide (KOH) or sodium hydroxide (NAOH), and water. Alkaline electrolysers dominate with 61% of installed capacity in 2020 and have been in use for hydrogen production in the fertiliser and chlorine industries since the 1920s.

In a PEM electrolyser, when a current is applied on the cell stack, the water splits in hydrogen and oxygen and the hydrogen protons pass through the membrane to form H2 gas on the cathode side. The electrolyte is made from a solid specialty plastic material. PEMs had a 31% share of global installed capacity in 20202. PEM electrolysers have the advantages of smaller size, more flexible operation and higher-pressure output than alkaline, but are less mature, more costly and currently have shorter lifetimes.

Electrons from the external circuit combine with water at the cathode to form hydrogen gas and negatively charge ions. Oxygen then passes through the slid ceramic membrane and reacts at the anode to form oxygen gas and generate electrons for the external circuit. It uses a solid ceramic material as the electrolyte.