A European hydrogen bank could help determine whether the climate wins or loses

Author: Anna Lorant i Guillaume Morauw

The European Hydrogen Bank, the financial instrument supporting renewable hydrogen production in the EU and internationally, has just announced a €1.2 billion investment to help boost the renewable hydrogen economy, a cornerstone of the EU’s strategy to achieve climate neutrality by 2050. While there is much focus on how this could help meet hydrogen production targets, it is important to keep this in mind How we are implementing hydrogen also matters. Whether hydrogen will actually bring climate benefits depends on the details, which is why all eyes are on the Conditions of the second Hydrogen Bank Auction as an important instrument to scale up the European hydrogen market.

The EU has identified renewable hydrogen as a key element of its sustainable energy transition plan. Its ambition is to produce 10 million tons in the country by 2030, which it considers crucial for the decarbonization of industries traditionally dependent on fossil fuels. This will require significant investment. According to European Commission estimates, EUR 200-300 billion is needed for additional production of electricity from renewable sources alone, and at the same time infrastructure needs, including increasing the scale of electrolyzer production, will require further support.

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As the EU’s main instrument for financing renewable hydrogen projects, the Bank’s aim is to help fill investment gaps, balance supply and demand and develop the hydrogen economy, while achieving its main objective of delivering significant climate benefits.

However, climate benefits cannot be guaranteed simply by scaling up the use of hydrogen – even if it is produced from renewable sources. If we are to reap the climate benefits, we need to pay close attention to detail to get hydrogen right.

Therefore, during the European Commission’s recent consultation on the second auction round of the EU Hydrogen Bank, we took the opportunity to review the terms and conditions to see how they support these objectives and where there may be room to strengthen them further to maximize protection climate benefits from these subsidies.

How the terms and conditions of the EU hydrogen bank can promote greater climate benefits

For the EU to achieve its climate goals using hydrogen, it is crucial that its hydrogen policy puts sound and up-to-date science at the heart of it. Given our knowledge of hydrogen emissions, we are focused on ensuring that auction conditions are designed to take into account and minimize the risk of hydrogen emissions and their climate consequencesand ultimately maximize the value of hydrogen. We see four key areas where this can be done:

Prioritize the purest form of hydrogen

Since the biggest challenge with hydrogen produced using renewable energy sources (the cleanest form of hydrogen) is cost, the Bank intends to provide financial incentives to make the cost of renewable hydrogen competitive with hydrogen from fossil fuels, which is currently cheaper to produce but involves face greater climate risk. The idea is that this will increase hydrogen production from renewable sources and accelerate market integration.

While some argue that the scope of T&C should be expanded beyond renewable hydrogen, ensuring it remains focused on renewable hydrogen is more closely tied to delivering unique climate benefits.

Prioritizing renewable hydrogen in Europe will help drive innovation, reduce costs and ensure that the emerging industry supports decarbonization at the grassroots rather than undermining it. This is the option most consistent with the EU’s long-term goals of climate neutrality and zero pollutant emissions.

Strategically direct investments to the right use cases

Strategically targeting investment in hard-to-abate industries that lack alternative emissions reduction pathways will provide hydrogen financing where it is most urgently needed for rapid decarbonization.

Most analyzes find this direct electrification will play the biggest role in decarbonization; However, approximately 20-30% of global CO2 emissions cannot be reduced by direct electrification alone – and this is where hydrogen comes to the rescue. This applies to sectors such as cement, steel, glass, as well as heavy transport: shipping and aviation.

The inclusion of a special basket dedicated to the maritime sector (whose decarbonization relies heavily on renewable fuels) in this auction round is new and makes a lot of sense. In fact, it makes so much sense that the same approach should extend to other industries that are difficult to curtail and that also have no other decarbonization path available. If a separate budget basket for difficult-to-reduce sectors proves to be unfeasible, priority should be given to projects with customers from these sectors at the assessment stage. The greatest climate value we will gain from public hydrogen financing will be in these targeted and strategic sectors.

Provide a solid foundation with accurate emissions calculations

Accurately calculate and account for the total hydrogen emissions footprint, incl often overlooked emissions risksis crucial to revealing its true impact on the climate and therefore to setting the right policy incentives to reduce these emissions.

The climate change mitigation benefits of subsidies are likely to be overestimated if the climate impact of hydrogen emissions is not taken into account. As an indirect warming gas, hydrogen has short-lived but strong global warming effects: it can cause traps almost 40 times more warmer than CO2 during the first 20 years in the atmosphere. Therefore, the methodology for calculating the level of CO2 emission reductions must take into account the risk of hydrogen leakage in order to properly account for overall emission reductions.

Reward projects with higher environmental standards

As the Bank seeks to support the market at scale, it should evaluate projects not only on cost but also on environmental factors, such as the implementation of appropriate emission reduction measures (for example, recovery and reuse of deaerated/purified/residual hydrogen, based on state-of-the-art technology ). Prioritizing climate-positive production methods will put the hydrogen economy on a trajectory that encourages deep decarbonization across all sectors.

When it comes to hydrogen, the EU faces the challenge of building an airplane and flying it at the same time – and that’s not easy! That’s why science helps us make the best decisions. Because critical investments like the European Hydrogen Bank will determine whether the emerging renewable hydrogen market aligns with the EU’s climate goals or leaves us with a regret as we reach 2050 and beyond.