On 18^th November Energy Post, in partnership with the EU-China Energy Cooperation Platform, hosted a series of online workshops under the theme “China: Carbon Neutral by 2060”. The purpose was to understand the Chinese landscape and uncover opportunities for Europe. Here, the moderator for our “Hydrogen” panel, Gökçe Mete, summarises the workshop which included an expert panel discussion and questions from the audience. Taking part were Tudor Constantinescu (Principle Advisor to the Director General, DG ENER), Joachim von Scheele (Global Director Commercialisation, Linde PLC) and Mickael Naouri (Corporate Affairs Director, Air Liquide). The workshop covered blue and green hydrogen, ambitious production targets, investment, innovation, hard-to-abate sectors, heavy transport, hydrogen fuel cells, regulations, fair competition and more. The challenges of giving birth to the hydrogen economy are tremendous, but that has not stopped it entering the decarbonisation plans of both the EU and China.

The hydrogen economy is gaining a lot of attention. It has been cited as a holy grail for 100% renewables, for the power sector and the hard-to-abate sectors.  At the China: Carbon Neutral by 2060 workshop, hydrogen was also cited as part of the solution to address both the Covid19 and the climate crisis.

The Covid19 pandemic impacted global energy investments, with a 17% decline reported by the IEA in Europe in electricity grids investments (with wind and efficiency holding up better than distributed solar PV and oil and gas) and a sharp reduction in private sector investment in 2020-2021.

As a result of the pandemic Green House Gas (GHG) emissions are expected to decline by 8% in 2020 globally compared to 2019, almost to the levels of ten years ago. However, if appropriate actions are not taken to maintain these levels, emissions may rebound to exceed previous levels.

The pandemic offers a once in a generation opportunity to build back better and avoid lock in effects while doing so.

Avoiding carbon lock-in

The “carbon lock-in” problem occurs when investments and policies made in the past or present to build out high-carbon energy systems inhibits the growth of the new green economy.

The European Green Deal announced by EU president Ursula von der Leyen called for the EU to utilise its collective ability, and to transform its economy and society to put it on a more sustainable path. This ambitious and forward looking agenda aims to accelerate massive public investment and increased efforts to direct private capital towards climate and environmental action, while avoiding lock-in into unsustainable practices in the next decade.

The energy sector accounts for 75% of the GHG emissions in the EU. The EU strategies for energy system integration and hydrogen therefore aim to link various parts of the energy system to pave the way towards a more efficient and interconnected energy sector.

Hydrogen

Here, hydrogen is envisaged to play a considerable role, in particular in decarbonisation of the natural gas system and of hard to abate sectors. Fossil free hydrogen, however, requires considerable amount of renewable energy and a ramp up of electrolysers.

Also, hydrogen, produced with renewable energy will compete with direct electrification, which should provide almost 50% of the EU’s energy system by 2050, compared to 23% today. Currently, there is not enough renewable energy infrastructure, because they are not being built due to curtailing. Curtailed electricity is inefficient.

Expansion of renewables

While IEA estimates for the expansion of renewables is encouraging for 2021, due to the commissioning of delayed projects and continued growth in markets where the pre-pandemic programmes were robust enough, in certain countries the expiration of certain incentives and support schemes may see a small decline in 2021. In China, for example, certain schemes for onshore wind and solar PV subsidies expire at the end of 2021. The evolution of China’s next policy framework for the period 2021-25 therefore is extremely important.

Globally, the post-pandemic green recovery outlook is in danger of being unsatisfactory. Energy Policy Tracker, which tracks public money committed to energy in recovery packages, reports that 29 major economies pledged $251 billion to fossil fuels, 53% of all public money committed to energy-intensive sectors, compared with 35% committed to clean energy.

The EU Recovery Plan underlines the urgency to take robust action with the new announced targets at the European level of a 55% reduction of GHG by 2030, and with an ongoing pipeline of legislative revisions concerning the energy and related sectors, such as transport, buildings and industry. The EU long-term budget and recovery fund earmarked 30% for climate related expenditures (although the agreement also resulted in spending cuts to key climate and environment programs).

Hydrogen’s challenges

Dedicating sufficient resources to the energy transition and its planning (in terms of infrastructure and value chain) is crucial for the future role of hydrogen as an enabler of the transition and green recovery. Green hydrogen is a niche product that is still very expensive. There are considerable uncertainties on the supply side, demand side and across its value chain.

The demand for hydrogen has risen three-fold since 1975. But it is mainly derived from fossil fuels. About 6% of global natural gas and 2% of global coal is going into hydrogen production. This hydrogen is mainly used in refining and fertilisers. However, for hydrogen to play a meaningful role in the energy transition, carbon-neutral hydrogen will need to be produced at the right scale to support the decarbonisation of the steel industry, the power sector, refining, chemicals, petrochemicals, fertilisers, and cement by 2050. And its scarcity for the next decade is well known.

This will require investment, according to Tudor Constantinescu of DG ENER, who is also confident that hydrogen will generate growth, employment and put the EU on track for 2050. Indeed, the Hydrogen Council predicts €2.5 trillion revenues from hydrogen by 2050, and 30 million jobs created worldwide.

Hydrogen in China

For China, hydrogen can also play a crucial role in powering its economic growth and recovery. China is already the largest hydrogen producer in the world, and production, storage, distribution and end use of hydrogen is expected to grow at an exponential rate. The latest commitment from China to reach carbon neutrality by 2060 will almost certainly require a ramp up of investments in transformative technologies such as green hydrogen.

Joachim von Scheele of Linde PLC, the world’s largest industrial gases company (which has 250 hydrogen production plants, one third of them with electrolysers), believes that it’s realistic for China to create a hydrogen economy as part of its 40-year long journey towards carbon neutrality. And, there are many potential opportunities for European companies to work in China, and for new alliances to be formed with Chinese companies.

Hydrogen can play an effective role in reducing emissions from the heavy industries such as cement and steel. As with many European countries, blue hydrogen produced with steam methane reforming of natural gas, with CCS, can be a stepping stone for creating demand and lead markets for green hydrogen in China.

Similar to the approach taken in Europe, hydrogen is also considered as an alternative fuel and decarbonisation pathway in the heavy transport sector in China, in particular for buses, trucks and trains.

Additionally, China is a large ship builder. Hence, there’s a great opportunity for many companies around the globe to cooperate.

Opportunities for Europe in China

The panel agreed that global hydrogen production has to rise 20-fold and there is room for everyone.

The EU Chamber of Commerce China Energy Working Group, chaired by panellist Mickael Naouri of Air Liquide, provides a strong platform to build bridges and facilitate discussions among government agencies, SMEs and large companies.

Mickael told us that there are already about 50 OEMs working today on new models for fuel cell vehicles in China. And where China is lagging behind technologically, European can bring technology transfer and promote innovation in electrolysis and liquefaction technologies. Indeed, the European Clean Hydrogen Alliance, representing over 100 European companies, has been launched to facilitate a robust investment agenda.

The fact that 95% of hydrogen is not renewable today should not defer investment. Partnerships and cooperation across the globe, and in particular between early-movers, will be crucial for the future energy system, which will be much more complex.

Certification, definitions, regulations

The international dimension of the hydrogen economy remains largely unexplored, due to uncertainties around certification, definitions and regulations. Even at the regional and national levels in Europe there is not sufficient clarity on which regulation applies access to pipeline networks and costs, and how to integrated hydrogen production plants.

In the context of China and EU cooperation, further dialogue is necessary on issues around economic regulation but also on intellectual property protection.

Investment

When it comes to financing the hydrogen economy in China, the perception is that there are sufficient venture capital movements and interest in hydrogen, according to Joachim and Mickael, with an active start-up community financed to develop technologies. These investments are likely to be redirected more towards the energy transition and climate smart technologies following the Chinese announcement of carbon neutrality by 2060.

Let’s not forget that China has swiftly became a global leader in batteries, and fuel cell vehicles may follow the same trajectory, with a difference that this time the drive may not be subsidy driven but driven by mandates by OEM manufacturers. In China, there is already an unprecedented target of 100,000 sales of fuel cell vehicles by 2025, announced by Chinese automakers. The Chinese private sector is pivotal to its economy. And there appears to be opportunities here for European firms in the emerging Chinese hydrogen market.

The global picture

Over the last couple of years, interest in green hydrogen technology has grown exponentially. The first European Hydrogen Week 2020 which took place in November attracted over 2,500 participants across the globe. Hydrogen as part of ‘net-zero’ efforts could indeed pave the way for reoriented firms to move into offshore wind and renewable hydrogen using existing oil and gas infrastructure. This would be welcome as the 2020 Production Gap report finds that the world needs to decrease fossil fuel production by 6% per year to limit global warming to 1.5°C.

However, reliance on technological improvements to enable the transition comes with a range of risks: for example, development and commercialisation of proposed new technologies may be severely delayed and investments in fossil fuel-based hydrogen may lead to lock-in.

Furthermore, the main focus has been around the different colors of hydrogen, its versatility, and the variety of hydrogen transport and storage options. Green hydrogen is considered as a prominent solution for the decarbonisation of hard to abate sectors of the economy and a crucial contributor towards reaching the goals of the Paris Climate Agreement. But many of the applications of low-carbon and carbon neutral hydrogen are not available today, and investments envisaged today must materialise in the next 5 to 25 years.

Finally, as we prepare for a greener future, facilitated by hydrogen and many other climate smart technologies, are we missing out on delivering on inclusivity? I invite you to join Women in Green Hydrogen (WiGH), a bottom up, crowdsourced initiative set up to increase the visibility of female professionals working on hydrogen, which emerged from the need to ensure that the female workforce is not excluded from the discourse about hydrogen technology’s future.

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Gökçe Mete is a Research Fellow at the Stockholm Environment Institute