By Benjamin Görlach and Michael Jakob, Knowable magazine, November 11, 2022
The war on Ukraine — a major exporter of natural gas — has wreaked havoc on energy markets in Europe. Faced with imminent energy shortages, governments have ramped up coal use and expanded import of liquified natural gas from other nations. The International Energy Agency estimates that coal use in Europe could increase by 7 percent in 2022, after a 14 percent jump in 2021.
This is a problem. Europe is sliding backward on its climate goals, just when it needs to be leaping forward.
In 2019, the European Union declared its ambition to become the first climate-neutral continent by 2050. This requires a rapid phaseout of fossil fuels. The 2020s are the decisive decade for this energy transformation. Now is the worst time to be ramping up dirty coal. Any investment made now into the energy system must be compatible with the goal of a fully decarbonized economy.
How is Europe going to do this? Electricity from renewable sources can quite easily replace fuels for a lot of things, from home heating to cars. The good news is that the costs of wind and solar electricity have fallen tremendously: Since 2010, solar photovoltaic costs have dropped by a stunning 88 percent, and onshore wind by 68 percent. Two-thirds of the global population now live in countries where solar or wind is the cheapest electricity source.
Yet some things — like airplanes, cargo ships and some industrial processes such as steelmaking — are much harder to electrify, and sometimes need fossil resources as a feedstock. For these, “green hydrogen” offers a promising alternative: hydrogen made by splitting water with renewable electricity. Green hydrogen can be used directly, or as the basis for an alternative fuel like ammonia.
Unlike fossil resources, green hydrogen can be produced in any country with a lot of land and water, plus wind or sunshine — along with sound infrastructure and a stable investment scene. European countries don’t typically make the top of this list; less densely populated countries are in a better position, including Chile, Australia, Canada and Kenya. Europe will likely import about three-quarters of its hydrogen needs. But by expanding its list of providers, it can still add to its energy security.
The international market for hydrogen is only just starting to take shape. In February 2022, the first liquid hydrogen tanker shipped hydrogen from Australia to Japan. The consultancy firm McKinsey estimates that by the middle of the century, global hydrogen demand could increase more than sevenfold to 660 million tons, of which 400 million will likely be traded internationally. For now, a lot of hydrogen is “brown,” made from coal; hopefully in the future most or all of it will be “green.”
As a major future buyer, Europe is well placed to take the lead and start shaping the rules and regulations for this emerging market now.
It will be important, for example, to ensure that the countries making green hydrogen are really using renewable energy to create it — and not shifting their energy resources around to make green hydrogen without a net reduction of greenhouse gas emissions. For example, a country could theoretically use all its renewable resources to make exportable green hydrogen, while transferring all its domestic energy needs to fossil fuels. While the exportable hydrogen would be green, the nation’s own energy use could in theory get dirtier. That shouldn’t be allowed to happen.
Regulation also needs to make sure that the land and water use of hydrogen production doesn’t trample on biodiversity or violate land rights of local communities. Without a good rule book in place, there is a risk that suppliers with laxer standards or less strict monitoring will reap a competitive advantage.
Strict regulation does not have to stifle the emerging market — just the opposite. Establishing a solid, well-regulated market for green hydrogen will help to reduce risks and uncertainty for emerging companies, which will encourage investment.
The EU should also be promoting the shift to green hydrogen by putting rules in place for users, such as mandatory national targets for swapping over from dirtier fuels. Governments could also require that construction of public infrastructure, say, must use green steel, produced with green hydrogen. And there should be rules to share credit around: Europe could pay Chile to replace some of its own fossil consumption with green hydrogen, for example, and earn credits for the associated emission reductions.
Key to all this is a unified system for monitoring, certifying and tracking green hydrogen production and trade. Groups including the G7 have recognized this need, but international agreement on such a system is still a long way off. To build a solid foundation for the emerging market for green hydrogen is not a trivial task. It’s going to need a lot of diplomatic effort. The EU should use its voice in international meetings to push for ambitious rules for green trade — there will be great opportunities this November at the upcoming G20 meeting in Bali, as well as at the UN Climate Conference in Sharm el-Sheikh, Egypt.
The past months have made all too clear the downsides of the current, fossil-based energy system. Now we have the chance — and the challenge — to set up a new market in the right way from the beginning. Green hydrogen can be a good news story: with it, climate ambition and energy security can be aligned, and achieved at a reasonable cost. If done right, the new green hydrogen market will serve the interest of the many rather than the few.
Produced by Knowable Magazine , this piece first appeared in EURACTIV.
Benjamin Görlach and Michael Jakob are environmental economists with the academic think tank Ecologic Institute in Berlin.