Part 2

Hy-Politics – political considerations shaping the evolution of clean hydrogen policy

Summary of the use case in the China

China's hydrogen industry has gained increasing attention from the government in recent years, as it plays a crucial role in China's energy transition and carbon neutrality goals. The Chinese government has identified the hydrogen industry as a priority area for investment and innovation, and it aims to establish a comprehensive hydrogen energy system covering transportation, industry, energy storage, and other fields. In 2019, hydrogen energy was first mentioned in the Government Work Report of the State Council of China, and since then, various strategies and plans have been issued by government departments to promote the development of the hydrogen industry. A significant milestone was the release of the Medium and Long-term Plan for the Development of Hydrogen Energy Industry (2021-2035) (the “2021-2035 Plan”) by the National Development and Reform Commission of China (“NDRC”) in March 2022. The plan identifies hydrogen energy as a key direction for future enterprise development and a significant part of China's future national energy system.

The 2021-2035 Plan sets targets in three phases for the development of hydrogen energy industry in China: 

1. First phase (by 2025): a relatively comprehensive institution and policy environment for the development of the hydrogen energy industry shall be formed. The innovation capacity in hydrogen energy industry shall be significantly improved. Core technologies and manufacturing processes in the hydrogen energy industry shall be obtained. A preliminary supply chain and industrial system shall be established. Specifically, the 2021-2035 Plan sets numerical goals for the development of Chinese hydrogen industry to be realised by 2025, including, around 50,000 fuel cell vehicles, more hydrogen refuelling stations, 100,000 to 200,000 tons of hydrogen produced from renewable energy per year, and a reduction of carbon dioxide emissions by one to two million tons per year.
2. Second phase (by 2030): a relatively comprehensive technology innovation system and green hydrogen production and supply system in Chinese hydrogen energy industry shall be formed. A reasonable and orderly hydrogen energy industry layout in China shall be established. Green hydrogen production shall be widely applied.
3. Third phase (by 2035): a hydrogen energy industry system covering use cases in transportation, energy storage, industry and other fields shall be established. The proportion of green hydrogen in end-use energy consumption shall be significantly increased.

The hydrogen industry in China faces several challenges that need to be addressed. One of the main challenges is the high cost of hydrogen production. As China aims at the transition to a low-carbon economy, the cost of electricity from renewable energy sources is likely to decrease, making hydrogen production more cost-effective. Another challenge is the limited infrastructure for hydrogen production, storage, and transportation. In addition, the hydrogen industry faces competition from other low-carbon technologies such as battery electric vehicles and renewable energy sources such as solar and wind power. To remain competitive, the hydrogen industry may need to develop new technologies that offer advantages over these competing technologies.

On the other hand, the development of the hydrogen industry in China has the potential to bring significant benefits. One of the most important benefits is reduced reliance on fossil fuels. As China seeks to reduce its greenhouse gas emissions, the use of hydrogen as an energy source can play an important role. Additionally, the use of hydrogen can increase China's energy security by diversifying its energy sources. Hydrogen can be produced from a variety of sources, including renewable energy sources such as wind and solar power, reducing China's dependence on a single source of energy. Furthermore, the use of hydrogen fuel cell vehicles can help improve air quality in China. These hydrogen fuel cell vehicles emit only water and heat, unlike conventional vehicles that emit pollutants such as nitrogen oxides and particulate matter, which can help reduce air pollution and improve public health.

Certain use cases attract more attention in the development of hydrogen energy industry in China, for instance:

1. Transportation: hydrogen is recognised as an important fuel for reducing carbon emissions in long-distance road transport, railways, aviation and shipping. In China, the development of the hydrogen industry has mainly focused on hydrogen fuel cell buses and heavy trucks, with over 6,000 fuel cell vehicles currently in operation. In terms of the corresponding supporting infrastructure, China has built more than 250 hydrogen refuelling stations in total. As indicated in the 2021-2035 Plan, China will continue to prioritize the application of hydrogen fuel cells in medium and heavy-duty vehicles, with the goal of establishing a complementary mode of fuel cell electric vehicles and lithium battery electric vehicles. China will also explore the application of fuel cells in ships, aircraft and other fields and promote the research and development of large-scale hydrogen-energy aircraft to expand the market scale of hydrogen energy application in the transportation sector.
2. Industrial usage: the industrial sector currently accounts for the largest share of hydrogen energy application in China. Currently, hydrogen is widely used in various industrial processes, such as hydrogen metallurgy, fuel, synthetic ammonia, synthetic methanol, and petroleum refining. In the steel industry, hydrogen is used to reduce iron ore and eliminate impurities, resulting in a cleaner and more efficient production process. In the chemical industry, hydrogen is used as a feedstock for the production of various chemicals, including ammonia, methanol, and hydrogen peroxide. As indicated in the 2021-2035 Plan, China will continue to explore the application of hydrogen metallurgy, expand the application of hydrogen as a substitute for fossil, and lead the development of energy-consuming industries into a low-carbon direction. China is promoting the application of fuel cells in the logistics industry, including forklifts and other material handling equipment. The use of hydrogen fuel cells in these applications can significantly reduce emissions and improve efficiency, while also supporting the growth of the hydrogen industry.
3. Buildings: hydrogen energy has significant potential for use in buildings in China, especially in the context of the country's efforts to reduce its carbon footprint. One area where hydrogen can be used in buildings is for heating and cooling. The National Energy Administration of China has recognized the feasibility of blending hydrogen into natural gas at a rate of less than 20 percent to provide heat for buildings while reducing carbon emissions. This approach can help to reduce the reliance on fossil fuels and promote the use of clean energy sources. In addition, hydrogen will be used to generate electricity for buildings through fuel cells. Fuel cells will be used for distributed power generation in buildings, providing a reliable and clean source of electricity.

Echoing the release of the 2021-2035 Plan, China Petroleum & Chemical Corporation (“Sinopec”), one of China’s oil giants, initiated its medium- and long-term development strategy for hydrogen energy (the “Sinopec Strategy”) in September 2022, aiming to build itself into a leading hydrogen energy company in China and worldwide. According to the Sinopec Strategy, Sinopec will focus on hydrogen energy transportation and green hydrogen refining areas and develop a comprehensive and integrated hydrogen energy business, mainly from three aspects: (1) promoting the cultivation of hydrogen industry. Sinopec aims to steadily promote the establishment of hydrogen refuelling station network which provides comprehensive energy services covering oil, gas, hydrogen, and electricity and by 2025 achieve a hydrogen refuelling capacity of around 120,000 tons per year; (2) strengthening leadership in hydrogen technology innovation. Sinopec aims to exert more efforts in tackling key technical challenges, actively participate in the formulation of industry standards and promote the domestication process of hydrogen energy technology and equipment, and (3) deepening strategic cooperation. Sinopec aims to deepen collaboration with major energy enterprises in China to enhance a coordinated development of industrial chain, supply chain, and innovation chain.

Other examples of demonstration/feasibility projects in China:

• Envision Group: In March 2022, Envision Group signed a strategic cooperation agreement with the Government of Chifeng, Inner Mongolia Autonomous Region, China. It is planned to develop a project to produce green hydrogen and green ammonia using wind power and photovoltaic power, to which the total investment is approximately RMB 40 billion. The project is expected to be completed and put into operation by 2028. The planned annual production capacity of the project is 1.52 million tonnes of zero-carbon industrial gas products. The first phase of the project is expected to be put into operation within two years. Once the project is successfully developed, it is expected that the development of green power and green hydrogen can be integrated. Utilising the abundant green power in Chifeng, the cost for hydrogen production can be largely reduced to RMB 10/kg.
• Shell and Shenergy Group: In July 2022, Shell announced the formation of a joint venture with Shenergy Group, through which Shell and Shenergy Group will invest in building a network of hydrogen refuelling stations in Shanghai. The joint venture is expected to build six to ten hydrogen refuelling stations in Shanghai and the Yangtze River Delta in the next five years, and thirty hydrogen refuelling stations by 2030, which could supply hydrogen to around 3,000 fuel cell trucks or buses per day.

Part 5

Hy-ly Volatile? making it safe, sustainable and transportable

The regulatory framework for hydrogen energy in China is at an early stage of development. There is no comprehensive laws or regulations specifically focusing on the development and governance of hydrogen energy in China. However, the Chinese government has been continuously working on creating a comprehensive legal regime for hydrogen energy in the recent years.

Certain laws and regulations in China may apply to the hydrogen energy industry from different aspects. The PRC Environmental Protection Law, for instance, regulates the prevention and control of environmental pollution and ecological damage caused by various industries, including the hydrogen energy industry.

Furthermore, there are safety regulations and technical standards that provide guidance on the safe production, transportation, storage, and use of hydrogen energy in China. In December 2022, the State Administration for Market Regulation and the National Standardization Administration jointly issued the new national standard titled the Basic Requirements for Hydrogen System Safety regulating the design and use of hydrogen production, storage, transportation, and application systems, effective from 1 April 2023. 

The Chinese local governments have also issued a series of policies to support and regulate the development of their local hydrogen energy industry. 

• Chengdu: in 2020, the "Opinions on Promoting the High-Quality Development of Hydrogen Energy Industry in Chengdu City" was issued by the Chengdu government. The policy primarily aims to develop the hydrogen energy industry from five aspects, covering promoting the development of the hydrogen energy industrial chain, increasing hydrogen energy projects, strengthening the cultivation of hydrogen energy industry clusters, supporting innovation of hydrogen energy science and technologies, and creating a favourable environment for the hydrogen energy industry.
• Foshan: in 2020, the "Development Plan for the Hydrogen Energy Industry in Nanhai District, Foshan (2020-2035)" was issued by Foshan government. The plan sets certain tasks to guide the development of the hydrogen energy industry in Nanhai, mainly from three aspects: platform construction, industry chain, and application scenarios. In terms of platform construction, the plan proposes to promote the construction of six key platforms with industry-academia-research supports, including the Xianhu Laboratory of Foshan. In terms of industry chain, the plan proposes to focus on the layout of infrastructure, utilising hydrogen supply outside of Nanhai and constructing renewable energy or natural gas hydrogen production within Nanhai. In terms of application scenarios, the plan proposes to build diverse commercial application scenarios and expand the hydrogen energy industry market by developing different products for different application scenarios. 

While at this stage national and local policies make more contributions to and play more regulatory roles than laws and regulations per se and there are still gaps in the regulatory framework for the hydrogen energy industry in China, the government's efforts to develop comprehensive legal regimes, safety regulations, technical standards, and supportive policies suggest a strong commitment to the growth and development of the hydrogen energy industry in China. These efforts are expected to further promote the development of the hydrogen energy industry and contribute to China's overall energy transition goals.