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Getting Hy?

Part 1

Hy-Ambitions: a vision for a new energy vector

The climate emergency is occupying mainstream policy focus in many countries. While the profound growth of the renewable energy sector over the past two decades has enabled rapid decarbonisation of electrical systems, there is rising recognition of the need to identify methods of decarbonising energy for those sectors which are difficult to electrify, such as industrial processes, high usage or long-haul transport, and fuel for buildings as well as to remove emissions from chemical processes.

With a lack of viable alternatives to achieve the levels of deep decarbonisation consistent with net zero targets, clean hydrogen may offer the solution and has unprecedented political and industry momentum.

Part 2

Hy Politics: political considerations shaping the evolution of clean hydrogen policy

It is possible to get very excited about a brave new world with a renewable and hydrogen economy. But whether any particular country will get there, and how it goes about getting there, is likely to be driven by the political context of clean hydrogen at a more granular and domestic level.

Below we consider some of the key political issues shaping this debate and how individual countries are shaping up on the use cases for hydrogen.

Australia  •  Belgium  •  China  •  The EU  •  France  •  Germany  •  Italy  •  Japan  •  The Netherlands  •  Poland  •  Portugal  •  Spain  •  The UK  •  The U.S.

Australia

While hydrogen has, in Australia, historically served mainly as an input into various industrial processes, both federal and state governments have committed to expand the use of hydrogen to, among other things, transportation and heat. In 2018, the Commonwealth Scientific and Industrial Research Organisation published the National Hydrogen Roadmap, which identified hydrogen as having applicability and value in the areas of transport, remote area power systems, industrial feedstocks, for export, electricity generation, producing heat and synthetic fuels.1 Australia is one of the few countries for which the potential for hydrogen to become a major export is a significant motivator in developing its hydrogen capabilities.2 To this end, Australia has developed ties with Japan,3 Singapore,4 South Korea,5 the Netherlands6 and Germany7 to investigate future hydrogen export and in late 2019 released the National Hydrogen Strategy (the "Strategy").8 In February 2023, representatives of all Australian governments and stakeholders agreed to review the Strategy 'to ensure that Australia remains on a path to be a global hydrogen leader by 2030 on both an export basis and for the decarbonisation of Australian industries'.9

The key drivers for these use cases are a reduction in greenhouse gases and the ability to secure a reliable domestic supply of fuel for heat and transport.10 The Australian Government has indicated that it is technology neutral when it comes to hydrogen production.11 There is significant support for blue hydrogen amongst certain key industry players, as it allows existing producers in Australia’s well-developed oil and gas industry to leverage off their existing natural gas reserves.12

Click here for further information on the current thinking on use cases in Australia.

Belgium

The potential for large-scale hydrogen production, import, transport and consumption by and for the industry is the most promising use case in Belgium.

Belgium today is already an important user of hydrogen technology, mainly in its petrochemical and chemical industries. Grey hydrogen flows through existing pipelines, which is separated during the processing of natural gas or as the residual fraction of, for example, chlorine plants. For transportation, the focus is mainly on the electrification of cars. Nonetheless, for trucks and public transport (buses), hydrogen may be part of the solution as well. A number of pilot projects were launched also in the maritime sector. Because hydrogen can provide both electricity and heat, there is also increasing interest from the buildings and power sectors. The focus is on combined heating and power (cogeneration) installations for buildings (where electrification is less obvious) and on heat networks in the cities, on closed (industrial) sites and energy communities. Moreover, hydrogen has been proposed as a large-scale electricity storage solution.

In the medium term, despite the high potential “penetration” rate of green hydrogen for the industry,1 Belgium does not have enough surplus renewable power to produce green hydrogen on a large scale. As a result, Belgium may have to import additional renewable energy to produce green hydrogen from countries able to produce it more efficiently and cheaply.2  Blue and turquoise hydrogen could furthermore be a useful transitional technology

This is the clear direction taken also by the federal government in its updated Hydrogen Strategy3, which revolves around four sectors and four pillars. Industry, transportation, buildings and power generation are the four sectors identified as having potential for using hydrogen and its derivates as a decarbonisation lever, with the former two having the strongest use case. Across these target sectors, the Hydrogen Strategy is built up around four pillars:

  • Pillar 1: Positioning Belgium as an import and transit hub for renewable molecules
  • Pillar 2: Expanding Belgium’s leadership in hydrogen technology
  • Pillar 3: Creating a robust hydrogen market
  • Pillar 4: Investing in cooperation

The Hydrogen Strategy recognises the limited potential for domestic green hydrogen production on the one hand, and the varying potential of the different use cases across economic sectors on the other. It therefore takes a pragmatic approach that is focused on import, transport over longer distances and use cases requiring the specific characteristics of H2 and derived molecules, in particular the (petro)chemical industry.

Click here for further information on the current thinking on use cases in Belgium.

China

China's hydrogen industry has gained increasing attention from the government in recent years in light of the proven benefits of hydrogen energy. The Chinese government has identified the hydrogen industry as a priority area to achieve energy transition and carbon neutrality.

Various strategies and plans have been issued to promote the development of the hydrogen industry, including the monumental Medium and Long-term Plan for the Development of Hydrogen Energy Industry (2021-2035) (the “2021-2035 Plan”) released in March 2022, which identifies hydrogen energy as a significant part of China's future national energy system. Specific attention is paid to use cases in transportation, industrial usage, power and buildings sectors. The 2021-2035 Plan sets targets for China's hydrogen energy industry in three phases: (1) first phase (by 2025): a relatively comprehensive institution and policy environment shall be established, accompanied with innovation capacity improved, core technologies obtained, and a preliminary supply chain and industrial system established, (2) second phase (by 2030): a relatively comprehensive technology innovation system and green hydrogen production and supply system with a reasonable industry layout shall be formed, and (3) third phase (by 2035): a hydrogen energy industry system covering multiple use cases shall be established, and the proportion of green hydrogen in end-use energy consumption shall be significantly increased.

Echoing 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 in September 2022, aiming to build itself into a leading hydrogen energy company in China and worldwide. According to the strategy, Sinopec will focus on hydrogen energy transportation and green hydrogen refining areas.

EU

Seeking to achieve the wide-scale deployment of clean hydrogen in Europe across different sectors is a key priority for the European Commission and one of the main deliverables of the European Green Deal to reach climate neutrality by 2050.

In 2020, the European Commission published its hydrogen strategy for a climate neutral Europe (COM/2020/301 final), its Energy System Integration Strategy (COM/2020/299 final) and launched a European Clean Hydrogen Alliance which it has since underpinned with various policy and legislative measures. 

It became clear from the Commission’s hydrogen strategy that there is a general preference for “green” hydrogen from renewable sources, low-carbon hydrogen (such as “blue hydrogen” from fossil fuel sources using carbon capture and usage/storage (CCU/S) technologies or “pink” hydrogen produced with nuclear electricity) is likely to play a role in the foreseeable future – at least during the phase of market ramp-up.

The Commission considers that the two main markets for hydrogen end-user demand will lie in industrial applications (e.g. replacing carbon-intensive hydrogen in refineries, the production of ammonia and methanol and replacing fossil fuels in steel making) and transport (in particular for heavy duty vehicles where electrification is more difficult). It should be borne in mind that “hydrogen” is often referred to what in fact, are hydrogen derivates and products, like ammonia, ethanol, methanol and different types of e-fuels.

The Commission’s hydrogen strategy was certainly ambitious, aiming for the production of up to ten million tonnes of green hydrogen and 40GW of electrolyser capacity within Europe by 2030 (with one million tonnes of green hydrogen and 6GW of electrolyser capacity by 2024). It, however, did not have a special focus on importing hydrogen products. 

This changed with the gas security crisis triggered by the Russian invasion into Ukraine. In May 2022 the Commission published its REPowerEU Plan (COM(2022) 230 final) accompanied by a staff working paper (SWD/2022/230 final) for a hydrogen accelerator setting a target of 10 Mt of domestic renewable hydrogen production and 10 Mt of renewable hydrogen imports by 2030. Accordingly, installed electrolyser capacity was set to rise from 44MW to 65 MW in 2030 compared to previous planning. 

Regarding the different sectors, the general targets of the strategies are translated into sector specific targets, e.g. through a revision of the Renewable Energy Directive (RED II to RED III), as part of an extensive legislative package called “Fit for 55” (Ff55) from 2021 which were partly adjusted with the RepowerEU targets during the legislative process. For example: 

  • 42% of the hydrogen used in certain industry sectors (including ammonia and chemicals production, oil refining and steel manufacturing) is to stem from renewable sources in 2030. This share shall rise to 60% by 2035;
  • RFNBOs (the technical term for “green” hydrogen products) shall represent a share of at least 1% in transport by 2030, backed by a 1.2% sub-quota for RFNBOs in maritime transport. It is noteworthy that multipliers of 2 for road transport and 1.5 for aviation and maritime transport apply when calculating the fulfilment of the targets, effectively reducing the amount of RFNBOs to deployed to the transport sector but also making it more attractive; 
  • Hydrogen refuelling infrastructure, capable of serving both cars and trucks, must be in place by 2030 in urban areas and every 200 km along the core TEN-T network.

Other targets more broadly refer to the deployment of “renewable energy sources” which would encompass RFNBOs but not be limited to them.

Click here for further information on the current European Commission thinking on use cases.

France

Two use cases for hydrogen described earlier in this chapter (i.e. industry and transportation) are already in the process of implementation in France. On 10 September 2020, the French Government unveiled a €7bn national strategy for carbon-free hydrogen, setting out three core objectives: 

  • to install enough electrolysers to make a significant contribution to the decarbonation of the economy;
  • to develop clean mobility, particularly for heavy vehicles; and
  • to foster the development of an H2 industrial sector in France, creating jobs and guaranteeing France’s technological expertise.

In February 2023, it was announced that this support would be supplemented in the France 2030 investment plan by €1.9bn additional support.

The French energy regulator (the Commission de Régulation de l’Énergie) considers that blue hydrogen could replace the use of grey hydrogen used in industry and that, in the medium term, it could be one of the vectors of decarbonisation in the heavy transport sector.

France’s ambition is to develop blue hydrogen and its industrial, energy and mobility uses, with the prospect of reaching around 20% to 40% of total hydrogen and industrial hydrogen consumption by 2030. The French State, through various channels, has already or is in the process of launching several calls for projects to achieve the objectives set out above.

In particular, France plans to establish a support framework applicable to hydrogen produced by electrolysis of water using low carbon electricity, based on specific legislation that was adopted in February 2021. 

On 8 November 2022, the French President asked the Minister of Industry and the Minister of Energy Transition to draw up a new national hydrogen strategy, which should be developed by June 2023.

Click here for further information on the current thinking on use cases in France.

Germany

The German government has laid down the use cases it sees for the deployment of hydrogen in Germany in its National Hydrogen Strategy (Nationale Wasserstoffstrategie – “NWS”). The NWS was first published in June 2020 (BT-Drs. 19/20363) and again in July 2023 in an updated version (BT-Drs 20/7910). It is intended to create a coherent framework for the production, transport, consumption and further use of hydrogen and its derivatives (including ammonia, methanol or synthetic fuels) in Germany, as well as for innovation and investments in the hydrogen sector. 

The 2023 update mainly focusses on the necessary actions needed to enable the supply of Germany’s expected additional hydrogen needs of 40-75TWh in 2030, on top of the 55TWh currently covered by (grey) hydrogen from fossil sources which will also be converted to climate friendlier sources in the future. The updated strategy doubles the envisaged amount of domestically produced hydrogen products from 5 to 10GW by 2030. The German government expects that 50 to 70% of the hydrogen products needed are to be imported – at first via shipping of hydrogen derivatives and in the future more and more via a yet to be built (after 2030) hydrogen network.

In its updated National Hydrogen Strategy, the government states that direct financial support shall only be made available to producers of green hydrogen products. However, on the demand side the government plans to also promote blue (natural gas), turquoise (methane pyrolysis) and orange (waste) hydrogen deploying CCS-technologies and meeting life-cycle emissions savings which are comparable with those of the EU Taxonomy Regulation and any other (also future) EU rules demanding higher emission savings. The extent to which carbon capture technologies will be deployed on a larger scale in Germany is still unclear, as the regulatory framework is incomplete and public debate is only just gaining momentum.

The National Hydrogen Strategy identifies all three key sectors (industry, transportation, heat) as potential areas for the increased future use of hydrogen, but foresees that the use cases do not become viable at the same time. In the short to medium term, priority will be given to areas in which the use of hydrogen is close to economic viability and in which no major path dependencies are created or in which no alternative decarbonisation options exist. The National Hydrogen Strategy therefore starts from the premise that hydrogen should be used where there are no simpler, climate-neutral alternatives, where hydrogen is needed in large quantities and where transport is relatively easy to organise.

Click here for further information on the current thinking on use cases in Germany.

Italy

In December 2019, the Italian Government officially released the Integrated National Plan for Energy and Climate, which sets binding targets for energy efficiency, renewable sources and reduction of CO2 emissions to be achieved by 2030 and promotes the use of green hydrogen. The main target use case for hydrogen is decarbonisation of commercial transportation. A role for hydrogen in energy storage is also contemplated: in particular, power to gas, as well as usage in existing energy network infrastructure.

In November 2020, the Minister for Economic Development published the Preliminary Guidelines on the National Hydrogen Strategy (Strategia Nazionale Idrogeno – Linee Guida Preliminari – “Hydrogen Guidelines”), whose 2030 term objective is the development of a national hydrogen ecosystem and for hydrogen to gradually become competitive in selected sectors, covering about 2% of the 2030 Italian energy demand. In the long term, up to 2050, the Hydrogen Guidelines’ goal is for hydrogen to support the effort of decarbonisation together with other low carbon emissions technologies, especially in hard-to-abate sectors (e.g., steel production, chemicals). Thus, hydrogen would be able to cover up to 20% of the 2050 Italian energy demand.

The National Recovery and Resilience Plan for Italy (“Italian Recovery Plan”) published on 26 April 2021 follows in the steps of the Hydrogen Guidelines with its second Mission, “Green Revolution and Ecological Transition”, focusing on, inter alia, renewable energy, hydrogen, and sustainable transportation with an overall budget of €23.78 bn, €3.19bn of which is allocated for promoting the production and distribution of hydrogen in order to contribute to the achievement of the decarbonisation target.

In addition, certain regulatory changes have been recently adopted aimed at accelerating the environmental impact assessment procedures for the development of green hydrogen production plants. 

Click here for further information on the current thinking on use cases in Italy.

Japan

The government of Japan declared its commitment to reach net-zero by 2050 in October 2020 and subsequently issued its “Green Growth Strategy” on 25 December 2020 and 18 June 2021 (the “Green Growth Strategy”). The government listed each of hydrogen and fuel-use ammonia as one of the 14 priority sectors in the Green Growth Strategy, and indicated a specific numerical cost-reduction target of 30 JPY/Nm3 and 20 JPY/Nm3 by 2050, and the introduction target of up to 3 million tons per year by 2030 and up to 20 million tons per year by 2050 for hydrogen. The Green Growth Strategy identified four key use cases: (i) power generation by hydrogenfuelled turbines, (ii) stationary fuel cells (for both industrial and household use), (iii) fuel cell vehicles (including hydrogen supply stations) and (iv) steel production by hydrogen. It also features the development of hydrogen carrier vessels for transportation and the water electrolysers for hydrogen production as the supply side priority targets.

The government’s proposed energy mix in 2050 also features hydrogen and ammonia as 10% energy source, together with the renewables for 50-60% and nuclear, CCUS and/or carbon recycling for 30-40%.

To achieve the proposed targets, the government created the “Green Innovation Funds” of up to 2 trillion yen budget capacity for 10 years commissioned to New Energy and Industrial Technology Development Organization of Japan (NEDO). NEDO have already launched the programs for (i) the hydrogen production through water electrolysis from renewable power sources and (ii) the large scale hydrogen supply chain development (including liquefication, transportation and combustion) in August 2021, and (iii) proposals have been invited in respect of the programs for the development of fuel use ammonia and steel production by hydrogen and the submitted proposals are under the evaluation process.

Click here for further information on the current thinking on use cases in Japan.

Netherlands

On 28 June 2019, the National Climate Agreement (Klimaatakkoord) was concluded. The main purpose of this agreement is to reduce greenhouse gas emissions in the Netherlands by 49% compared to 1990 levels. Hydrogen is expected to play an important role in the decarbonisation of the Dutch economy.

The Dutch Government has indicated that in the mid to long term, hydrogen can and must be able to carry out a number of critical functions within the energy and raw materials management system. In its Government Strategy on Hydrogen (Kabinetsvisie waterstof), the Dutch Government envisages that hydrogen will be an indispensable part of the sustainability strategy for industrial clusters and ports and the transport sector generally. Principal areas of focus include a carbon-free feedstock for the process industry and mobility, especially with regard to passenger transport for greater distances and heavy transport. Market participants are therefore preparing for a growing role for hydrogen, including through feasibility studies, the development of business cases and proposed investments.

The Dutch Government views blue hydrogen as a transitional replacement for grey hydrogen in industry and in the expansion of hydrogen infrastructure capacity. The North Sea industrial hub offers the potential for the Netherlands to develop a blue hydrogen market which would stimulate economic growth and the labour market. Green hydrogen can be further developed to be produced at scale during this transitional period.

Click here for further information on the current thinking on use cases in the Netherlands.

Poland

The Polish Hydrogen Strategy until 2030 with a perspective until 2040 was adopted by the Polish government on 2 November 2021.

The six core objectives are:

  1. Implementing hydrogen technologies in the energy and heating sectors;
  2. Using hydrogen as an alternative fuel for transport;
  3. Supporting the decarbonisation of industry;
  4. Producing hydrogen in new installations;
  5. Enabling efficient and safe transmission of hydrogen; and
  6. Creating a stable regulatory environment.

The ambition of the Polish government is to develop strong national and local competencies with regard to key components of the modern hydrogen technologies value chain. The strategy envisages that by 2030 Poland will have 2 GW of low-carbon hydrogen production capacity and at least five so-called hydrogen valleys.

In October 2021, representatives of the public sector, the academia and the private sector concluded an agreement to support the development of the hydrogen economy.

Click here for further information on the current thinking on use cases in Poland.

Portugal

The main “use cases” set out in the Portuguese Government’s National Strategy for Hydrogen (EN-H2) are the decarbonisation of the transport, industry and electricity sector. The Portuguese Government has declared that the main goal for the creation of a “hydrogen economy” is increasing the independence of the Portuguese energy sector by replacing imported fossil fuels with domestically produced green hydrogen.

The EN-H2 is particularly focused on the production of green hydrogen over blue hydrogen given the low production costs of solar energy and the geographical location of the country (large coastal areas).

More recently, the Portuguese Recovery and Resilience Plan (RRP), which provides for national implementation of the European Union’s recovery plan “NextGenerationEU” following the COVID-19 pandemic, has once again brought hydrogen to the spotlight and aims at implementing the EN-H2.

In line with the EN-H2, the RRP proposes an integration of hydrogen in all sectors of the economy, including the decarbonisation of the transport, electricity and industry sectors. In addition, the RRP highlights the potential role of hydrogen in the development of new technologies and overall technological progress, ultimately contributing to the country’s economic and employment growth.

Click here for further information on the current thinking on use cases in Portugal.

Spain

Spain is determined to become Europe’s leading green hydrogen producer and exporter, supplying a significant share of the continent’s industrial demand. Through the H2Med project (the EU’s first major hydrogen corridor), launched together with France and Portugal, Spain wants to be at the forefront of green H2 production and trading in the EU.

In October 2020, the Spanish Government approved the “Hydrogen Roadmap: a commitment to renewable hydrogen”, which set an interim goal of 300 MW to 600 MW of installed electrolysis capacity in 2024 before reaching at least 4 GW of installed capacity by 2030. 

Since it approved the Roadmap, the Spanish Government has doubled down on green H2 growth in Spain. The country now has several major hydrogen related projects in the pipeline which when commissioned in the coming years will lead Spain to easily surpass the 4 GW capacity goal.

Click here for further information on the current thinking on use cases in Spain.

 

UK

In June 2019, the UK Government committed to a target of achieving net zero greenhouse gas emissions by 2050.13 The overarching strategy for achieving this target is set out in the Clean Growth Strategy.14

The UK Government announced its hydrogen strategy on 17 August 2021 and by April 2022, it had doubled its ambitions by targeting up to 10GW of low carbon hydrogen production by 2030, with at least half of this coming from electrolytic hydrogen15.Along with its 2021 hydrogen strategy, the UK Government launched consultations on: (i) a low carbon hydrogen business model, to be finalised  in late 2023; (ii) a £240 million Net Zero Hydrogen Fund; and (iii) a new low carbon hydrogen standard, which was introduced in 2022.

On 19 October 2021 the UK Government also announced its Net Zero Strategy, which included the establishment of a new Industrial Decarbonisation and Hydrogen Revenue Support (the “IDHRS”) scheme to fund new industrial carbon capture and hydrogen business models. The £140 million scheme will initially commit to providing up to £100 million to award contracts of up to 250 MW of electrolytic hydrogen production capacity in 2023 with further allocation in 2024. The IDHRS will result in up to 1.5 GW of low carbon hydrogen contracts awarded to projects. 

On 30 March the UK Government announced a shortlist of low carbon hydrogen projects, targeted to receive funding or support under the hydrogen business model and Net Zero Hydrogen Fund. The shortlist contains a total of 408MW of electrolytic hydrogen production capacity, with support contracts to be awarded in Q4 2023 and the first projects expected to be operational in 2025.

Click here for further information on the current thinking on use cases in the UK.

 

13 Section 1 of the Climate Change Act 2008
14 The Clean Growth Strategy: Leading the way to a low carbon future, October 2017 as amended April 2018
15 Hydrogen Strategy update to the market: July 2022 [https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1092555/hydrogen-strategy-update-to-the-market-july-2022.pdf]

U.S.

The U.S. federal government has set ambitious targets to reduce greenhouse gas pollution from 2005 levels by 50 to 52 per cent in 2030 under the Paris Climate Agreement, achieve a carbon pollution-free power sector by 2035, reach net-zero emissions economy no later than 2050 and for 40 per cent of the benefits from federal climate investments to be delivered to disadvantaged communities. To achieve these goals, the administration has placed considerable policy emphasis on decarbonisation through the use of different technologies, which may favour the development of hydrogen as a viable solution in the coming years.

Most recently, President Joe Biden signed several executive orders and key pieces of legislation aimed at combatting climate change by promoting clean energy technologies, including hydrogen energy. Most notably, the Infrastructure Investment and Jobs Act ("IIJA") (also known as the Bipartisan Infrastructure Law) and the Inflation Reduction Act, were passed by Congress and signed by President Biden on 15 November 2021 and 16 August 2022, respectively.

Among other things, the IIJA required the Department of Energy ("DOE") to develop a national roadmap to facilitate widescale production, processing, delivery, storage and use of clean hydrogen. On 5 June 2023, DOE released the National Clean Hydrogen Strategy and Roadmap, which builds on earlier clean hydrogen initiatives, including The Hydrogen Program Plan and Hydrogen Energy Earthshot, and reflects the U.S. federal government’s current approach to tapping clean hydrogen as part of its broader decarbonisation strategy. The Hydrogen Roadmap enumerates DOE’s three strategies for tackling the challenges and enabling the benefits of clean hydrogen and the four main use cases for clean hydrogen.

Click here for further information on political considerations that are shaping clean hydrogen policy in the U.S.

Australia
Belgium
China
The EU
France
Germany
Italy
Japan
The Netherlands
Poland
Portugal
Spain
UK
U.S.
Part 3

Hy-ly-Demanding? How to create supply and demand at the same time

Public and private stakeholders are increasingly convinced by the arguments as to “why” low carbon hydrogen has the potential to resolve some of their most fundamental challenges.

So now policymakers, often supported by the private sector, are turning their attention to the thorny “how” question. How to overcome the barriers to deployment we identified earlier in this series?

The right policy design will vary from country to country with the detail of what that country is trying to achieve and the domestic political context.

The immediate thought may be to replicate incentives and mechanisms that have, on the whole, been very successful in driving earlier phases of the energy transition, most notably the shift from thermal to renewable electricity.

However, although there is valuable experience to draw on, it is hard to escape the conclusion that previous regulatory incentives are unlikely to be easily transferable to a hydrogen context if the objective is successful deployment at scale.

“There is no immediate prospect of markets becoming sufficiently liquid for short term or spot contracts to provide any form of mitigation that would support investment or financing.”
Part 4

Hy-achieving - creating a suitable incentive regime

To identify a framework or business model for clean hydrogen, policymakers need to have a clear sense of where they are trying to get to. They need to have a hydrogen strategy.

They will need an incentive regime and that a successful business model may need to include a direct subsidy for hydrogen production (rather than a downstream incentive) given:

  • the need to right-size support for specific technologies, and, in the early stages, even specific projects, that meet policy objectives; and
  • the need to address legitimate concerns of investors and funders, being not just price but also the mitigation of cross-chain availability and stranding risks and the credit of downstream participants.

Below we consider the structures that various jurisdictions are considering or have implemented.

Australia  •  Belgium  •  China  •  The EU  •  France  •  Germany  •  Italy  •  Japan  •  The Netherlands  •  Poland  •  Portugal  •  Spain  •  The UK  •  The U.S.

Australia

The Federal Government has developed, and consulted with industry in respect of, a proposed approach to the development of a ‘Guarantee of Origin’ scheme for hydrogen. This scheme would implement a standardised process of tracing and certifying where and how hydrogen is made and associated environmental impacts.36 Trials are being conducted by the Clean Energy Regulator throughout 2022 and 2023 with the aim of testing and verifying the scheme's design. 37

Currently, the main method of incentivising the use case is government funded financial support provided directly to project developers.38 The Federal Government included funding to accelerate the development of clean hydrogen hubs in regional Australia in the 2021-2022 budget, with further funding for regional hydrogen programs included in the 2022-23 budget, bringing the Australian Government's planned investment in hydrogen hubs to $525 million.39 Accordingly, it is the taxpayer who pays for the chosen method of incentivising the use case. Whether this is the incentive model that continues to prevail as hydrogen gains traction and becomes more established in Australia remains to be seen. The Federal Government has indicated their intention to step back and let the market take over as the hydrogen industry matures.40

Click here for further information on the current thinking on incentives in Australia.

Belgium

The industry and transportation use cases in Belgium (i.e. use of hydrogen as a fuel and/or feedstock for the industry) could be incentivised through different supply- and demand-side measures.

Direct funding is available for hydrogen (pilot) projects at various stages of the value chain, both under EU and Belgian instruments. A number of Belgian hydrogen projects have also been selected as Important Projects of Common European Interest (IPCEIs) under the Hy2Tech and Hy2Use IPCEI calls, meaning they can benefit from pre-approved state aid. The federal government in its Hydrogen Strategy has also put forward the possibility of indirect support through tax credits and exemptions from taxes, excise duties and surcharges.

A key question in the Belgian context is the treatment of hydrogen transport networks. As part of its updated Hydrogen Strategy, the federal government in a first stage frees up EUR 395m under the Belgian Recovery and Resilience Plan for the development and construction of 100 to 160 km of additional (new and/or repurposed) hydrogen pipelines, part of a future European hydrogen backbone connecting the port industry clusters, by 2026, and an interconnection with Germany to be completed by 2028.

There is broad support among industry players for a regulated asset base (“RAB”) model, pursuant to which the regulated network operators are tasked with adapting their existing network and/or developing a new dedicated hydrogen network, which will guarantee market participants open access to the (existing and future) infrastructure for the benefit of their own core businesses. The cost of this would be ultimately borne by consumers, through the (gas and/or hydrogen) transport and distribution tariffs.

The Belgian federal government has followed suit with its intention to a appoint a single hydrogen network operator (“HNO”) to own, develop and operate a dedicated and interconnected hydrogen transport network (part of a European backbone) under an RAB model with open access and regulated tariffs. The recently approved Hydrogen Bill4 effectively introduces this model. It also gives the federal Energy Minister the possibility to grant investment subsidies to the HNO for the development of the hydrogen transport network.

For the buildings and power sectors, support for hydrogen could be focused, amongst other things, on measures to promote the development of electricity storage solutions for grid balancing and combined heat and power (cogeneration) applications for buildings. These can be incentivised through demand-side mechanisms, such as the already existing CHP certificates schemes in the three regions, as well as supply-side mechanisms, such as the federal capacity remuneration mechanism in Belgium, which takes the form of a reliability-options scheme (comparable to contracts for difference) and is intended to be technology neutral.

Click here for further information on the current thinking on incentives in Belgium.

China

The Chinese central government has implemented various incentive regimes to support the hydrogen energy industry over the years, which mainly focused on fuel cell vehicles. 

After the release of the 2021-2035 Plan, certain local governments in China implemented various incentive programs and policies to support their local hydrogen energy industry. For instance, in August 2022, Beijing released its local policies launching 20 initiatives, covering various aspects including the research, development and innovation of technologies, infrastructure development, talent attraction, incubation, financing and investment of hydrogen energy enterprises, etc. 

EU

When it comes to supporting hydrogen projects, the role of the European Union is two-fold: On one hand it sets the framework of the hydrogen policy of its member states – especially in the field of state aid – but also offers own support schemes for stakeholders along the hydrogen value chain. Many of the policies and instruments are interlinked on EU and national levels. Key funding instruments at EU level are:

Hydrogen Bank: In March 2023 the Commission presented its communication on a Hydrogen Bank (COM(2023) 156 final) as an key instrument to support the hydrogen sector. The Hydrogen Bank is built on four pillars, two of which provide funding for producers of RFNBOs: 

  • Domestic pillar: Under the domestic pillar the Commission will hold tenders for hydrogen projects located in the European Economic Area (EEA). The successful bidders will bid for a fixed premium to be paid for each kg of RFNBOs on top of the revenue from the sale of the RFNBO. The first tender round with a support volume of €800m from the EU Innovation Fund is scheduled for November 2023. The Member States shall be given the opportunity to top up the Innovation Fund to support additional hydrogen projects in their territory during the course of the tenders (‘auction-as-a-service’).
  • Import pillar: The Commission stated in the communication that it would – taking into account existing import support schemes in the EU Member States – develop a coordinated EU strategy for renewable hydrogen imports with the aim to cover the cost gap between imported RFNBOs and the fossil fuels they can replace within the EU.
    In May 2023, the EU Commission and the German Federal Ministry for Economic Affairs announced that the existing German import scheme H2Global will be opened to all EU Member States interested in running their own hydrogen tenders. In addition, the Hydrogen Bank and H2Global plan to jointly develop a European auction targeting international hydrogen imports. 

PCIs: Hydrogen networks and electrolysers may be awarded the status of a Project of Common Interest (PCI) under the Trans-European Networks for Energy (TEN-E) Regulation. If a project can inter alia prove that it has a significant impact on at least two EU countries, enhances market integration and contributes to the integration of EU countries' networks and enhances security of supply it will receive PCI-status and may benefit from accelerated permitting procedures and funding, notably under the Connecting Europe Facility (CEF).

IPCEIs: Member States wishing to support hydrogen projects on their territory may notify these projects as Important Projects of Common Interest (IPCEI) to the Commission. The projects need to prove that they overcome market failures, enable breakthrough innovation in key sectors and technologies and infrastructure investments, with positive spill-over effects for the EU economy at large. Relating to hydrogen, 22 member states and Norway have applied with joint lists of hydrogen projects: H2Tech, H2Use, Hy2Infra and Hy2Move.

Click here for further information on the current thinking on incentives in the EU.

France

Hydrogen is an R&D priority in France’s 2018 multiannual energy programme (programmation pluriannuelle de l’énergie or “PPE”), the country’s energy roadmap for the coming decade. Measures for promoting hydrogen in the PPE include direct government funding for pilot projects and the mobilisation of public and private finance and standardised co-financing models for projects.

The French hydrogen strategy has been allocated €7.2 billion for the period up to 2030, supplemented by €1.9bn additional support. The Government intends to encourage the development of a clean hydrogen sector through financial support for individual projects and investment in research and development. The French State, through various channels, has already or is in the process of launching several calls for projects to achieve these objectives.

The French State has adopted legislation covering decarbonised hydrogen which, inter alia, (a) defines hydrogen types according to their mode of production (renewable or low-carbon), (b) organises a mechanism of guarantees of traceability or origin to attest to the type of hydrogen produced (similar to the guarantees of origin mechanism for renewable energy) and (c) provides for a State support mechanism, for the production of renewable or low-carbon hydrogen.

The support mechanism will require state aid clearance from the European Commission, although some call for projects have already been launched based on the block exemption regulation. Application decrees are in preparation and are expected to be published in the course of 2023.

Click here for further information on the current thinking on incentives in France.

Germany

The German government considers that, in the long term, hydrogen and the electricity required for hydrogen should be financed by the sector that consumes the hydrogen. To promote the establishment of a fully functioning market for hydrogen products, Germany has introduced various incentives, support measures and regulatory support which support hydrogen across the value chain: 

  • By mid-2023, over 50 German projects had received an IPCEI status under the funding rounds H2Tech, H2Infra and Hy2Use, with a funding budget of more than €19bn. In addition, 15 projects were notified under EU state aid rules in the field of hydrogen use. 
  • The state funded H2Global auctions aim to make green hydrogen available on the German market by bridging the gap between import and offtake price. To this end, the investment vehicle HINT.CO holds tenders for imports of green hydrogen produced outside the EU and tenders for the re-sale of the imported hydrogen.
  • Investments necessary to decarbonise industrial processes through the use of green and low-carbon hydrogen will (subject to state aid clearance), be eligible for funding under a newly introduced carbon contracts for difference scheme (so-called climate protection agreements – Klimaschutzverträge) which will cover the higher cost to change to less emitting production processes but will also take into account the sunk costs for EU ETS certificates. Should savings from lower EU ETS burden overcome the extra costs for operating the retrofitted plant, payments will flow from the plant operator to the state.
  • Measures to incentivise the consumption of clean hydrogen have been introduced including imposing more stringent carbon saving quotas on the road transport and aviation sector.
  • Measures to incentivise the production of clean hydrogen, such as exemptions from surcharges and grid fees for electricity required to produce (green) hydrogen, exist.
  • Different tender schemes related to the production of renewable hydrogen have been introduced but – due to missing implementing legislation – have not yet been activated (e.g. regarding offshore production or innovation tenders) 
  • In principle, the costs of setting up a pure hydrogen network should be borne by the hydrogen consumers. However, in order to avoid very high costs in the build up phase of the hydrogen core network, it is considered that these costs should be charged to a provisional account and only gradually included in the network charges.

Click here for further information on the current thinking on incentives in Germany.

Italy

Hydrogen plays a key role in the Integrated National Plan for Energy and Climate approved in December 2019, in order to reach the targets of energy efficiency and reduction of CO2 emissions to be achieved by 2030. Hydrogen is considered essential to contribute to decarbonisation of the commercial transportation and a fundamental element for power storage and production (particularly power to gas). Italy also joined the Renewable and Clean Hydrogen Innovation Challenge within the “Mission Innovation” project, a global initiative of 24 countries and the European Union, aimed to increase private and public investments in clean energy and international collaboration to accelerate global clean energy innovation and the development of a global hydrogen market. The members of “Mission Innovation” have committed to seek to double public investment in clean energy R&D and are engaging with the private sector.

In addition, as anticipated above, the Italian Recovery Plan has specifically allocated €3.19bn for promoting the production and distribution of hydrogen in order to contribute to the achievement of the decarbonisation target. In March 2023, the Ministry of the Environment and Energy Security announced the start of the selection process of industrial projects for the replacement of fossil fuels with low-carbon hydrogen, granting up to around €1bn.

The national hydrogen development strategy has been also strengthened by the adoption of Law Decree no. 36/2022 which introduced, inter alia, the following regulatory measures:

a) exemption from excise duty (accise) for the hydrogen not directly used as fuel in heat engines; and

b) exemption from the power system charges (oneri generali) for the energy produced by renewable energy plants and used for the production of green hydrogen, even if transferred by the national power grid.

Notwithstanding the above-mentioned measures, an organic, long term and well-structured hydrogen strategy is expected to be adopted by the Government in the coming months. 

Click here for further information on the current thinking on incentives in Italy.

Japan

In Japan, funding and financing support for clean hydrogen projects are available from key government organisations and it is anticipated that financing support from Japan Bank for International Cooperation (“JBIC”), Nippon Export and Investment Insurance (“NEXI”) as well as JOGMEC would be available to support commercial scale hydrogen projects where the projects have significant Japanese participation, including as sponsors, contractors or off-takers.

In addition to the initiatives taken by the governmental organisations, financial support has been made available by the Japanese Government to the consumers to incentivise the purchase of fuel cell vehicles.

In addition, as a part of Green Growth Strategy, JBIC created the “Post-corona Growth Facility” of up to 1.5 trillion yen. NEXI also announced on 4 October 2021 its new approach for risk assessment under which transactions promoting environmental protection and climate change initiatives may be assessed with a higher credit rating and lower insurance premium. The government is also offering tax benefits for introduction of certain facilities contributing to decarbonisation.

Click here for further information on the current thinking on incentives in Japan.

Netherlands

A substantial hydrogen programme for the Netherlands is to be initiated under the Dutch Climate Agreement. The programme will chiefly focus on unlocking the supply of green hydrogen, the development of the necessary infrastructure and the facilitation of initiatives and projects. The programme does not focus on the development of demand for hydrogen directly – that responsibility is more closely related to the various proposals being developed by the relevant sectors, in particular (a) built environment, (b) mobility, (c) industry and (d) electricity. The work plan for this National Hydrogen Programme (Nationaal Waterstof Programma) was published on 7 July 2021. This work plan prioritises and includes a time path for actions to be taken in the period 2022-2025 and a look through to 2030. Three (3) key focus tracks are identified: (i) upscaling offshore production of green hydrogen for the benefit of the Dutch harbour areas, industrial clusters and heavy transport; (ii) development of decentralised hydrogen opportunities; and (iii) conditions indispensable to realise the current hydrogen ambitions. The work plan will be transformed into a hydrogen route map by the end of 2021.

Since autumn 2020 the Stimulation of Sustainable Energy Transition (the “SDE++”) scheme entered into force. Effectively, this subsidy scheme broadens the former SDE+ regime to ensure that, in addition to renewable energy, other CO2 reduction technologies will also become eligible for subsidies. Hydrogen projects by means of electrolysis are eligible for SDE++ subsidies in autumn 2021 provided certain conditions are met. Subsidies will be provided up to 2.940 full load hours in 2021 up to 5,000 full load hours as from 2026.

With effect from 1 January 2021, and as part of the Dutch Climate Agreement the Dutch Government pushes major industrial polluters to decarbonize their production processes. In this context, the Dutch Government introduced a top-up CO2 levy (CO2-heffing) for industrial companies in the Netherlands. The CO2 tax levy rate will be EUR 30 per tonne of CO2 equivalent from 1 January 2021. This rate will increase linearly by EUR 10.56 a year until 2030, so it will be EUR 125 per tonne of CO2 in 2030. In addition, a legislative proposal for the introduction of a minimum carbon price for the production of electricity (Wet minimum CO2-prijs elektriciteitsopwekking) is currently pending with Dutch parliament. in order to provide a further incentive to reduce CO2 emissions resulting from electricity generation.

Click here for further information on the current thinking on incentives in the Netherlands.

Poland

The regulatory framework for hydrogen in Poland is in the early stages of development, and the incentive scheme for development of hydrogen-based technologies has not been adopted yet.

The Polish government estimates that in the 2030 perspective, the required capital expenditures will amount to approximately PLN 14.8 billion (approx. €3.2 billion), but also notes that hydrogen-based projects will have to compete for financing with IT and chemistry programmes. Detailed plans for funding programmes focused on hydrogen projects will be announced in the coming weeks (as part of the hydrogen strategy which has just been adopted). Despite strong governmental support, there is still plenty of room for outside funding of hydrogen-based projects in Poland.

Click here for further information on the current thinking on incentives in Poland.

Portugal

In the EN-H2, the Portuguese Government has focussed on public and private European and National financing sources as the route to incentivising clean hydrogen. The EN-H2 also highlights other support mechanisms that will promote the development of a hydrogen economy and which may be implemented in the future, including exemptions for hydrogen producers from grid use tariffs, subsidies for hydrogen producers for the “overcost” of producing hydrogen and guarantees of origin.

Some of these support mechanisms have already received formal policy endorsement, including the amendment of the guarantees of origin legal framework to include “low carbon gases and for gases of renewable origin” which would include clean hydrogen.

In the context of the PRR, the choices and proposed allocation of funds from the Recovery and Resilience Facility are designed in line with the Annual Sustainable Growth Strategy 2021 (COM/2020/575 final of 17 September). In this respect, this means “accelerating emission reductions through the rapid deployment of renewables and hydrogen” and giving “priority to the most advanced and innovative projects to accelerate deployment of renewable energy”.

The PRR thus proposes investing:

  • €185M in the production of renewable gases, technologies that have been tested and are not yet sufficiently spread in the national territory — for self-consumption and/or injection in the natural gas distribution grid — maximum €15m per project;
  • €2M in the installation of 2 pilot areas of local production and hydrogen charging in the Businesses Location Areas (Áreas de Acolhimento Empresarial) for heavy vehicles fleets (passengers, waste, logistics, etc.).

On 28 September 2021, the Portuguese government launched the first call for tender worth €62M under the program “Support for the production of renewable hydrogen and other renewable gases”. This call aims at subsidising the production of the first 88 MW of hydrogen production capacity.

Click here for further information on the current thinking on incentives in Portugal.

Spain

Spain wants to be at the forefront of the race for energy transition, leading the development of renewable energies and striving to be a benchmark in hydrogen as well.

To achieve this goal, various steps have been taken to identify the challenges and opportunities for the development of renewable hydrogen in Spain, as well as specific measures aimed at boosting investment. In addition to the Hydrogen Roadmap, there is the Integrated National Energy and Climate Plan 2021-2030 which is currently being revisited to make the original targets more ambitious.

Moreover, specific public funding to promote green hydrogen projects has been approved. Of particular note is the Strategic Project for Economic Recovery and Transformation (PERTE, in Spanish) relating to renewable energies, renewable hydrogen and storage, with EUR 6.9 billion of public funds, 22% of which will be expressly dedicated to hydrogen.

Click here for further information on the current thinking on incentives in Spain.

UK

Unlike the EU, the UK’s hydrogen strategy adopts the “twin-track approach” of catering for both blue and green hydrogen, with the government committed to supporting early stage and cost-effective blue hydrogen projects whilst the costs of green hydrogen are decreasing.

The UK Government has proposed a contractual support model to incentivise hydrogen production, borrowing heavily from the UK’s CfD regime for renewables. By utilising a contractual support mechanism similar to the CfD regime for renewables, the UK Government hopes that it will see a clean hydrogen revolution, akin to the success and rapid expansion of renewable power generation in the UK. Under this model, the UK Government has sought to mitigate two key risks: (i) market price risk (the risk that production costs are high compared to the market price achieved); and (ii) volume risk (the risk that producers cannot sell enough hydrogen to cover their costs).

Initially, projects have been selected to enter bilateral negotiations before being awarded contracts; however, the UK Government has acknowledged the broad support from industry for a more competitive allocation process in the medium term 16, and has set out its ambition to move to price competitive allocation by 2025 as soon as legislation and market conditions allow17.

The UK Government is also considering a range of policies to create a demand for hydrogen production, such as carbon pricing, sustainability standards, and sector-specific policies such as the Renewable Transport Fuel Obligation (the “RTFO”) in transport. 

In 2022, the UK Government announced a low carbon hydrogen standard to help incentivise hydrogen production and investment. The UK Government has also published the Hydrogen Sector Development Plan in 2022, which sets out the actions that are being taken by the UK Government, industry and others in the realisation of a UK hydrogen economy. 

Click here for further information on the current thinking on incentives in the UK.

 

16 ibid, [https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1092555/hydrogen-strategy-update-to-the-market-july-2022.pdf]
17 British Energy Security Strategy policy paper, 7 April 2022 [https://www.gov.uk/government/publications/british-energy-security-strategy/british-energy-security-strategy]

U.S.

Recent federal legislation has provided various tax credits that will help boost the development and deployment of hydrogen in the U.S. The Inflation Reduction Act of 2022 ("IRA") creates a 10-year production credit and an investment tax credit for facilities that produce clean hydrogen if certain criteria are filled. In addition to such tax incentives for hydrogen producers, an electricity-producing facility powered by hydrogen may qualify for a 10-year production tax credit or a technology-neutral investment tax credit if certain criteria are fulfilled. Energy storage technology (other than certain transportation-related property), including that which uses hydrogen to store energy, can also qualify for an investment tax credit under the IRA if certain criteria are fulfilled.

U.S. federal initiatives and incentive regimes have been created under the IIJA to boost the development and deployment of hydrogen. The Regional Clean Hydrogen Hubs program ("H2Hubs") is a US$8 billion federal initiative introduced under the IIJA, including up to US$7 billion to establish six to 10 regional “clean hydrogen hubs” across the U.S. On 13 October 2023, DOE announced its selection of seven projects, out of 79 initial proposals submitted, for award negotiation. The selected regional hydrogen hubs span 16 states and involve hundreds of partner companies. The projects that successfully complete the negotiation phase will move into a four-phased development structure with a phased release of DOE funding. In addition, on 5 July 2023, DOE released a Notice of Intent and a Request for Information to invest up to US$1 billion in a demand-side support mechanism to support the H2Hubs. DOE also released a Request for Proposals on 14 September 2023, seeking an independent entity to administer the demand-side initiative. Responses were due on 2 November 2023 with DOE selection notifications expected on 30 November 2023.

There are also federal and state programs that incentivise the development and deployment of hydrogen. DOE’s Loan Program Office, through its Title 17 Clean Energy Financing Program, provides financing for qualified projects in the U.S. that support, among other things, clean energy deployment. Eligible projects can include alternative vehicle fuel distribution facilities (e.g., hydrogen) and hydrogen production/infrastructure, and the loans can cover up to 80% of the anticipated eligible project costs. States, such as California and Oregon, also provide credits when hydrogen is used as a transportation fuel.  

Click here for further information on the incentives in the U.S.

Australia
Belgium
China
The EU
France
Germany
Italy
Japan
The Netherlands
Poland
Portugal
Spain
UK
U.S.
Part 5

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

In previous chapters, we have considered the framework or business models which governments may implement in order to develop a clean hydrogen market and incentivise production at scale. However, it is essential that, in tandem with the development of broad policies to incentivise the use cases, governments implement the regulatory changes which are needed to enable and realise these use cases. A cohesive hydrogen strategy must include consideration of the extent to which existing regulation of the infrastructure needed to develop the hydrogen market is fit for purpose and sufficient to support the government’s policy aims.

Below we will consider the extent to which suitable regulatory regimes are ready in each country to receive hydrogen for the use cases identified in earlier chapters.

Australia  •  Belgium  •  China  •  The EU  •  France  •  Germany  •  Italy  •  Japan  •  The Netherlands  •  Poland  •  Portugal  •  Spain  •  The UK  •  The U.S.

Australia

The current regulatory landscape does not explicitly accommodate the creation of a hydrogen market in Australia.47 While some existing legislative frameworks are likely to apply to the hydrogen industry, it is probable that further regulatory reform will be required to specifically target the needs of large-scale hydrogen production.48

Click here for further information on the current thinking on regulations in Australia.

Belgium

The regulatory context in Belgium is layered given its federalist structure. Large scale import, transport (at high and very high pressure), production and storage of hydrogen can be considered to fall under federal competency, whether the hydrogen is green, grey or anything in between. Everything else, including the public distribution (at medium and low pressure), supply (whether or not to household consumers and regardless the size of the infrastructure) and small-scale storage and production (not having a substantial impact on the security of supply) are a competency of the regions. The same holds true for the (re)production of electricity from green hydrogen as a renewable energy source, as well as most environmental rules and regulations (including the issuance of building and environmental permits). Requirements therefore differ between the three Belgian regions. As a consequence, different public authorities and government entities, regulators and regulated operators have a role to play across different sections of the value chain, applying different rule sets. While the various governments have attempted to address this, considerable gaps and inconsistencies remain in both policymaking and its application around hydrogen.

Belgium has set up a National Policy Framework “Alternative fuels infrastructure” in which the policies and ambitions of the different government levels are brought together. On 7 December 2020, a bottom-up hydrogen strategy for the Flemish Region was published by the Waterstof Industrie Cluster (part of WaterstofNet), a sector organisation. On 14 October 2022, the federal government published its updated Hydrogen Strategy. For various reasons, the federal government in its Hydrogen Strategy dismissed the option of mixed natural gas and hydrogen networks as a viable long-term solution. Instead, the government made a clear policy choice to support the development of a dedicated hydrogen transport network by subjecting it to a more comprehensive and coherent stand-alone regime and to regulate this as a business similar but separate to natural gas transport today. To this end, on 6 July 2023, parliament approved the final text of the federal government’s proposed Hydrogen Bill. That said, progress towards a uniform and clear regulatory framework throughout Belgium relating to alternative fuels, including hydrogen and derivatives, remains slow and complex.

The key pillars of the Hydrogen Bill are:

  •  the appointment of a single hydrogen network operator to own and/or operate an integrated hydrogen transport network of interconnected pipelines, responsible for network development planning, granting open, transparent and non discriminatory access to third parties on the basis of regulated tariffs and subject to unbundling requirements;
  • a co-existent derogatory regime for existing hydrogen networks, including expansions thereof; and
  • monitoring and supervision by the CREG, with the power to impose sanctions.

The scope of the Hydrogen Bill is limited to hydrogen transport installations. Due to uncertainty regarding the required or optimal infrastructure for the related terminal, storage and reconversion activities, the Hydrogen Bill does not (yet) cover the organisation of these activities in order to let the market determine the most appropriate model first. Nor does it cover any regional activities such as supply and distribution. Unlike the federal government, the regions have not yet started working on a corresponding framework for hydrogen distribution.

Other important regulatory topics for hydrogen in Belgium include product standards, quality control and the need for a clear taxonomy for new gases and certain technologies (e.g. the different colours of hydrogen, CCS/U, biofuels/-gases and molecular energy) to be established at EU level, permitting and public use (including a new specific hydrogen transport license requirement introduced under the Hydrogen Bill), and an evolving and sufficiently tailored health and safety framework.

Click here for further information on the current thinking on regulations in Belgium.

China

The regulatory framework for hydrogen energy in China is at an early stage of development. There are no comprehensive laws enacted by the National People's Congress or national regulations promulgated by the State Council specifically focused on hydrogen energy. At this stage, national and local policies play more regulatory roles than laws and regulations per se in China. Certain laws and regulations may apply from different aspects, such as PRC Environmental Protection Law which regulates the prevention and control of pollution caused by the hydrogen energy industry. Certain safety regulations and technical standards may also provide guidance on the safe production, transportation, storage, and use of hydrogen energy, such as the Basic Requirements for Hydrogen System Safety issued in December 2022. 

Furthermore, certain local governments in China have also issued various policies to regulate their local hydrogen energy industry, such as Chengdu, Foshan, etc.

EU

In its 2020 Hydrogen Strategy the EU Commission set out a list of 20 action points, which it declared to be fulfilled in 2022. And indeed, many legislative projects at EU level have been introduced since then, some of which have already crossed the finish line, while others haven't. 

Perhaps most notably, in 2021 the Commission presented its 'Fit for 55' package, which included a series of legislative and policy proposals to enable the EU to meet its commitment to reduce greenhouse gas emissions by 55% by 2030 compared to 1990 levels. Although not exclusively focused on clean hydrogen the Fit for 55 package included a number of legislative proposals with the potential to significantly boost the development of the clean hydrogen economy in the European Union, including:

  • an amendment of the current renewable energy directive (from RED II to RED III) which, in addition to substantially raising the overall goal of renewable energy sources in the system, extend the definition of renewable fuels of non-biological origin (RNFBOs – i.e. “green” hydrogen products) from the transport sector to other industry sectors; introduce a targeted 50% share for RFNBO for hydrogen used in the industrial sector by 2030; and a common targeted 5.5% share of RFNBOs and biofuels in the transportation sector. After tough negotiations the final text of the RED III was passed in autumn 2023;
  • a revision of the gas market directive and regulation which will bring a definition of low-carbon hydrogen, contain rules on blending of hydrogen into natural gas grids and introduce special rules for pure hydrogen networks, e.g. for unbundling, third party access and network planning; 
  • a target of one hydrogen refuelling station available every 200 km along the TEN-T network in the alternative fuels infrastructure regulation (AFIR); 
  • maximum carbon intensity proposals for the shipping sector (ReFuel Maritime) and minimum blending requirements for sustainable aviation fuels (SAFs) in the aviation sector (ReFuel Aviation); and
  • changes to the European Emissions Trading System (EU ETS) broadening the scope for free allowances for hydrogen from different sources and the introduction of a Carbon Border Adjustment Mechanism (CBAM): From 2026, specific imported commodities (including iron, steel, cement, aluminium, fertilizers, electricity, and hydrogen) will need to pay for the direct (and eventually indirect) emissions caused by their products based on a life-cycle approach (until then only reporting obligations apply).

In 2023 two important delegated acts on RFNBOs clarifying the requirements for green hydrogen products set out in RED II, came into force:

  • the first delegated act (DA I) establishes the requirements for the electricity source for the production of RFNBOs. In particular, it stipulates that (after a phase-in period) the electricity for the electrolysis must come from clearly identifiable renewable energy installations that are not much older than the electrolyser, and that the electricity and hydrogen must be produced in the same time periods.  
  • the second delegated act (DA II) provides details on how to calculate the required 70% emission reduction of over the life-cycle of an RFNBO, including rules on permissible carbon sources for the production of hydrogen derivatives.

Alongside (and to some extent interlinked with) the definitions of low-carbon hydrogen in the gas market package and RNFBOs in the RED, is the definition of “sustainable hydrogen” which is important under the Taxonomy Regulation for the disclosure of companies subject to reporting and the labelling of financial products. 

Another open issue is the lack of officially recognised certification mechanisms for RFNBO allowing for mutual recognition of RFNBOs produced in different places all over the world. The private CertifHy scheme has sought to create a Guarantees of Origin (GO) scheme that is capable of running on an EU-wide basis, with a view to – as CertifHy itself puts it – avoiding “bottom-up developments of inconsistent national GO schemes that can hamper establishing an effective European market for Green and Low-carbon Hydrogen (as is currently the case for biomethane/biogas)”.

Finally, it should be borne in mind that not all EU legislation (such as directives) is directly applicable in the Member States, but has to be transposed into national law. Even directly applicable legislation often needs to be accompanied by national legislation. For example, where RED II sets general sectoral targets for RNFBOs or emission reductions, it is up to Member States to decide how to implement them - rather than requiring stakeholders to meet specific quotas, they are free to use a range of policy instruments to help achieve the RED II targets.

Click here for further information on the current thinking on regulations in the EU.

France

On 17 February 2021, France adopted an ordinance in order:

  • to define the terminology of the different types of hydrogen according to the energy source used for its production (renewable, low-carbon or carbonised hydrogen);
  • to allow the production, transport, storage and traceability of renewable or low-carbon hydrogen; and
  • to define a support framework applicable to hydrogen produced from renewable energy or by electrolysis of water using low carbon electricity.

The specifics of the traceability mechanism and support framework are to be set out in an upcoming decree (for which no timeline has been provided yet).

Hydrogen refuelling points qualify as classified facilities for the protection of the environment, which results in a specific regulatory treatment for these facilities.

Click here for further information on the current thinking on regulations in France.

Germany

Germany has begun to adapt and enhance the existing legal framework to accommodate hydrogen, albeit some legislation – mostly executing ordinances – is still missing. Fields of legislative activity inter alia consider the following fields (other than already described in part 4):

Network planning and regulation

Legislation is currently being drafted to include provisions for the planning of the hydrogen core network in the Energy Industry Act (EnWG). The German gas TSOs, in coordination with the Federal Network Agency (BNetzA), will be tasked with developing the hydrogen starter network within an ambitious timeframe of less than one year in total - which they may still be able to meet, as they have already started the planning process without waiting for the legislation.

Regarding the regulation of pure hydrogen networks, the government has chosen a gradual approach: As an initial step, hydrogen network operators can opt to become subject to regulation for their entire hydrogen network if BNetzA has confirmed an adequate need for its hydrogen infrastructure. If an operator opts into regulation, certain obligations will apply, regarding e.g. grid connection and grid access. 

Regardless, 

  • operators of hydrogen networks may not own electrolysers or storage facilities (unbundling).
  • network tariffs to be levied from the hydrogen network users have to be non-discriminatory and cost-based (planned vs. actual cost), but are not subject to approval by BNetzA.
  • permits and easements for gas networks that are converted for the transportation of hydrogen are grandfathered.
Defining different types of hydrogen and gas guarantees of origin

Regarding using green hydrogen products for reducing greenhouse gas (GHG) emissions in the fossil fuel mix for road and aviation transport, a draft ordinance (the 37. BImSchV) has been published by the Federal Ministry of the Environment which closely mirrors the European definition of the DA I (see above).

Although the Renewable Energies Act (EEG) contains a definition of green hydrogen, many provisions relying on this definition cannot currently be put into practice because the required implementing ordinance to be issued by the Federal Government has not yet been put in place. 

For the purpose of issuing guarantees of origin (GO) for gas from renewable sources and for low-carbon gases, an Act on Gas and Heat GOs (HkNRG) has been enacted. An implementing ordinance is yet to be enacted. According to a first draft, GOs for low-carbon hydrogen products may be issued for hydrogen products that either fulfil the GHG reduction quota of the DA II to the EU RED or the sustainability criteria for the Climate DA to the EU Taxonomy regulation. For hydrogen products produced with renewable electricity stricter rules than for RFNBOs under the RED II DAs shall apply to receive a gas GO.

Clarifying different use cases for hydrogen

For new gas infrastructure (networks, power plants, LNG terminals) legislation has been introduced requiring them to be “hydrogen-ready” to avoid fossil lock-ins. 

For distributors of fossil fuels to the road transport and aviation sector, a GHG emission reduction obligation exists which both directly and indirectly incentivises the production of hydrogen products.

In addition, the current German government has put an emphasis on “technology-openness” when introducing rules for the decarbonisation of the passenger car fleet as well as for renovation of the building stock. E-fuels and hydrogen products will thus be the legally acknowledged means to reach GHG emission reduction goals in these sectors – whether these options are in the end the most economic viable solution is, however, debated.

Click here for further information on the current thinking on regulations in Germany.

Italy

Notwithstanding Italy has not adopted a comprehensive and harmonised legislation regulating the production, transport and use of hydrogen, the introduction of several law measures during last years has created a regulatory framework governing all the key aspects of hydrogen industry. In essence, hydrogen is still considered from a regulatory perspective as an industrial gas.

Injection of hydrogen into the gas grid is not generally permitted in Italy, though there is a specific pilot project currently underway to explore this possibility. Until recently, hydrogen production and handling for transportation purposes was regulated primarily by the Ministerial Decree of 31 August 2006, which posed extremely stringent safety measures on any plants for the storage of hydrogen. These measures were relaxed somewhat by a Ministerial Decree of 23 October 2018, which lowered the significant barriers to hydrogen transportation infrastructure deployment raised by the earlier Decree.

The installation of hydrogen fuel cells and refuelling stations is now experiencing significant growth, aided by the implementation of Legislative Decree no. 257/2016 which resulted in a significant simplification of the relevant authorisation procedures for refuelling stations and, ultimately, enabled vehicles using hydrogen fuel cells to be registered and sold into the Italian market.

In addition, certain regulatory changes have been recently adopted aimed at accelerating the environmental impact assessment procedures for the development of green hydrogen production plants. 

The national hydrogen development strategy has been also strengthened by the adoption of Law Decree no. 36/2022 which introduced, inter alia, the following regulatory measures:

a) exemption from excise duty (accise) for the hydrogen not directly used as fuel in heat engines; and

b) exemption from the power system charges (oneri generali) for the energy produced by renewable energy plants and used for the production of green hydrogen, even if transferred by the national power grid.

Click here for further information on the current thinking on regulations in Italy.

Japan

Liquefied or high-pressured hydrogen is regulated in a similar manner as LNG under the High Pressure Gas Safety Act and other regulations. General health and safety regulations under the Industrial Safety and Health Act apply to the industrial use of hydrogen.

The Japanese Government has been working on deregulating the hydrogen supply chain with a focus on the FCV industry, and there have been a number of improvements in the relevant statutes. The recent progress includes the disapplication of the regulations under the High Pressure Gas Safety Act where the safety of vehicles is secured by the regulations under the Road Transport Vehicle Act.

Distribution through existing gas pipelines is available in limited volumes. There are a limited number of short-distance inter-site pipelines that are dedicated to transportation of hydrogen.

Click here for further information on the current thinking on regulations in Japan.

Netherlands

Currently, there is no specific regulatory regime applicable to hydrogen in the Netherlands. Not surprisingly, the Dutch Government has designated the development of a legal and regulatory framework for hydrogen as a cornerstone for hydrogen development in the Netherlands.

The legal and regulatory framework regarding hydrogen will comprise the following matters which are currently being developed and worked on:

  • further to the HyWay27 report the Dutch Government intends to use part of the existing Dutch gas grid for the transport and distribution of hydrogen. A plan for the phased roll out of a nationwide hydrogen distribution network will be prepared and Gasunie will facilitate the infrastructure development;
  • a further examination of the regulation of the future hydrogen market;
  • a reliable system of Guarantees of Origin and certification.

In this context the Dutch Government investigates the setup of a national pilot for certification of hydrogen to create a first mover advantage (and against slow development at European level); and

  • further research and monitoring to better understand the scope and effective control of risks involved in hydrogen applications.

The Dutch Government considers it crucial that the relevant laws and regulations are to be implemented as soon as possible in order to be able to successfully kick start a hydrogen economy.

Click here for further information on the current thinking on regulations in the Netherlands.

 

11 Government Strategy on Hydrogen (Kabinetvisie waterstof), page 5 and 6.

Poland

The regulatory framework for hydrogen-based technologies is in the early stages of development, although a whole legislative hydrogen package is planned for 2022.

At the moment, Polish energy law does not mention hydrogen as a type of fuel. In addition, no technical and safety conditions relevant to the production and transmission have been established. Detailed assumptions of the hydrogen support system are unknown, and hydrogen certification procedures and authorities are still not in place. However, the government is currently working on all these areas and we can expect more precise information in the coming months.

The Polish government is currently proceeding with a bill to amend Poland’s Fuel Act to include hydrogen as a vehicle fuel. The bill was generally well received by the industry and is expected to be adopted later this year.

Click here for further information on the current thinking on regulations in Poland.

Portugal

The existing Portuguese legislation and energy sector-related regulation (issued by the energy sector national regulator ERSE, Entidade Reguladora dos Serviços Energéticos) has been recently amended to include possible injection of hydrogen in the natural gas distribution grid (Decree-Law 62/2020, dated 28 August).

Further to this amendment, ERSE approved a series of new regulations to complete the adaptation of the legal framework to the production and injection of hydrogen into the grid.

This legislative development will represent a further development in the main goal of achieving a carbon neutral economy by 2050.

Click here for further information on the current thinking on regulations in Portugal.

Spain

Since 2022, the Spanish Government has set out to create a regulatory framework for renewable hydrogen (focusing particularly on green hydrogen pipeline networks). The existing regulations enable renewable hydrogen production, transport and supply. However, this is not a specific dedicated regulatory framework and involves a variety of laws and regulations. It is the expectation that a specific framework for renewable gases will be further developed to simplify and streamline projects. 

In the same vein, in 2022 the Spanish Government approved various regulations to manage Guarantees of Origin for renewable hydrogen, biogas and any other renewably sourced gas.

Click here for further information on the current thinking on regulations in Spain.

UK

The production, transport and use of hydrogen currently attracts regulatory treatment as a hazardous material in the UK. This should therefore be considered in the planning and consenting process for any clean hydrogen project. 

Regulatory changes may be required to enable the blending of hydrogen into the existing natural gas network in the UK. It also seems likely that various contractual arrangements in the industry in relation to supply and billing will need to be amended, including potentially the charging methodologies that apply under the gas licences. Injecting gas with a higher hydrogen composition into the gas-grid may require end-user gas equipment to be adapted or replaced. The Energy Bill 2023 is expected to be enacted into law in 2023 and includes provisions providing for gas grid conversion trials to allow for hydrogen transportation and provides the legislative basis for the revenue support under the hydrogen business model.

In its 2021 UK Hydrogen Strategy, the UK Government stated that it would ensure the development of a regulatory framework (including rules on the environment, safety, markets, competition, planning and specific end uses) that supports the further expansion of the hydrogen market in the 2020’s and beyond. In April 2023, the UK Government launched a consultation on the development of offshore hydrogen pipeline and storage regulation, which ended on 22 May 2023. 

Click here for further information on the current thinking on regulations in the UK.

U.S.

The U.S. federal government recently proposed environmental regulations that would limit greenhouse gas ("GHG") emissions from fossil fuel-fired power plants and would also recognise co-firing low GHG hydrogen as a compliance pathway which could drive demand for green hydrogen in electricity generation. There are also initiatives at the state level and some initial steps by federal agencies to identify and encourage use of hydrogen as a more sustainable transportation fuel.

There is some uncertainty, however, in the regulatory requirements applicable to transporting hydrogen by pipeline. Hydrogen pipelines are subject to the general design and operational safety gas pipeline regulations administered by the U.S. Pipeline and Hazardous Materials Safety Administration ("PHMSA"). PHMSA has not promulgated specific regulations for hydrogen pipelines. In addition, hydrogen pipelines must comply with all necessary federal environmental laws, such as those covering federal environmental reviews, water, air and species.

The question of whether hydrogen pipelines should be subject to the Federal Energy Regulatory Commission's relatively comprehensive siting, construction and rate regulatory authority, or whether hydrogen pipelines more appropriately fall under the U.S. Surface Transportation Board’s generally less comprehensive regulatory regime has not been clearly addressed, and further regulatory action or legislation may be necessary to clarify.

Click here for further information on the current thinking on regulations in the U.S.

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A Net Zero System

Commitment to net zero emissions by 2050 will only be achieved with significant new investment and a rapid change in the sourcing of some of our most fundamental commodities, energy and water. The technological revolution combined with ESG pressure is propelling the global economy towards the energy transition, decarbonisation and adaptation. The response to the climate emergency will be one of the most transformative business drivers of the next few decades; we set out the infrastructure that we see as having the biggest impact, together with how we are helping clients navigate these changing markets.

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