Summary
- Hydrogen’s moment has passed, as recent reports show green hydrogen to be more expensive than previously thought
- The EU should adopt an "electrification first" approach to energy
- Hydrogen-based fuels are necessary for industries like shipping and aviation where electrification is not possible
- A new approach, such as the H2 global initiative, is needed to make multibillion euro investments in hydrogen projects less risky
- The EU should consider using funds from the carbon market for shipping and aviation to support a new EU hydrogen bank or utilize the H2 global model to accelerate the hydrogen revolution.
Article
The Economist’s bold claim in 2021 that “Hydrogen’s moment is here at last” has been proven wrong, as recent reports show that green hydrogen will remain more expensive than anticipated for decades to come. The initial optimism surrounding the €2 per kilogram cost touted by Ursula von der Leyen seems unattainable now. Despite previous demonstrations that hydrogen is not a one-size-fits-all solution, it is still seen as crucial for industries such as shipping, aviation, and fertilizers where electrification is not feasible.
The current challenges with hydrogen stem from the lack of substantial investments, especially from oil companies, due to the immense risks involved. Various e-fuel projects in Europe have struggled to secure financing, with only a fraction moving forward to completion. The EU’s response to this issue was the Hydrogen Bank (EHB), which aimed to allocate fixed subsidies to renewable hydrogen production projects through competitive bidding. However, the bank’s design has led to subsidies far below the expected market prices, creating an unsustainable race to the bottom among companies.
One potential solution proposed by the German initiative H2 Global is the double-auctions model, where the government auctions off e-ammonia contracts, guaranteeing offtake for project developers. This approach aims to reduce risks for developers and attract private financing by creating a stable market for green hydrogen-based fuels. By aligning market dynamics and regulatory pressures, industries like shipping and aviation can be incentivized to pay for clean fuels without relying solely on taxpayer subsidies.
To further support the development of green hydrogen projects, European governments could utilize funds from the carbon market for shipping and aviation, which is expected to generate over €10 billion annually. By establishing an EU hydrogen bank or collaborating with initiatives like H2 Global, the EU could create a more sustainable framework for clean fuel investments. With the right support and risk mitigation strategies in place, hydrogen could still play a vital role in Europe’s transition to cleaner energy sources, as advocated by Ursula von der Leyen and industry experts.
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