## HYDROGEN’S DECADE — THE SCRAMBLE FOR ENERGY

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### The hydrogen promise
- Hydrogen is a versatile zero-carbon energy carrier that can be burned in engines, used in fuel cells, produce electricity, provide heat, serve as a feedstock, and be a building block for derivatives such as ammonia and methanol.
- Hydrogen and its derivatives can be stored indefinitely in tanks and salt caverns, offering a potential solution for long-term energy storage.
- Most decarbonization scenarios (IEA and IRENA) expect hydrogen to meet 12–13 percent of final energy demand by 2050, up from virtually zero today.
- Current hydrogen market traits that must change:
  - Largely made from unabated fossil fuels.
  - Used almost exclusively as a feedstock.
  - Produced and consumed mostly on-site.
- Scaling to the envisioned role requires:
  - Shifting production to cleaner sources.
  - Expanding consumption into new sectors.
  - Developing international trade in hydrogen and derivatives.

### Hydrogen battles — production and consumption fault lines
- Production pathways and associated debates:
  - Green hydrogen from renewable electricity versus blue hydrogen from natural gas with carbon capture.
  - Green hydrogen was once two to three times more expensive than blue hydrogen; recent gas price spikes and projected cost declines change that calculus.
  - Projections foresee green hydrogen becoming cheaper than both blue and gray hydrogen before the end of the decade.
  - Concerns with green hydrogen: potential diversion of renewable electricity (raises additionality debates) and exacerbation of water stress in dry sunny regions.
  - Concerns with blue hydrogen: potential methane leakage, insufficient CO2 capture, and fossil gas infrastructure lock-in.
  - Other pathways (nuclear, biomass) are also controversial.
- Consumption debates:
  - Hydrogen is highly versatile ("Swiss army knife") but often less energy-efficient than direct electrification.
  - Example: to drive the same distance with a hydrogen car requires two to three times more wind farms than an electric vehicle (Transport & Environment 2020).
  - Some sectors (steel, shipping, aviation) are "no-regrets" sectors that will need hydrogen or derivatives; indiscriminate hydrogen use could slow the energy transition.

### Technology leadership and industrial policy
- Policy support has grown via post–COVID-19 recovery spending and shifts following Russia’s invasion of Ukraine.
- Clean-hydrogen-focused companies are raising more capital; annual investment in clean hydrogen now stands at half a billion dollars a year (IEA).
- Electrolyzers are a key prize in the value chain:
  - Electrolyzers are modular and subject to steep learning curves, paralleling solar PV’s trajectory.
  - Electrolyzers made in China are 75 percent cheaper than those manufactured in the West (Bloomberg New Energy Finance).
- The United States’ Inflation Reduction Act includes generous tax credits ($3/kg) expected to make US renewable hydrogen the cheapest in the world.
- Geopolitical dynamics:
  - National hydrogen strategies combine decarbonization goals with industrial policy to secure technology leadership.
  - Concerns in Europe that China could dominate hydrogen manufacturing, as it did with solar PV and batteries.

### Export dreams and new geographies of trade
- Hydrogen could reconfigure energy trade:
  - Europe and northeast Asia are preparing as major importers.
  - Countries with abundant renewables (Australia, Middle East, North Africa) aim to become exporters or "renewable energy superpowers."
- Differences from fossil fuels:
  - Hydrogen is a manufactured conversion product, producible wherever electricity and water are available; it is not a zero-carbon version of oil.
  - Hydrogen rents are unlikely to replicate fossil-fuel rents or geopolitical leverage from extraction.
- Opportunities for renewables-rich import-dependent countries:
  - Countries like Chile, Morocco, and Namibia could become energy exporters.
  - Example projects and figures:
    - A German consortium developing a green hydrogen project in Namibia is worth $9.4 billion, roughly equivalent to the country’s GDP.
    - Egypt has attracted investment pledges of more than $40 billion this year alone for green hydrogen and green ammonia projects.
  - Assessment: No continent has better technical potential for producing cheap green hydrogen than Africa.

### Governing hydrogen — three governance priorities
- Priority 1: Reduce costs and scale production
  - Governments can de-risk investments by creating durable demand in no-regret sectors via public procurement and carbon “contracts for difference.”
- Priority 2: Harmonize standards, certification, and monitoring
  - Establish processes for safety, interoperability, and sustainability across the entire value chain.
  - Standards should cover hydrogen leakage, emissions, and broader impacts such as water security.
- Priority 3: Support developing economies
  - Provide financial and technological assistance so developing economies can benefit beyond serving as raw-material suppliers.
  - Avoid relegating renewables-rich developing countries to the role of suppliers for Global North industrial centers; promote green industrialization in situ.

### Implications and concluding findings
- Over the past five years, more than 30 countries have developed or started preparing national hydrogen strategies (IEA 2022).
- If scaled and governed correctly, the clean hydrogen revolution could deliver a triple prize: more climate stability, energy security, and global equity.
- Major challenges remain, but the 2020s could move hydrogen from a touted future fuel to a present-day solution.

*Thijs Van de Graaf, December 2022, Finance & Development.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/december/van-de-graaf.pdf_