Green hydrogen: A freely convertible energy currency?
The EU announced on 8 July 2020 that it was launching “A hydrogen strategy for a climate-neutral Europe”, which includes a substantial investment program to stimulate the emergence of a European hydrogen economy. This was only the latest in a series of developments suggesting that the technology is on the cusp of breakthrough. But what accounts for the growing hydrogen boom, and why is it taking off now?
The advantages of hydrogen are clear, especially when it is generated through electrolysis in the form of “green hydrogen” using wind or solar power, with a conversion rate that currently stands at 70 to 80 percent: It makes possible the storage and re-electrification of renewable energy; it can be used as fuel for vehicles and buildings; and it serves as a feedstock for a broad range of industries, including in chemical processes and steelmaking. Upon combustion, it is almost entirely emissions-free. This means that it can help decarbonize not only our electricity supply, but also a significant part of the mobility, industry, and housing sectors. As such, it could be regarded as a kind of freely convertible “energy currency” that can facilitate sector coupling between different parts of the global energy system that are currently disconnected.
Neither the use of hydrogen as fuel nor its synthetic production from electrolysis are new technologies, with the latter process having been well-understood for about two centuries. However, most hydrogen today is generated from fossil sources, mostly through gasification of coal and steam reforming of natural gas. Both of these techniques involve considerable carbon emissions. What has changed in recent years is the sharp decline in the cost of electricity from renewable sources, which has coincided with falling prices for electrolyzers. Moreover, the political imperative of mitigating climate change and eliminating greenhouse gas emissions in the near future has prompted some governments to look to green hydrogen as a bridge technology that can catalyze the transformation of energy systems.
Taken together, these factors are now creating a business case for hydrogen from renewable sources to be economically viable at economies of scale that will make it competitive with traditional processes of hydrogen production. Notably, this green fuel could also be transported and stored using existing infrastructure elements currently serving the natural gas industry (mainly pipelines and storage assets). Green hydrogen could thus serve commercial interests by bringing down costs while at the same time helping governments achieve energy and climate policy targets.
Green deal for economic recovery
Some governments and supragovernmental organizations hope that, as a key element of the energy transition, a nascent hydrogen economy will have the added effect of stimulating economic growth and job creation. Germany, for example, recently extended a national research and investment program for hydrogen and fuel cell technology that the government hopes will help secure the country’s place as a hub for green innovation. And according to the EU’s hydrogen strategy document of July 2020, “[c]umulative investments in renewable hydrogen in Europe could be up to EUR 180-470 billion by 2050, and in the range of €3-18 billion for low-carbon fossil-based hydrogen. Combined with EU’s leadership in renewables technologies, the emergence of a hydrogen value chain serving a multitude of industrial sectors and other end uses could employ up to 1 million people, directly or indirectly.” The European Commission explicitly regards these investments as part of a “European Green Deal” that could help member states deal with the fallout of the COVID-19 crisis and the resulting economic recession.
As the Commission’s Vice President Frans Timmermans, who is also Executive Vice-President for the European Green Deal, pointed out in the announcement of the EU research and investment strategy: “Clean hydrogen is key for a strong, competitive, and carbon-free European economy. We are leading the world in this technology and we want to stay ahead, but we need to make an extra effort to stay ahead because the rest of the world is quickly catching up.” If efforts to foster widespread adoption of green hydrogen are successful, they might result in a more integrated energy market based on a freely convertible “energy currency” that makes all energy carriers fungible within Europe, and eventually on a global scale.