Part 3 — Global Demand as the Key Driver to Success
If scaled globally, clean hydrogen could be the missing link to fill the carbon gap and help the world achieve net zero emissions by 2050, due to its lucrative features. However, as we discussed in Part 2 — The Current Barriers Facing Clean Hydrogen, there are a number of challenges and barriers that currently prevent countries from upscaling their clean hydrogen efforts, such as high production costs; storage, transport, and distribution considerations; and safety concerns. The greatest way to address these challenges and make clean hydrogen a viable alternative to fossil fuel-based energy is to create a greater global demand, which will significantly reduce production costs through greater technological advancements, economies of scale, and increased competition between hydrogen producers and other renewable energy sources.
Current Projections for Clean Hydrogen Demand
An IEA report states that the demand for hydrogen has grown more than threefold since 1975, and continues to rise. However, this rise in demand has almost entirely been supplied from fossil fuels, with 6% of global natural gas and 2% of global coal going to hydrogen production. As a consequence, the production of hydrogen is responsible for CO2 emissions of around 830 million tonnes of carbon dioxide per year, equivalent to the CO2 emissions of the United Kingdom and Indonesia combined. This is why an increase in demand for clean hydrogen is critical, in order to reduce its production costs and make it competitive with hydrogen produced from less clean methods, such as burning coal or steam-methane reforming.
Another IEA report on clean hydrogen from 2020 suggests that, in the Net Zero Emissions by 2050 Scenario, total hydrogen demand from industry is expected to expand 44% by 2030, with low-carbon hydrogen becoming increasingly important (amounting to 21 Mt in 2030). This clean hydrogen demand will largely be driven by power applications and clean transport. However, analysis of the current project pipeline suggests that only 18% of this demand would be met. Therefore, rapid action is needed in the next ten years to meet the projected Net Zero Emissions by 2050 Scenario in regards to industry sector hydrogen demand.
As shown in Part 1 of this series, the demand for clean hydrogen will be about 135 MT by 2030 in order to meet 2050 goals. While existing uses for hydrogen in refining and industry may drive early demand for clean hydrogen, most of this clean hydrogen will be used for novel hydrogen applications in transport fuels and the power sector. Our analysis below shows estimated global hydrogen production by type and how it will be used.
In 2030, it’s expected that hydrogen demand for oil refining, chemical, and steelmaking will still be mainly fulfilled by hydrogen produced from fossil fuels (without carbon capture). In the transport sector, hydrogen, ammonia, and synfuels will be fulfilled by only clean hydrogen in 2030. This is because emission reductions are driving the use of hydrogen in these novel applications. Even though we frequently hear about hydrogen fuels for transportation, power applications will actually make up the largest demand for clean hydrogen in 2030.
Increasing Global Demand for Clean Hydrogen
Aside from reducing the production and storage/distribution costs of clean hydrogen (as covered in Part 2), there are two other critical measures that governments and private sectors across the world can implement to boost demand:
- Incentivising existing hydrogen users to switch to clean hydrogen
- Creating opportunities for new end-users of clean hydrogen in the transportation and power generation sectors
Incentivising clean hydrogen
As the premise of clean hydrogen as a clean energy carrier has increased in popularity across the world in the past couple of years, so too have government efforts to incentivise existing hydrogen users to switch to clean hydrogen, as well as promote new end-users across various sectors. These incentives can take various forms, from providing subsidies to users, all the way through to creating policies that mandate clean hydrogen targets.
In the U.S., the House of Representatives is proposing a US$3 production tax credit for clean hydrogen, which would make it cheaper for existing end users to switch to clean hydrogen. If successful, this tax credit could support the long-term development and cost reduction of hydrogen production pathways, as well as decarbonise current hydrogen production.
In Australia, there has been discussion around the viability of the following incentives to potentially stimulate local renewable hydrogen demand:
- A carbon price
- Subsidies for fuel switching for industrial users
- Mandated decarbonisation targets for individual sectors
- Grants for hydrogen consumption
- Grants for hydrogen production
- A renewable gas certificate scheme for gas retailers
- A diesel replacement subsidy/ rebate
- Government procurement policies
However, the main form of government support for the emerging hydrogen sector so far in Australia has been in the form of grants for feasibility studies or capital investment.
The Clean Energy Council’s (CEC) Policy Director — Electrification & Hydrogen, Anna Freeman, said in a recent CEC article that “grants are helpful, but they don’t provide predictable income streams, transparency or the flexibility that can put a business case on a stronger, more sustainable footing.”
Scaling up clean hydrogen and creating markets is ultimately the key to driving down the levelised cost of hydrogen in the long term, but with the current energy crisis and the effects of the pandemic on supply chains still lingering, this is becoming harder to achieve.
“In recent months, we have only seen the capital costs of planned new projects increase further, with the current global inflationary pressures and supply chain shortages. For example, the World Bank expects metal prices to rise by 16 per cent this year and energy prices to rise by 50 per cent.”
Therefore, the implementation of more short-term measures by governments, such as incentives or subsidies for fuel switching, could speed up project deployment.
Creating opportunities for new end-users of clean hydrogen in the transportation and power generation sectors
In order for the demand of clean hydrogen to scale globally, there need to be more uses for it, particularly in the transport and power generation sectors. We already covered in Part 2 how clean hydrogen has the potential to transform the power generation sector by providing dispatchable power generation, energy storage to firm variable renewable energy or as a distributed energy resource (i.e., as part of an off-grid system or as backup power). Furthermore, it can also be used as an alternative to natural gas in cooking, heating or industrial applications.
With regards to transport, clean hydrogen could be used to decarbonise this emissions-heavy sector, which is currently responsible for 29% of Green House Gas emissions, according to a U.S. Department of Energy article.
Hydrogen is an energy carrier and fuel that, when fed into a fuel cell, can power vehicles and trucks without releasing harmful emissions. This is known as a hydrogen fuel cell. These fuel cells provide an enormous opportunity to power vehicles, ships, trains and planes without releasing harmful emissions.
Besides being cleaner, these hydrogen fuel cells also make the vehicle more efficient and quieter, because there are fewer vibrations from moving parts, and they allow vehicles to travel longer distances with less refuelling. Therefore, they are ideal for fuelling long-haul transportation vehicles that travel hundreds of miles at a time.
The largest barrier to a greater uptake in hydrogen fuel cells is the cost, both of the hydrogen itself and the vehicles that store a hydrogen fuel cell. Currently, in the U.S., the cost of hydrogen hovers around US$13 per kilogram (kg). However, as technologies advance in the transport sector, such as hydrogen-fuelled planes, and costs of both the technology and the fuel decrease, hydrogen fuel will become more accessible and affordable.
Governments and the private sector, therefore, will play a pivotal role in ensuring we are meeting our clean hydrogen demand projections by 2030 through increasing the uptake of clean hydrogen and creating new opportunities for end uses, which can be achieved through a mix of incentives and funding. Ultimately, greater uptake in clean hydrogen will lead to an increased global demand, which will see it become more competitive compared to other fossil-fuel energy sources and live up to its full potential of being the missing link to net zero.
Helixos’ work on social design touches on all of the UN Sustainable Development Goals, but Goal 17 on Partnerships for the Goals directly addresses the importance of involving developing countries and disadvantaged communities in the technology development process.
More specifically, the following targets:
7.2 By 2030, increase substantially the share of renewable energy in the global energy mix.
9.4 By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities.
13.2 Integrate climate change measures into national policies, strategies and planning.
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