Getting Hy? Ambition and the art of the possible in the search for a hydrogen economy | Thought Leadership | Insights

Publication|

2 December 2021

Hydrogen is having a moment.

Governments, industry and investors appear to be converging on the potential for clean hydrogen to propel the global energy transition. Governments in a number of key jurisdictions globally have published hydrogen strategies, including, in Europe alone, Spain, Germany, France, Portugal, the Netherlands, the European Commission and the United Kingdom, as well as the United States. There is a clear sense in which clean hydrogen is viewed by many countries as the “missing link” required in order to achieve a fully functioning net zero economy consistent with their Paris Agreement objectives.

We have taken a closer look at the vision that is generating all the excitement; the politics; the use cases favoured by different countries; what the business models might need to be and what is currently contemplated; and the new legal changes needed to bring this new (rather inflammable) commodity into our everyday lives.

01
Hy-Ambitions: a vision for a new energy vector
02
Hy Politics: political considerations shaping the evolution of clean hydrogen policy
03
Hy-ly-Demanding? How to create supply and demand at the same time
04
Hy-achieving - creating a suitable incentive regime
05
Hy-ly Volatile? making it safe, sustainable and transportable

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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.

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

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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.

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Jurisdictions

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

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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.”

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Hy-achieving - creating a suitable incentive regime

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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.

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Jurisdictions

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

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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.

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Jurisdictions

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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.

Find out more