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EC's draft EU hydrogen plan calls for robust GOs, demand targets

Highlights

EC wants commodity-like volumes available rapidly

Mulls CfDs, new renewables targets to scale up output

Official plan due July 8, draft EU rules in June 2021

Brussels — Guarantees of origin and demand targets are some of the ways the EU could drive green hydrogen growth to cut carbon emissions, according to an unofficial European Commission draft EU hydrogen strategy.

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The goal is to design an "open and competitive green hydrogen market" with "commodity-like" quantities available to industry, as part of the EU's efforts to be climate neutral by 2050, according to the draft made available to the Euractiv news agency on June 18.

An EC spokesperson was not immediately available to comment on the draft, but on June 16 confirmed the official strategy would be presented on July 8, along with an EU energy system integration strategy.

Under the draft strategy, EU policy actions would aim to help renewable "green" hydrogen reach "close to competitive price levels," and that this would be possible "as soon as" gigawatt-scale green hydrogen factories start producing using renewable power.

This means the EU would have to scale up the renewable power available to produce hydrogen, and the draft implies the final strategy will quantify how much more renewables would be needed for this by 2030, 2040 and 2050.

In the meantime the draft called for clean "blue" hydrogen production to be scaled up significantly to get the price down to Eur1-2/kg ($1-2/kg) "as quickly as possible".

Blue hydrogen is made from natural gas, either with carbon capture and storage or using pyrolysis.

GOs, demand targets, CfDs

The draft strategy suggests using "robust" guarantees of origin or similar certificates to enable the "renewable" element of green hydrogen to be traded.

This would also need a common EU classification or taxonomy for clean hydrogen, with minimum carbon emission reduction standards and sustainability criteria.

The draft strategy also suggests ways to promote demand for green hydrogen, including setting targets for certain end-use sectors, and by "selectively supporting" green hydrogen supply.

The focus would be on sectors that are expensive to decarbonize, such as heavy industry, including fertilizer, steel, chemicals and cement, and transport, including aviation and shipping.

The draft strategy suggests using a contracts for difference program to support gigawatt-scale clean hydrogen production, as well as low carbon and circular steel, cement and basic chemicals production.

The German government will offer a pilot "carbon contracts for difference" program for steel and chemical industries as part of its national hydrogen strategy published on June 10.

The program will pay hydrogen project developers the difference between the EU carbon price and the actual cost of cutting emissions.

Updating EU rules

The EC already plans to revise EU legislation next year to support a more ambitious 2030 EU emissions reduction target of 50-55% below 1990 levels, and the final EU hydrogen strategy will influence those proposals.

The draft strategy suggests the final version will set out which measures should be included in which proposals.

Relevant legislation includes the EU renewables directive, gas directive, energy taxation directive and the energy and environment state aid rules, which govern national renewable support schemes.

The EC is also mulling allowing hydrogen and power-to-gas infrastructure projects to be eligible for strategic EU project of common interest status, giving them access to EU funding and streamlined permitting.

This would be done as part of EC's planned update of the EU's trans-European energy network regulation, expected by the end of this year.

Infrastructure options

Hydrogen infrastructure is a key element in the draft strategy, which says transport costs are very high relative to production costs.

It sees a "likely first phase" of repurposing natural gas infrastructure to create local systems to supply industry, connected to a dedicated hydrogen "backbone" network.

There would also have to be a specific strategy for meeting transport sector demand through a network of refueling stations for heavy-duty vehicles, including connecting power and gas grids for power-to-gas options.

International trade

The draft strategy includes measures to help the EU build up its own green hydrogen production capacity, but also looks at import potential.

It suggests encouraging the EU's current fossil fuel supplier countries to gradually switch to supplying green hydrogen instead.

It specifically mentions cooperating on this with Algeria, Egypt, Morocco, Norway and Ukraine, but does not mention Russia, which is the EU's single largest gas supplier.

It does note that shifting to hydrogen could impact relations with countries with gas pipelines to the EU, or long-term LNG supply contracts.

The draft strategy also mentions potential clean hydrogen suppliers from further away: Australia, South Africa and the US.

It also suggests the EU develops a euro-denominated price benchmark for hydrogen trades, to encourage using euros. Most oil and gas trading is done using US dollars.