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IEA sees 'encouraging signs' on 'important' low-carbon hydrogen expansion

Highlights

Policies needed for demand, cost reductions

$1.2 trillion investment needed by 2030

Hydrogen at $1.30/kg by 2030 in best locations

The International Energy Agency sees "encouraging signs" that the global low-carbon hydrogen market could achieve the rapid growth and cost reductions needed to overcome current limited production and use of the energy carrier, it said in a report Oct. 4.

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However, governments need to move "faster and more decisively" on implementing hydrogen policy measures, particularly around demand, for the world to stand a chance of reaching midcentury net-zero emissions goals, the IEA said in its Global Hydrogen Review 2021.

Global production of low-carbon hydrogen is currently limited, costs are not yet competitive, and its use in sectors with potential, such as industry and heavy transport, remains constrained, it said.

But "there are encouraging signs that it is on the cusp of significant cost declines and widespread global growth," the IEA said.

"It is important to support the development of low-carbon hydrogen if governments are going to meet their climate and energy ambitions," IEA Executive Director Fatih Birol said.

"We have experienced false starts before with hydrogen, so we can't take success for granted," Birol said in a statement Oct. 4. "But this time, we are seeing exciting progress in making hydrogen cleaner, more affordable and more available for use across different sectors of the economy."

"Governments need to take rapid actions to lower the barriers that are holding low-carbon hydrogen back from faster growth, which will be important if the world is to have a chance of reaching net-zero emissions by 2050," he added.

The IEA said Canada and the US led current fossil fuel-derived hydrogen production with carbon capture and storage, with more than 80% of global capacity, though the UK and the Netherlands both plan large-scale blue hydrogen projects.

The IEA has counted 16 operational blue hydrogen projects, producing 700,000 mt/year. A further 50 projects are in development, and could lift total production to more than 9 million mt/year by 2030, it said.

Measures needed

The report sets out recommendations for stimulating the low-carbon hydrogen economy through carbon pricing, mandates and quotas, and requirements for public procurement. It also notes the need for international cooperation on standards and regulations for low-carbon hydrogen, and the support to develop global markets.

Stimulus and incentives to date had been focused on low-carbon hydrogen production, the IEA said. But more support was needed now to enable greater use in industry and transport, along with the associated infrastructure required for storage and distribution.

The IEA said electrolyzer capacity -- used to produce "green" hydrogen from electrolysis of water, powered by renewables -- had doubled in the last five years to just over 300 MW by mid-2021.

The project pipeline shows production could reach 8 million mt/year of hydrogen by 2030, up from below 50,000 mt/year now, if all projects were realized. However, this is well short of the 80 million mt/year the IEA says is needed by 2030 to achieve net-zero emissions by 2050.

The IEA estimates that $1.2 trillion of investment in the hydrogen economy will be needed between now and 2030 for a net-zero by 2050 pathway. Public sector investment amounts to at least $37 billion, it said, with announced private sector investment reaching an additional $300 billion to date.

Global hydrogen demand was around 90 million mt in 2020, the IEA said.

Hydrogen is widely used in industry today, largely in the refining, chemical and fertilizer sectors, and primarily produced from fossil fuels without carbon capture, resulting in around 900 million mt/year of CO2 emissions.

Cost reductions

"Investments and focused policies are needed to close the price gap between low-carbon hydrogen and emissions-intensive hydrogen produced from fossil fuels," the IEA said.

Hydrogen produced from renewable power could fall as low as $1.30/kg by 2030 in regions with "excellent renewable resources," to be competitive with production from natural gas with CCS, the IEA report said.

In the longer term, costs could come down further to $1/kg in the best locations, making renewable hydrogen competitive with fossil fuel-derived production even without CCS.

S&P Global Platts assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur12.38/kg ($14.37/kg) Oct. 1 (Netherlands, including capex). PEM electrolysis production was assessed at Eur14.76/kg, while blue hydrogen production by steam methane reforming (including carbon, CCS and capex) was Eur5.99/kg.

Hydrogen from unabated fossil fuels was assessed at Eur5.17/kg.

The IEA also noted cost reductions in hydrogen fuel cell technology, which it said had come down 70% since 2008 because of technological advances and growing sales.

Fuel cell electric vehicle numbers rose to more than 43,000 by mid-2021 from just 7,000 in 2017, it said. Buses and trucks account for a fifth of FCEVs now, reflecting the potential for the fuel in the long-distance and heavy duty sectors, the report added.

However, FCEV numbers lagged far behind battery electric vehicles, of which there are around 11 million on the road.