Shaping Sustainable International Hydrogen Value Chains
Low carbon hydrogen is key to achieving the goal to reach net-zero emissions by 2050. However, the techno-economic potential to produce low-cost, low-carbon hydrogen is not evenly distributed globally. The regions with the potential to produce it may not align with those that will have high future demand.
This could lead to the creation of a new global market that not only trades low-carbon hydrogen but also its derivatives. This may reshape global energy trade and create opportunities for new players, including developing countries.
So far, the focus has been on emission intensity and cost, but this new global market may not only introduce new players – it could also bring about highly complex international value chains. These value chains, especially when involving developing countries, require a comprehensive sustainability approach that encompasses various dimensions.
This report provides an analysis covering economic, governance and environmental aspects, as well as potential socio-economic benefits and possible risks for developing countries.
From an economic standpoint, cost-effective production of renewable hydrogen and its derivatives relies on access to cheap renewable energy, as well as access to water and land resources
Future market developments are expected to be significantly influenced by regulations and incentive schemes aimed at promoting global hydrogen production. These incentive schemes, such as the Inflation Reduction Act (IRA) in the United States and the auction system implemented by the European Hydrogen Bank (EHB), have the potential to greatly impact the location, technologies and characteristics of hydrogen production and consumption.
They offer financial incentives that support the production of renewable hydrogen with lower emissions. Many of these new incentive schemes not only focus on domestic production but also extend to production in foreign markets.
Renewable-based hydrogen production through electricity is expected to face the least uncertainty in meeting future regulations in importing markets such as the European Union (EU), Japan and South Korea. It is also most likely to benefit from incentive schemes.
Hydrogen regulations in the EU require all renewable hydrogen to demonstrate that the electricity used in its production is additional, even for volumes produced outside the EU
This means there is a need to focus on continuously adopting renewable energy sources in potential export markets, along with their hydrogen production development.
To ensure renewable hydrogen becomes a part of a just and equitable transition, it is important to make sure that developing countries that produce renewable hydrogen – and that may export a share of this – benefit from doing so, both economically and socially.
