The Rise of Hydrogen: A Game-Changer for the Energy Transition
The ongoing energy transition is unprecedented due to its scale and the profound impact it is having on established socio-economic, technological, and geopolitical trends around the world. Renewables, in combination with energy efficiency, now form the leading edge of a far-reaching global energy transformation. This transition is not merely a fuel replacement; it is a shift to a different system with commensurate political, technical, environmental, and economic disruptions.
One of the key elements driving this transformation is the growing prominence of hydrogen. Hydrogen, until now the missing piece of the clean energy puzzle, is likely to further disrupt energy value chains in the coming years. The climate change imperative has been the main driver of the renewed policy focus on hydrogen. The International Renewable Energy Agency’s (IRENA) 1.5°C scenario envisages that clean hydrogen could meet up to 12% of final energy consumption by 2050, with the majority produced using renewables and the rest from gas and carbon capture and storage.
The Geopolitics of Clean Hydrogen
The rise of clean hydrogen is poised to bring about significant geoeconomic and geopolitical shifts. Green hydrogen, in particular, is emerging as a potential game-changer for reducing emissions and achieving climate neutrality without stymying economic and social development. The economic stakes are high, with the current annual hydrogen sales representing a market value of approximately $174 billion, already exceeding the value of annual trade in liquefied natural gas (LNG).
By 2050, global sales of hydrogen could be worth $600 billion, and the value chains of green hydrogen could become a $11.7 trillion investment opportunity over the next 30 years. Hydrogen’s transformative reach goes beyond its estimated market value. It is best thought of as a general-purpose energy carrier that can foster innovation across many different industries and sectors.
The geopolitics of clean hydrogen is likely to play out in different stages. The 2020s could be the era of the big race for technology leadership, with costs falling significantly and rapid scaling up of the required infrastructure. In many locations, green hydrogen is set to compete on costs with blue hydrogen by 2030. Across many decarbonization scenarios, demand starts to take off from 2035, and international trade of hydrogen and derivatives could grow significantly during this period.
Emerging Hydrogen Hubs and Trade Patterns
As clean hydrogen value chains are built up, the geography of energy trade is set to change. Renewables could be deployed in every country, with renewable electricity exported to neighboring countries via transmission cables. In addition, clean hydrogen could facilitate the transport of renewable energy over long distances via pipelines and shipping, unlocking previously untapped renewable resources in remote locations.
Driven by transport costs, a dual market for hydrogen is likely to emerge: a regional market, traded through pipelines, and a global market for ammonia, methanol, and other liquid fuels. Some existing natural gas pipelines could be repurposed (with technical modifications) to carry hydrogen, suggesting where potential cross-border links could remain, even with green hydrogen.
Ports and other areas with concentrated activities along the hydrogen value chain (“hydrogen valleys”) could become import or export hubs, as well as storage sites for bunkering fuels for the maritime sector. These ports could also become the nodes from which a network of hydrogen refueling stations branches out along major freight corridors.
Shaping the Rules of the Hydrogen Game
The success of clean hydrogen markets hinges upon the ability to set coherent and transparent rules, standards, and norms to facilitate its deployment across countries, regions, and sectors. Shaping these could be an arena for geopolitical competition or international cooperation. Defining common rules might seem an inherently technical activity, but it will help determine the technologies that dominate future markets and reward those who master them.
Standards are designed to improve the quality, safety, and interoperability of various goods and services. Divergent standards, however, could fragment markets, stir regulatory competition, and erect trade barriers. Certificates or “guarantees of origin” will be essential to monitor and manage hydrogen’s contribution to climate change efforts. Transparency in how emissions are determined will be crucial for the proper functioning of an international hydrogen market.
The choice of currency denomination and pricing mechanism for internationally traded hydrogen are other important aspects. The currency chosen will be positioned to become a global benchmark as the market expands. Those associated with that currency will, to some degree, be sheltered from exposure due to fluctuating import costs. Putting a price on carbon might be helpful, or even necessary, to make clean hydrogen competitive with grey hydrogen and, ultimately, with fossil fuels.
Fostering Inclusive and Equitable Hydrogen Development
While the energy transition presents significant opportunities, it also carries the risk of exacerbating existing inequalities or creating new ones. Hydrogen can be part of a just transition package, supporting both industrial development and reconversion, including in energy-intensive industrial parks and ports.
Assisting developing countries in deploying hydrogen projects could help lock out, rather than lock in, fossil fuels. Access to technology, training, capacity building, and affordable finance will be key to realizing the full potential of hydrogen to decarbonize the global energy system and contribute to global equity and stability.
A diverse hydrogen market would create new opportunities for trade and cooperation, reducing supply chain risks and improving energy security for all. Global efforts should focus on the applications that provide the most immediate advantages and enable economies of scale, particularly in the coming years.
Navigating the Hydrogen Landscape: Key Considerations for Policy Makers
As the hydrogen landscape evolves, policy makers have a unique opportunity to shape its development, avoid the flaws and inefficiencies of current systems, and influence geopolitical outcomes. Some key considerations include:
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Assess Hydrogen’s Fit within National Strategies: Countries should carefully evaluate how hydrogen fits into their overall economic, social, environmental, and political strategies, considering factors like the maturity of their energy sector and the potential socio-economic effects.
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Plan for the Long-Term: Investments in energy infrastructure, such as pipelines, should be assessed with a future-proof logic, as the geography of a decarbonized economy is likely to be very different from what currently makes sense.
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Prioritize High-Impact Applications: Global efforts should focus on the hydrogen applications that provide the most immediate advantages and enable economies of scale, particularly in the near term, to be cost-effective and less susceptible to the risks of nascent markets.
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Ensure Transparent Rules and Standards: The success of clean hydrogen markets hinges upon the ability to set coherent and transparent rules, standards, and norms to facilitate deployment across countries, regions, and sectors, fostering international cooperation.
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Promote Inclusive Development: In the interest of geopolitical stability and a just energy transition, future importers should enable renewable-rich countries in the developing world to set up local value chains and job-creating green industries, ensuring access to technology, training, and affordable finance.
By navigating these considerations and fostering international cooperation, policy makers can shape the advent of hydrogen to contribute to a cleaner, more equitable, and resilient global energy system.
