The Paris Agreement (PA) sets an ambitious objective of limiting the global temperature increase to well below 2°C above pre-industrial levels, with the intention to limit it at 1.5°C. Achieving these targets requires a massive decarbonization of the world economy, which still heavily relies on polluting fossil fuels. Despite 30 years of negotiations under the United Nations – the UN Framework Convention on Climate Change (UNFCCC) was agreed on in 1992 -, global energy related CO2 emissions have increased since then by over 50% (IEA, 2021).
In 2018, the IPCC modelled emission pathways required to stay within the 1.5°C target, with global CO2 emissions needing to decline by about 45% from 2010 levels by 2030, reaching net-zero in around 2050. Reaching the 2°C target requires a 25% reduction by 2030 and net-zero levels in 2070 (IPCC 2018, p. 12). An assessment of the current emissions pledges of countries resulted in an 88% probability of exceeding 2°C, while the current policy pathways have a 97% probability of missing the 2°C target (CAT, 2020).
Since the early 2000s, renewable energies have been key pillar of large-scale emission reductions. Thanks to effective policy instruments (e.g. feed-in-tariffs) and impressive cost reductions, renewable energy capacity almost doubled between 2010 and 2019, exceeding 2,500 GW globally (IRENA, n.d.). However, renewables alone are not sufficient for complete decarbonization. In the power sector, their intermittent nature results in issues for grid stability and the need to run fossil-fuel driven baseload plants. Outside of the electricity generation sector, renewables do face limitations. In the industry sector, concerns around international competitiveness resulting from stringent policies and/or reduction targets represent an important policy barrier. In the transport sector, new technical solutions are required to store renewable energies appropriately. Batteries face limitations regarding weight, volume and vehicle range and are not yet viable for heavy-duty vehicles and trucks.
Green hydrogen: magic bullet at the horizon?
Hydrogen has been used in the industry sector for over 50 years - mainly in ammonia production and refining - and global demand has more than tripled since the 1970s (IEA, 2019). Traditionally, “grey” hydrogen was produced using fossil fuels[1] with a significant carbon footprint. Recently, electrolysis has gained relevance but is still marginal (only 2% in 2018). However, the potential for “green” hydrogen production based on renewable energy-fueled electrolysis is huge.
Green hydrogen can become the solution for storing large quantities of renewable energy, for transporting it to consumers and for using clean energy when needed, overcoming the intermittency challenge of renewables. The list of industrial use-cases for green hydrogen is long: manufacturing, iron and steel production, chemical sector, oil refining, transport (road transport in the short term, marine shipping in the long run). Even electricity generation and water desalination can be decarbonised with green hydrogen.
The production of green hydrogen leads to geopolitical opportunities for countries with rich renewable energy potential, because low-cost renewable electricity is key to making green hydrogen economically competitive. Countries in Northern Africa are particularly well-positioned due to their geographical proximity to Europe (which is likely to become a future green hydrogen demand centre). New perspectives may arise for Middle Eastern countries to shift from their traditional roles of fossil fuel exporters to future exporters of green hydrogen. Saudi Arabia recently announced a 5 billion USD green hydrogen plant to power its planned megacity of Neom from 2025, and with a view to future exports (Bloomberg, 2021).
What are the barriers preventing widespread use of green hydrogen so far?
The key barriers against a rapid transformation to a global green hydrogen economy are of a technical and economic nature. On the technical side, challenges with transport and storage need to be mastered. Our existing energy systems are tailor-made for fossil fuels. It is possible to use natural gas-pipelines for transporting large of quantities of hydrogen. In Europe, concepts for either re-using natural gas pipelines or for building new, dedicated hydrogen pipelines have been developed. Their implementation, however, requires dedicated action, investments and time.
On the economic side, green hydrogen costs are driven by i) CAPEX for electrolysers, ii) cost of renewable electricity, iii) utilization levels of electrolysers, and iv) transport costs. Current green hydrogen costs are prohibitive compared to conventional fuels. However, each year, the forecasted costs of green hydrogen production for the year 2030 decline further. The latest Hydrogen Insights Report 2021 expects a decline of 62% by 2030 compared to 2020 (Hydrogen Council, 2021). It also expects that, if supported by strong carbon pricing schemes at 100 USD/t CO2, green hydrogen can become competive in the transport sector, ammonia production, refineries and steel production from 2028/2030 onwards.
Scaled-up demand and technological progress can further bring down costs and make green hydrogen fully competitive with fossil fuels. To achieve a quick and comprehensive transformation, political support is urgently required.
Role of green hydrogen under the UNFCCC until today
In the context of the UNFCCC, the development of new technologies has been allotted to the Climate Technology Centre and Network (CTCN), the operational arm of the UNFCCC Technology Mechanism since 2013. So far, hydrogen has not been addressed in over 100 technical assistance requests, except for a Brazilian hydrogen energy research and development network.
Another important process under the UNFCCC is the development of technology needs assessments (TNAs) for developing countries. Since 2001, 90 TNAs have been completed and 36 are ongoing. Hydrogen has been addressed only very generically in a Moldovan TNA.
The financial mechanism of the UNFCCC includes the Global Environmental Fund (GEF) and the Green Climate Fund (GCF). None of the hundreds of mitigation projects funded by these entities specifically addresses green hydrogen.
Overall, there is a shocking gap between the potential of green hydrogen to contribute to mastering the climate change challenge, and the level of awareness and support by the UNFCCC.
A similar situation exists with regard to the international market mechanisms under the UNFCCC, i.e. the Clean Development Mechanism (CDM) under the Kyoto Protocol and Article 6.2 and 6.4 under the PA. These mechanisms could principally generate revenues for green hydrogen projects from the sale of emission credits. However, demand for CDM credits has been very low after 2012, so prices ranged between a few cents per t CO2e and USD 10 at best. At such price levels, green hydrogen cannot be harnessed.
While some pilot activities for Article 6 are coming up, rules have not yet been finalized - slowing down progress. If demand for credits from green hydrogen activities could be scaled up and prices brought to levels of around USD 50, the revenues could become interesting for green hydrogen projects.
How to boost a global green hydrogen transformation through the UNFCCC?
An increased level of political awareness, dedicated support programs and large-scale investments are key to achieve global transformation. Support should be given to a broad set of promising technological options, without excluding any alternative, and all countries interested in the development of green hydrogen should participate. The UNFCCC is well-positioned to achieve this.
To boost a global hydrogen transformation, we recommend the following steps:
- Assign the CTCN to elaborate a dedicated study analyzing the economic and climate potential of green hydrogen; recommending priority fields of action and implementation of lighthouse projects in the identified priority areas. Budgets need to be increased.
- Introduce hydrogen-specific TNAs for countries with large production potential of green hydrogen, or high CO2 mitigation potential.
- Establish a specific program within the GCF[2] following the example of the results-based payments program for the Reducing Emissions from Deforestation and Forest Degradation (REDD+)[3] to boost green hydrogen at different stages ensuring access to all countries
- Launch a “green hydrogen initiative” under Article 6.8 of the PA that supports green hydrogen investments and engages in generating consistent incentive structures at both the national and international level.
In the longerterm, carbon market mechanisms could incentivize private sector investments. But this strongly depends on future carbon prices, and – hence – the Parties’ willingness to substantially increase the ambition level of the PA.
References
Bloomberg (2021): Saudi Arabia’s Bold Plan to Rule the $700 Billion Hydrogen Market, https://www.bloomberg.com/news/articles/2021-03-07/saudi-arabia-s-plan-to-rule-700-billion-hydrogen-market, accessed 6 April 2021
CAT (2020): Climate Action Tracker – Global Update, December 2021, https://climateactiontracker.org/global/cat-thermometer/, accessed 6 April 2021.
GCF (2017): Decisions of the Board – eighteenth meeting of the Board, 30 September – 2 October 2017. GCF/B.18/23
Hydrogen Council (2021): Hydrogen Insights - A perspective on hydrogen investment, market development and cost competitiveness. February 2021
IEA (2019): The Future of Hydrogen. Seizing today’s opportunities. Report prepared by the IEA for the G20, Japan. https://www.iea.org/reports/the-future-of-hydrogen, accessed 6 April 2021
IEA (2021): Global Energy Review: CO2 Emissions in 2020, IEA, Paris https://www.iea.org/articles/global-energy-review-co2-emissions-in-2020, accessed 6 April 2021.
IRENA (n.d.): Data and Statistics, www.irena.org/Statistics , accessed 20 February 2021
IPCC (2018): Special Report - Global Warming of 1.5 ºC, https://www.ipcc.ch/site/assets/uploads/sites/2/2019/05/SR15_SPM_version_report_LR.pdf, accessed 6 April 2021
[1] 23% by coal, 76% by natural gas
[2] The GCF is part of the UNFCCC system and offers funding opportunities to transformative projects and programs targeting mitigation and adaptation to climate change.
[3] This program was introduced in 2017 to provide providing financial support, with a budget of 500 million USD (GCF, 2017)
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