Industrial and innovation policy pivotal to green hydrogen transition


Featured Image: The prevalence of GH2 export routes around the world by IRENAGeopolitics of the Energy Transformation: The Hydrogen Factor

While 45 countries have devised or published hydrogen strategies and signed agreements on trade routes, the world is still far from where it needs to be for green hydrogen to play a key role as a source of energy, according to UNIDO.

Exploring how to speed up the transition to green hydrogen, the United Nations Industrial Development Organisation (UNIDO) detailed how demand for green hydrogen is limited, infrastructure is confined to industrial areas and electrolyser capacity around the world stands at just a few 100MWs, when 115GW will be needed for 2030 to meet green hydrogen demands for all published and announced strategies, and even more by 2050 – 5TW according to the International Renewable Energy Agency’s World Energy Transitions Outlook.

There is a gridlock between investors, developers, policymakers and off-takers that is in need of resolution to really kickstart a wave of initial green hydrogen projects and drive the development of a green hydrogen sector. A multi-faceted industrial policy is required for green hydrogen to emerge as a breakthrough technology in a world locked into fossil-fuel based technologies, one that can bridge the gap between market requirements, sustainability and climate requirements, and hydrogen technology development.

This policy should promote an accelerated adoption of green hydrogen technology and innovation, while introducing a ban or mandated phase out of fossil fuel-based technologies. It suggested that the blacklisting of certain technologies, or even whitelisting of others, has the potential to open up space for decarbonised solutions. Other potential elements include binding green hydrogen quotas in the industrial sector, generating stable demand and reducing offtake risk, as well as measures to ramp up and guarantee sufficient supply of renewable electricity, public R&D funding and skilling and reskilling programmes to help scale up adoption of green hydrogen technologies.

Financing for the uptake of breakthrough green hydrogen technology also must be made available, with the landscape of financial mechanisms evolving at a rapid pace. These include grants and loans for each phase of project development, tax rebates to promote carbon emission reductions by decreasing firms’ tax liability if they opt to invest in carbon neutral processes and even bilateral auctions for green hydrogen, regulating the balance between supply and demand. It will also be important for financing mechanisms to internalise climate change related externalities which could be done through tighter use of the emissions trading systems or carbon pricing. To ensure sufficient, consistent demand for green hydrogen, it further outlined how the likes of sustainable public procurement and use of quotas for green materials are viable policy instruments. Product-related taxation instruments is also another potential avenue.

Finally, UNIDO drew on how national and international policy coordination is “indispensable”. An industrial policy that supports green hydrogen will have to consider decarbonisation strategies to ensure adoption of policies can be tailored to national and local conditions, clearly signal forthcoming changes to stakeholders, and consider its broader impact as well. Agreeing regulations and standards across countries is a must, as this will allow for hydrogen trade and determine its minimum quality, while carbon-based import taxes could be worth consideration to protect local industry from the risk of carbon leakage and impose the same carbon price on imported goods.