Green hydrogen is being touted as the key lasting solution to the environmental impacts of fossil fuel consumption. According to some forecasts, hydrogen could supply about 25% of the world’s energy needs. Carbon Credits reported that, there are currently 270 MW of green hydrogen projects in operation globally, translating to less than 4% of total global hydrogen production.
However, for the green hydrogen economy to become a reality, governments need to formulate policies to incentivize investments for major ambitious green hydrogen players like Shell, Adani, TotalEnergies, and ACWA Power, among others.
The next 12 months will witness a transition in the global green hydrogen projects from idea to a reality based on the strong support and waves of government subsidies set to be implemented this year. One of the most significant subsidies programs is the U.S hydrogen tax credits unveiled in the year 2022 and set to commence in 2023. Similar programs are also in the pipelines in places like EU, UK, Germany, Canada, and India. In this article we made a short summary of them.
Government Subsidy Plans.
In May 2022, the European Commission revealed the Carbon Contracts for Difference (CCfD) program, which will pay a certain amount of subsidies to end users of green hydrogen. The support program aims at helping the EU block achieve its goal of producing 10 million tons of green hydrogen by 2030.
Just like the EU, the UK announced its own subsidy scheme called Contract for Difference (CfD) in April 2022 to support a planned 1 GW of green hydrogen projects. The scheme will be implemented through two allocation rounds this year and the next. All the projects will be operational or under construction by 2025, with the first round supporting 250MW. The government has invited interested partners to express their interest, and the final grant offer letters will be issued early this year.
The German government aims to complete an auction by mid-2023 launching a multi-billion-euro H2Global green hydrogen subsidy scheme for hydrogen imported into the EU. The double-auction scheme includes green ammonia, green methanol, and hydrogen-based sustainable aviation fuels. Hydrogen Intermediary Network (HintCo), owned by the German government, will be responsible to buy green hydrogen and its derivatives from international producers through a ten-year Hydrogen Purchase Agreements (HPAs), and then sell the hydrogen to various European customers. A €4bn fund will be used to cover any cost difference between the purchase agreements and supply contracts.
In January this year, the Portuguese government unveiled the details of its first national green hydrogen proposal. The scheme offers ten-year contracts to renewable hydrogen producers, which would be sold to natural-gas suppliers for blending it into gas networks. An ordinance of 15/2023 was published by the ministry of Environment and Climate Action, called the last Resort Wholesale Trader, which aims to purchase renewable hydrogen and biomethane. The auctioning quantities will be approximately 3,000 tons of hydrogen per year.
North America has been lagging its commitments to rolling out a hydrogen roadmap compared to Europe. Indeed, at present, Europe has currently almost 1,200 electrlyzers in the pipeline compared to 200 in the US. That, however, is about to change. In August last year, the US government enacted the Inflation Reduction Act, which offers tax credits of up to $3/kg to clean hydrogen producers for a period covering the first ten years of a project’s lifetime. The credit scheme aims to make green hydrogen more cost-effective to produce compared to grey hydrogen. However, despite its size, the new act has not been hailed by everyone, such as the EU, Norway, Australia, and South Korea, arguing it could be a violation of international trade rules by favoring US companies.
Apart from the tax credits, a $9.5 billion federal cash subsidy is also introduced aimed at Infrastructure Investment and a Jobs Acts for clean hydrogen development. $8 billion of the cash is to fund regional hydrogen hubs supporting the formation of a national clean hydrogen economy. Both schemes also seek to contribute towards reducing the hydrogen production cost below $2/kg by 2026, a sizable drop from approximately $5/kg today.
At the end of last year, the Canadian government announced it would introduce by the spring this year a new 40% tax credit for hydrogen production as part of efforts to mirror the US hydrogen tax credit. The scheme is scheduled to run until 2030.
Turning to Asia, recently, the Indian parliament approved $2.4bn for its National Hydrogen policy, aiming at making India a global center for the production, utilisation, and export of clean hydrogen and its derivatives. Approximately half of the $2.4bn will go to produce green hydrogen and domestic manufacturing of electrolyzers. India currently consumes about 17 million tons of grey hydrogen per year, therefore, the use of green hydrogen in sectors like steel, oil refining, fertilizer and cement productions would be very significant.
Meanwhile, according to the latest government plan, China plans to produce 100,000 – 200,000 tons of renewable hydrogen annually and have a fleet of 50,000 hydrogen-fueled vehicles by 2025. Aside from the national government, various initiatives on a more local scale are also taking place. For example, many state-owned enterprises (SOEs) have been investing in hydrogen projects while a number of smaller local governments have identified hydrogen as a key economic priority or formulated hydrogen development plans. China is also heavily investing in developing its electrolyzer value chain and hydrogen related R&D is attracting increased attention in the country too.
China is the largest global hydrogen consumer today which is mostly generated from fossil fuels as feedstock for refineries and chemical facilities.