EU Hydrogen Strategy Envisions €140 Billion Turnover by 2030

The European Commission has put the European Green Deal on the agenda, including a leaked draft of its intended hydrogen strategy. The EU hopes to achieve coordinated integration across the value chain and remain a world leader in green hydrogen through this ambitious plan.

The EU's energy system has been the focus of much of its recent political activity. The new European Commission created a Green Deal in its first 100 days, and then Covid-19 hit, and lawmakers managed to preserve it through a €1.8 trillion economic recovery bill, with much of the money expected to be used to boost the clean technology industry.

Subsequently, some senior EU officials pointed out that a large-scale application of hydrogen is needed to achieve a full decarbonization of the economy. Now, a draft EU hydrogen strategy, "Towards a European Hydrogen Economy: A Strategic Outlook", has leaked. The strategic plan will be officially announced on July 8.

The plan states that the European hydrogen strategy will maximize the use of green hydrogen, but at the same time acknowledges that blue hydrogen will play a transitional role due to cost reasons. Green hydrogen is produced from renewable energy and does not have any carbon emissions, while blue and gray hydrogen are modified natural gas and therefore have carbon emissions. Blue hydrogen applications will offset the adverse effects of carbon emissions by capturing, storing or reusing them. Currently, the production cost of gray hydrogen is only 1.5 euros per kilogram, and the EU hopes that through this strategy, green hydrogen can also reach this benchmark and achieve parity. The plan also stipulates that the EU will not use any gray hydrogen.

The International Energy Agency (IEA) estimates that the price of green hydrogen is currently around €3.50 to €5/kg. Clean energy and electrolysis costs are the main price drivers here. The draft strategy repeatedly mentions the potential for a hydrogen economy in the EU from a geopolitical and job creation perspective. Currently, the volume of the European hydrogen economy is €2 billion. By 2030, this figure will jump to €140 billion, while also creating around 140,000 jobs.

With targets for a mix of green and blue hydrogen set for 2030, 2040 and 2050, the strategy seeks to gradually increase the share of green hydrogen in the economy, including the promotion of two 40GW green hydrogen projects fueled by solar and wind. The strategy states that economies of scale could reduce the price of green hydrogen by 1-2 euros/kg, which is not certain at this stage. Increasing green hydrogen production to a level that would have a significant impact on price developments would reportedly limit the large-scale expansion of renewable energy generation such as solar photovoltaics and offshore wind.

However, large-scale production of green hydrogen in Europe seems to be a long way off. Currently, China's support for the hydrogen economy reaches 4 euros per capita, Japan 3 euros, the United States 0.75 euros, and the European Union only 0.50 euros.

This funding shortfall can be addressed with the help of EU institutions such as Horizon Europe, Innovation Fund, Connecting Europe Facility, InvestEU and structural funds ). However, the extent of this help is not yet clear. The plan foresees keeping public spending at modest levels by boosting demand from industries that use expensive means of decarbonizing or not decarbonizing at all. In this case, the strategy proposes the idea of using green hydrogen as a fuel for aviation, trains, heavy trucks or ships. Additionally, the fertilizer, steel, chemical and cement industries are likely to become important offtakers, which could generate significant initial demand to boost the hydrogen economy.

However, it is not just about money, creating domestic demand will give the EU the opportunity to take a technological lead along the entire value chain, especially in electrolyser technology. In a world where green hydrogen will replace hydrocarbon fuels, the EU believes it can increase its importance in international forums and relations with allies through technological leadership in hydrogen. For example, the strategy mentions that green hydrogen opens the opportunity to establish a benchmark for hydrogen trading denominated in euros, just as crude oil is mainly traded in dollars.

To further coordinate this strategy, the European Hydrogen Alliance will also be launched on July 8. The alliance will host six separate technology-based sector CEO roundtables. The idea behind this is to represent the pillars of the hydrogen value chain: production, transmission, mobility, industry, energy and heating. Projects such as Joint Clean Steel will facilitate the implementation of this project.

Overall, the strategy makes it clear that a comprehensive European hydrogen strategy can only be achieved by addressing the entire value chain, from demand to production, infrastructure and market rules.

In any case, the uptake of green hydrogen as a primary fuel would mean that the EU could develop new collaborations with neighbouring countries such as Norway, Morocco, Ukraine, Algeria and Egypt on hydrogen rather than fossil fuel imports. The strategy also identifies potential collaborations with the United States, South Africa, Japan, Canada and Australia.

The Commission also recognises that it needs to assess the impact on third country relationships and contracts in terms of LNG terminals and gas pipelines. Within Europe, the gas network could be used to transport hydrogen, particularly cross-border trade, which could be facilitated in this way, although the Commission warns that the costs of doing so must be determined in detail.

Together with the G20, the International Energy Agency (IEA) and other international bodies, the EU seeks to create a freely accessible, rules-based hydrogen market by setting clear criteria for the fuel’s sustainability.

In addition, the European Commission understands the strategy as a complementary document to its broader climate-related policies. The EU will publish a new climate strategy in September to contribute to climate change by 2030. In June 2021, a more stringent and ambitious climate legislation package will be proposed, which will be conducive to promoting the hydrogen strategy.