Europe's Green Hydrogen Rules Raise Costs for Industry

Aug 17, 2022 12:00 PM ET
  • The European Union (EU) has made clean hydrogen a pillar of both its net-zero target for 2050 and its near-term initiatives to get off Russian gas.

To enable the scale-up of the industry, the EU launched its interpretation of hydrogen that will certainly qualify as green and the allocate its long-awaited carbon contracts-for-difference scheme. The EU's stringent rules will certainly ensure any hydrogen produced is low carbon, but raises the cost of purchase for industrial end-users.

  • Europe has actually taken a lifecycle approach to measuring exhausts from hydrogen (H2). The EU has actually set a discharges threshold for hydrogen of 3.38 kilograms (kg) CO2-equivalent per kg-H2. This is extra lenient than a few other areas however covers a wider emissions scope: whatever from the power inputs to make H2 with to consumption.
  • The suggested rules favor H2 projects in areas with high shares of renewables. Given that Norway's grid is 90% renewable, a grid-connected electrolyzer can qualify as green and achieve a levelized cost of H2 (LCOH2) of $2.58/ kg in 2025 while ensuring secure output. Nevertheless, in most EU nations, the bloc's interpretations will certainly provide preference to co-located wind as well as solar as the source of power. H2 generated from wind and solar in Portugal might set you back 4% less than a grid-connected project in Norway yet would only have a 50% use rate.
  • Strict temporal correlation will certainly drive up the cost of stable H2 production called for by industrial end-users. The EU calls for per hour matching of H2 production and renewables generation, which limits an electrolyzer's application rate without added energy storage space. An off-grid project in Germany could generate stable H2 utilizing solar, wind as well as batteries for an LCOH2 of $4.91/ kg in 2025-- nearly dual that of a grid-connected project in Norway.
  • The carbon contracts-for-difference (CCfD) scheme will certainly bridge the gap. As a result of start in autumn 2022, the CCfD will certainly ensure green H2 is affordable for industrial applications. If 20% of the EU Innovation Fund budget in 2025 went to green steel projects making use of H2, the scheme would support 55,085 lots of yearly renewable H2 manufacturing.
  • (Correction on July 26, 2022: Corrects to the European Parliament as well as the Council of the EU having two months to raise objections on page 2. Corrects name of EU's plan to 'REPowerEU' throughout.).

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