On the eve of the publication of the highly anticipated Fit-for-55 Package, many questions remain unanswered about how the EU plans to approach hydrogen.
Johannes Trüby is Director/ Economic Advisory at Deloitte.
From costs and investments, to infrastructure, imports and the wider value chain, the set of rules which policymakers will write over the next few years will profoundly shape this nascent industry. Although these rules will not be easy to agree on, they will work towards one unified goal: reaching net zero emissions by 2050. This is no small feat. Many technologies will have to be ramped up. And hydrogen, burgeoning though it may be, plays a crucial role in getting Europe there.
Our recently published Hydrogen for Europe study has looked at exactly this: how hydrogen can help Europe reach its net-zero goals, with economic modelling used to assess where each type of hydrogen can best contribute. As the EU sets the Fit-for-55 train in motion, our results provide some fundamental insights for reaching climate neutrality:
Hydrogen breaks new ground in the EU’s mobility sector
With a whole series of legislative initiatives planned to decarbonise transport in particular, hydrogen can come into play where other technologies, such as electrification and energy efficiency, reach their limits. Our study finds that hydrogen becomes the main fuel in the transport sector by 2050 with demand reaching one-third of total transport sector energy use.
Together with electrification and energy efficiency, hydrogen solutions are sufficient to tackle most of the carbon emissions in the sector in 2050, providing energy-dense fuels and gases to heavy and long-distance road transport, aviation and shipping, and addressing some of the challenges electric mobility faces in terms of energy density, weight, autonomy and refuelling.
Hydrogen goes where other technologies cannot
Another missing link of the EU’s energy system is storage – especially as we move towards an increasingly renewable and variable landscape. Hydrogen plays a key role in unlocking renewable energy integration, with demand exceeding 100 million tonnes (Mt) by 2050 thanks partly to its role in absorbing, storing and transporting the bulk of the energy from additional renewable sources.
To meet net-zero in energy-intensive industries such as steel, cement and chemicals – a major headache for the EU in terms of CO2 emission abatement – hydrogen becomes the most important source of energy by 2050, representing up to 40% of total energy demand. In fact, across sectors, more than half of total gross final energy consumption could be supplied by non-electrified technologies in 2050. Already by 2030, ambitious decarbonisation targets could lift European hydrogen demand up to three times higher than the EU’s current Hydrogen Strategy objectives.
Internationally, hydrogen can be the EU’s new calling card
European energy policy has historically struck a careful balance between building European champions and ensuring sufficient (and sufficiently stable) supply through imports. Climate ambition and international competitiveness go hand-in-hand. While initiatives such as the Clean Hydrogen Alliance will possibly build a group of European champions in the sector, meeting the climate goals sees bringing in hydrogen from abroad.
Our study finds that up to 15% of the hydrogen needed to reach net zero in 2050 is imported, with many routes open for low-carbon and renewable hydrogen import in Europe including from North Africa, Russia, Ukraine and the Middle East. This does not make the EU less competitive – on the contrary, it establishes Europe as a global hub for hydrogen markets and gives us the chance to set the standard worldwide.
All colours of hydrogen are needed in the transition
Our pathways show that both hydrogen produced from renewables and low-carbon hydrogen – produced from natural gas with CCS or via pyrolysis – complement each other in establishing the hydrogen economy. The results of the study suggest that greater technology diversity helps to lower the cost of the transition and reduce the risk of missing the climate neutrality objective in 2050. On the supply side, a technology diverse pathway to climate neutrality shows potential savings of €1 trillion for society over the next 30 years.
As such, all technologies which contribute to lowering emissions should be given a chance to compete – including nuclear, natural gas and CCS. In fact, our study finds that the development of a fully operational CCS value chain is indispensable for the success of the energy transition as it allows, in combination with biomass, to achieve negative emissions. Moreover, enabled by CCS, low-carbon hydrogen can provide sufficiently large volumes of hydrogen early in the transition to support the development of infrastructure that enables the deployment of both low-carbon and renewable hydrogen.
The EU has many solutions at its disposal to reach net-zero; decisions need to be made on what combination will get us there with the most certainty and at the least cost. The policy will fundamentally shape the direction that industry and investments will take. This is why the legislative work policy-makers undertake through Fit-for-55 is so crucial.
To use a (very) familiar analogy: the EU has experienced first-hand this year the importance of hedging its bets, striking deals with multiple vaccine providers to ensure Europeans have access to the widest pool of solutions possible to get out of the COVID-19 pandemic fast, and safe. In the right regulatory framework, markets thrive and technologies deliver. Hydrogen’s participation in the race to net zero should be no different.