Driving demand to unlock supply: why targeted use of climate-neutral hydrogen is key
Climate-neutral hydrogen and derivatives play a vital role as industrial feedstocks and marine fuels on the path to net zero. Yet their supply remains limited. Against the backdrop of recent global energy scenarios, Agora Industry, the International Council on Clean Transportation and the Regulatory Assistance Project examine in which applications under each sector using hydrogen would be most effective to reduce greenhouse gas emissions.
Climate-neutral hydrogen is a key ingredient for a future clean energy ecosystem, but it is scarce and costly – and less efficient than direct electrification. Its use should thus be prioritised for hard-to-electrify, “no-regret” applications. To inform policymaking and help identify areas of the economy, which would benefit from using hydrogen, Agora has updated and expanded its overview table that outlines three distinct groups:
- Well-suited uses that support climate neutrality, such as industrial feedstocks, long-haul aviation and shipping.
- Controversial uses, where the merits of using hydrogen and its derivatives are still a matter of debate, such as high-temperature industrial heat.
- Unsuitable applications where using hydrogen would be unwise because they can be decarbonised more efficiently and cost-effectively through electrification, like low-temperature industrial heat, passenger cars or individual home heating.
Currently, the production of renewable hydrogen remains limited, in part because of the lack of secure offtake agreements. To ensure sufficient amount of hydrogen in areas where it serves climate neutrality, the policy focus should lie in ramping up demand in those areas where hydrogen is a must-have option due to a lack of alternatives.
One opportunity to establish a sizeable market for renewable hydrogen in the near future could come from a decision due to be taken by the International Maritime Organization (IMO). The London-based international body is expected to decide in April on a policy architecture for reaching net-zero shipping by 2050. Depending on the details, this policy can either provide much-needed demand for renewable hydrogen and derived fuels, or delay their use by promoting Liquefied Natural Gas (LNG) and biomass in the early years.
“Renewable hydrogen is a must-have for decarbonising industrial feedstocks that are hard to electrify,” said Julia Metz, Director Agora Industry. “Given the high up-front costs of setting up production capacities for renewable hydrogen and derivatives, it is crucial that key sectors like maritime shipping provide clear incentives. This could trigger a positive tipping point in global demand, growing the renewable hydrogen market and enabling manufacturers to scale production – benefitting other industries like steel and chemicals.”
The most recent global energy scenarios see less need for climate-neutral hydrogen in final energy consumption by 2050 (5 to 14 percent) than previous forecasts (14 to 22 percent). The authors emphasise that while hydrogen is a clean burning fuel, whether it reduces overall emissions depends on how it is produced. Ensuring a positive climate impact is best achieved by directing investments towards renewable-based hydrogen, or grid-based electrolytic hydrogen in decarbonised power systems.
The 64-page slide deck ‘Prioritising hydrogen for the most effective uses’ was developed in collaboration with ICCT and RAP and can be accessed for free below. Each slide comes with deep links to underlying publications online, providing additional context.
