By Anna Lorant and Guillaume Morauw
The European Hydrogen Bank, a financing instrument that supports renewable hydrogen production within the EU and internationally, has just announced a €1.2 billion investment to help boost the renewable hydrogen economy, a cornerstone of the EU’s strategy to achieve climate neutrality by 2050. While many are focusing on how this can help to meet hydrogen production targets, it’s important to remember that how we deploy hydrogen also matters. Whether or not hydrogen will actually deliver climate benefits depends on the detail, and that is why all eyes are on the Terms and Conditions of the second Hydrogen Bank Auction, as a significant instrument to scale up the European hydrogen market.
The EU has identified renewable hydrogen as a key component of its sustainable energy transition plan. Its ambition is to produce 10 million tons domestically by 2030, which it sees as crucial for decarbonising industries traditionally reliant on fossil fuels. This will require considerable investment. According to European Commission estimations, €200-300 billion is necessary just for additional renewable electricity production, while at the same time, infrastructure needs, including scaling up of electrolyser manufacturing, will require further support.
The European hydrogen bank could help determine whether the climate wins or loses Share on XAs the main EU instrument for funding renewable hydrogen projects, the Bank’s aim is to help bridge the investment gaps, balance supply and demand and grow the hydrogen economy, while fulfilling its primary goal of delivering substantial climate benefits.
Yet these climate benefits aren’t guaranteed simply by scaling up hydrogen — even if it is produced from renewable sources. We have to pay close attention to the details to get hydrogen right if we are to reap the climate benefits.
Therefore, for the recent European Commission consultation on the EU Hydrogen Bank’s second auction round, we took the opportunity to dive into the T&Cs to see how they support these goals, and where there might be room to further strengthen them in order to maximize the climate benefits from these subsidies.
How the EU Hydrogen Bank’s T&Cs can promote higher climate benefits
For the EU to meet its climate goals with the help of hydrogen, it is crucial to put robust and up-to-date science at the heart of its hydrogen policy framework. Given what we know about hydrogen emissions science, our focus on ensuring the auction’s T&Cs are designed to take into account and minimize the risk of hydrogen emissions and their climate implications, and ultimately maximise hydrogen’s value. We see four key areas to do this:
1. Keep the priority on the cleanest form of hydrogen
Since the biggest challenge with hydrogen produced with renewable energy sources (the cleanest form of hydrogen) is the cost, the Bank aims to provide financial incentives to make renewable hydrogen cost —competitive alongside fossil fuel-derived hydrogen, which is currently cheaper to produce but has greater climate risks. The idea being that this would boost renewable hydrogen production and accelerate its market integration.
Although some would argue that the scope within the T&Cs should be widened beyond renewable hydrogen, ensuring it remains laser-focused on renewable hydrogen is more aligned with delivering superior climate benefits.
Prioritizing renewable hydrogen in Europe will help drive innovation, reduce costs and ensure the emerging industry supports decarbonisation at its core, rather than undermines it. It is the most compatible option with the EU’s climate neutrality and zero pollution goals in the long term.
2. Channel investments strategically to the right use cases
Strategically channelling investments into hard-to-abate industries that lack alternative paths to reduce emissions will ensure that hydrogen funding is going where it is most urgently needed for rapid decarbonisation.
Most analyses find that direct electrification will play the biggest role in decarbonisation; yet about 20-30% of global CO2 emissions cannot be reduced from direct electrification alone — and so that’s where hydrogen comes in. This includes sectors like cement, steel, glass and also heavy transport: shipping and aviation.
Inclusion of a specific basket dedicated to the maritime sector (whose decarbonisation heavily relies on renewable fuels) in this auction round is new and makes a lot of sense. So much sense, in fact, that the same approach should cover other hard-to-abate industries that are also struggling with no other available decarbonisation pathway. If a separate budget basket for hard-to-abate sectors proves unfeasible, prioritizing projects with off-takers from those sectors should happen during the evaluation phase. The best climate value we will get from public funding in hydrogen, will be in those targeted and strategic sectors.
3. Ensure solid foundations with accurate emissions calculations
Accurately calculating and considering hydrogen’s total emissions footprint, including often-overlooked emissions risks, is essential to revealing its true climate impact and therefore setting the right policy incentives to drive down those emissions.
Climate mitigation benefits of the subsidy will likely be overestimated as long as climate impacts of hydrogen emissions are not considered. As an indirect climate-warming gas, hydrogen has short-lived but potent climate warming effects: it can trap nearly 40 times more heat than CO2 over the first 20 years in the atmosphere. Therefore, the methodology to calculate the level of CO2e abatement must consider hydrogen leak risks to correctly capture overall emissions reductions.
4. Reward projects with higher environmental standards
As the Bank looks to support the market to scale, it should evaluate projects not only on cost, but also on environmental factors, such as the implementation of appropriate emissions mitigation measures (for example, the recovery and reuse of vented/purged/residual hydrogen, based on the latest technology). Prioritizing climate-positive production methods will steer the hydrogen economy on a trajectory that encourages deep decarbonisation across sectors.
When it comes to hydrogen, the EU is faced with the challenge of building the plane and flying it at the same time —and that’s no easy feat! That’s why we need the science to help us make the best decisions along the way. Because critical investments such as the European Hydrogen Bank’s will shape whether the emerging renewable hydrogen market is aligned with EU climate goals, or leaves us with regrets when we reach 2050 and beyond.