Governments must do more to reduce costs of hydrogen and promote its wider use, IEA says

The clean fuel can help the world reach net zero emissions and support energy security

Seventeen governments have released hydrogen strategies, while more than 20 others say they are working on theirs. Antonie Robertson / The National

Governments are increasingly investing in hydrogen projects to accelerate their clean energy transition and cut emissions, but further efforts are needed to reduce costs and encourage wider use of the clean fuel across sectors, according to the International Energy Agency (IEA).

Countries need to move faster and more decisively on a wide range of policy measures to enable low-carbon hydrogen to fulfil its potential to help the world reach net zero emissions, while supporting energy security, the Paris-based intergovernmental agency said in its Global Hydrogen Review 2021 report on Monday.

“It is important to support the development of low-carbon hydrogen if governments are going to meet their climate and energy ambitions,” Fatih Birol, the IEA’s executive director, said.

“Governments need to take rapid actions to lower the barriers that are holding low-carbon hydrogen back from faster growth, which will be important if the world is to have a chance of reaching net zero emissions by 2050.”

Globally, the hydrogen industry is expected to grow to $183bn by 2023, from $129bn in 2017, according to Fitch Solutions. French investment bank Natixis has estimated that investments in hydrogen will exceed $300bn by 2030.

Hydrogen, which is being trialled as an alternative to fossil fuels in the transport sector, can help slash greenhouse gas emissions from the hydrocarbons sector by 34 per cent, according to BloombergNEF.

Many oil-exporting nations, such as the UAE and Saudi Arabia, are developing the clean fuel for domestic use and for export to tap into hydrogen’s potential.

Earlier this year, three Abu Dhabi-backed entities – Mubadala Investment Company, Abu Dhabi National Oil Company and holding company ADQ – formed an alliance to develop a hydrogen centre in the country.

The UAE, Opec’s third-biggest producer, is also looking at possible uses for hydrogen in transport and manufacturing.

Currently, global production of low-carbon hydrogen is minimal, Its cost is not yet competitive and its use in promising sectors such as industry and transport remains limited.

But there are encouraging signs that it is on the cusp of significant cost declines and widespread global growth, according to the IEA report.

To date, 17 governments have released hydrogen strategies and more than 20 others have announced they are working to develop theirs, while numerous companies are seeking to tap hydrogen business opportunities, the report said.

Pilot projects are under way to produce steel and chemicals with low-carbon hydrogen, with other industrial uses under development, said the IEA. The cost of fuel cells that run on hydrogen continues to fall and sales of fuel-cell vehicles are growing, it added.

“We have experienced false starts before with hydrogen, so we can’t take success for granted,” Mr Birol said. “But this time, we are seeing exciting progress in making hydrogen cleaner, more affordable and more available for use across different sectors of the economy.”

The main obstacle to the extensive use of low-carbon hydrogen is the cost of producing it. This requires either large amounts of electricity to produce it from water or the use of carbon-capture technologies if the hydrogen is produced from fossil fuels, the IEA said.

Almost all hydrogen produced today comes from fossil fuels without carbon capture, resulting in about 900 million tonnes of CO2 emissions, This is equivalent to the combined CO2 emissions of the UK and Indonesia, said the agency.

“Investments and focused policies are needed to close the price gap between low-carbon hydrogen and emissions-intensive hydrogen produced from fossil fuels,” the IEA said.

Global capacity of electrolysers – which produce hydrogen from water using electricity – have doubled over the past five years, with about 350 projects under development and another 40 projects in the early stages, the report said.

If all these projects are realised, global hydrogen supply from electrolysers – which create zero emissions provided the electricity used is clean – would reach 8 million tonnes by 2030, the IEA said.

This is a huge increase from today’s level of less than 50,000 tonnes, but remains well below the 80 million tonnes required in 2030 in the IEA’s road to net-zero emissions by 2050, the agency added.

All hydrogen use in 2020 was for refining and industrial applications, according to the IEA report. The clean fuel has potential uses in sectors where emissions are particularly challenging to reduce, such as chemicals, steel, haulage, shipping and aviation, the report added.

“The broader issue is that policy action so far focuses on the production of low-carbon hydrogen, while the necessary corresponding steps that are required to build demand in new applications is limited,” the IEA said.

“Enabling greater use of hydrogen in industry and transport will require much stronger policy measures to foster the construction of the necessary storage, transmission and charging facilities.”

Countries with hydrogen strategies have committed at least $37bn to the development and deployment of hydrogen technologies, while the private sector has announced additional investment of $300bn, the IEA said.

But putting the hydrogen sector on a path consistent with global net-zero emissions by 2050 requires $1.2 trillion of investment between now and 2030, the agency estimated.