Low-Carbon Hydrogen Has Robust Growth Prospects but Needs Policy Support

San Francisco, CA – November 28, 2023: — Global demand for low-carbon hydrogen is predicted to rise steadily — although it accounted for less than 1% of the total hydrogen production in 2022 (IEA). Demand increases are estimated to reach 150 Mt by 2030 and 520 Mt in 2050 — but a lot will depend on the policy environment and other factors, according to a study by Cleantech Group.  An estimated $80 – $300B will be required to build the global low-carbon hydrogen economy by 2030.

Produced with at least 80% lower emissions than fossil fuels, low-carbon hydrogen costs up to three times more than alternatives, but robust policy support including direct financial incentives, can help it become competitive. Low-carbon hydrogen could gain a 14% share of global energy demand by 2050, according to the IEA.

“Green hydrogen production is energy-intensive and there is a need for additional renewable capability, new infrastructure, and a better supply chain,” said Selene Law, Sr. Associate Energy & Power at Cleantech Group. “The industry will need to overcome technical midstream challenges and aggressively cut costs to become competitive,” she added.

“Stable and supportive policy environment is also crucial,” Law said. “Convoluted support procedures in the EU, uncertainty around hydrogen regulation in the U.S., and an insufficient number of hydrogen purchase agreements (HSAs) lead to delays in investment decisions.”

Key findings:

• Emerging global strategy. By 2030, innovation — supplemented by subsidies — is expected to cut the cost of low-carbon hydrogen production by 80%. Many countries are targeting a $1-$3/kilogram goal, with higher carbon prices even enabling low-carbon hydrogen cost parity with fossil fuel equivalents in some geographies, such as the EU. Still, challenges abound, notably in building a global hydrogen economy, estimated to cost between $80B – $300B.
   
• Far-reaching impact. Increased penetration of low-carbon hydrogen can have far-reaching impact across broad swathes of the economy. It can help decarbonize hard-to-abate industries, such as heavy-duty trucking (6% of global CO2 emissions), steel production (9% of CO2), and aviation (2.4% of CO2). Green ammonia for fertilizer production is the nearest-term offtake market since no custom facilities will be required for its transportation and it has the lowest cost barrier for producers.
   
• Funding remains encouraging. In 2022, venture investors poured a record $2.41B into hydrogen ventures, including $300M on Monolith, which has developed methane pyrolysis technology to split natural gas into carbon and hydrogen gas on a commercial scale. This year, the industry is on course for a lower $1.92B. Overall, green hydrogen is the best funded segment, with $954M, followed by hydrogen pyrolysis with $300.1M.
   
• Emerging rainbow options. Hydrogen occurs in many forms, with each offering varied options and challenges. Naturally occurring hydrogen — dubbed ‘gold’ when found underground, and ‘white’ when identified in depleted oil wells — could be among the cheapest at less than $1/kilogram. ‘Turquoise’ hydrogen, produced by methane pyrolysis, has the potential to be carbon negative and offers carbon black as a byproduct. Green hydrogen, produced with renewable energy, is growing fast but poses challenges to scale up. Companies with nuclear assets have the opportunity to produce ‘pink’ hydrogen using electrolysis, and ‘purple’ hydrogen with thermolysis.
   
• Innovation focused on costs, efficiency. Hydrogen start-ups are bringing innovation to address the twin challenges of reducing costs and raising efficiencies. In production, Aurora Hydrogen is using plasma at high temperatures to reduce CO2, while Plagazi is tapping different waste feedstocks. Similarly, Getech is using subsurface imaging to tap natural hydrogen.

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