Global low-emissions hydrogen growth threatened by lack of policy support and high costs, IEA report shows

While interest in new low-emissions hydrogen is on the rise, the slow roll-out of financial incentives and cost pressures put investment plans for future projects at risk, according to a new report published by the International Energy Agency (IEA).

Map of announced low-emission hydrogen production projects. Courtesy of IEA

The latest edition of the IEA’s annual Global Hydrogen Review 2023 published on September 22, 2023, shows that the number of announced projects for low-emission hydrogen production could reach 38 Mt annually in 2030 if all announced projects are realized, although 17 Mt come from projects at early stages of development.

The potential production by 2030 from announced projects to date is 50% larger than it was at the time of the release of the IEA’s Global Hydrogen Review 2022. However, only 4% of this potential production has at least taken a final investment decision (FID), a doubling since last year in absolute terms (reaching nearly 2 Mt).

Of the total, 27 Mt is based on electrolysis and low-emission electricity, and 10 Mt on fossil fuels with carbon capture, utilization, and storage.

Even though the number of announced projects continues to expand rapidly and more than 40 countries worldwide have set out national strategies, installed capacity and volumes remain low as developers wait for government support before making investments.

As such, low-emissions hydrogen still accounts for less than 1% of global hydrogen production and use and will need to grow more than 100-fold by 2030 to get in line with the Net Zero Scenario, IEA says in the review.

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“We have seen incredible momentum behind low-emissions hydrogen projects in recent years, which could have an important role to play in energy-intensive sectors such as chemicals, refining, and steel,” said IEA Executive Director Fatih Birol.

“But a challenging economic environment will now test the resolve of hydrogen developers and policymakers to follow through on planned projects. Greater progress is needed on technology, regulation, and demand creation to ensure low-emissions hydrogen can realize its full potential.”

Deployment of electrolyzers picks up the pace with China at the forefront

Deployment of electrolyzers does not seem to be slowed down by economic headwinds.

By the end of 2022, electrolyzer capacity for hydrogen production reached almost 700 MW. Based on projects that have reached final investment decisions or are under construction, total capacity could more than triple to 2 GW by the end of 2023, with China accounting for half of this.

If all announced projects are realized, a total of 420 GW could be achieved by 2030, an increase of 75% compared to the IEA’s 2022 review.

Manufacturers have announced plans for further expansion but their ambitious plans will depend on solid demand for electrolyzers, which today is highly uncertain. Such uncertainty is already resulting in delays to these expansion plans, some of which are being put on hold, IEA explained.

Low-emissions hydrogen needs more stimulation to meet climate goals

Global hydrogen use reached 95 Mt in 2022, a nearly 3% increase year-on-year, with strong growth in all major consuming regions except Europe, which suffered a hit to industrial activity due to the sharp increase in natural gas prices.

IEA linked this global growth to general global energy trends rather than the success of policy efforts to expand the use of hydrogen. Despite reaching a historical high, demand remains concentrated in industry and refining, with less than 0.1% coming from new applications in heavy industry, transport, or power generation.

Low-emission hydrogen is being taken up very slowly in existing applications, accounting for just 0.7% of total hydrogen demand, implying that hydrogen production and use in 2022 was linked to more than 900 Mt of CO2 emissions.

Furthermore, the review notes that government action has been focused on supporting low-emission hydrogen production, with less attention to the demand side. The sum of all government targets for low-emission hydrogen production accounts for 27-35 Mt today, but targets for creating demand account for just 14 Mt, less than half of which is focused on existing hydrogen uses.

Direct purchase agreements with private sector consumers are beginning to emerge but remain at a very small scale, IEA says.

An opportunity to boost economy and future steps

The IEA’s report also outlines how low-emissions hydrogen can be an opportunity for countries to boost their economies in the future by creating new industrial supply chains. Some countries already introduced government funding programs through schemes such as the US Clean Hydrogen Production Tax Credit, the European Union’s Important Projects of Common European Interest, and the UK Low Carbon Hydrogen Business Model.

However, the lengthy time lags between policy announcements and implementation are causing developers to delay projects, IEA warns.

Finally, the review offers several steps for governments to reduce risk and improve the economic feasibility of low-emissions hydrogen such as effective delivery of support schemes, bolder action to stimulate demand, and addressing market barriers such as licensing and permitting.

Moreover, establishing international markets in hydrogen requires cooperation to develop common standards, regulations, and certifications, IEA concludes.