IEA highlights role of policy in advancing hydrogen projects

September 10, 2025, by Aida Čučuk

Scaling up hydrogen is no longer primarily a technology challenge but a policy one, as most announced projects remain stalled without long-term demand signals and government backing, according to the International Energy Agency (IEA).

Potential low-emissions production for 2030 has now grown to 37 million tonnes per annum (mtpa), but only 11% of this capacity corresponds to projects that have reached a final investment decision (FID) or are already operational, the upcoming edition of the IEA’s annual Global Hydrogen Review shows.

Two main factors are said to be at play: firstly, the cost premium for low-emissions hydrogen and hydrogen derivatives in comparison with fossil fuel counterparts, and secondly, the lack of offtake contracts that are sufficiently long-term to reduce risks and improve the bankability of projects by providing demand certainty.

As explained, high costs and demand uncertainty are recurring challenges, but market contexts and policy responses differ. While some countries rely mainly on market forces and end-users’ willingness to pay a premium for low-emissions hydrogen, others are developing various support schemes and regulations, the IEA noted. Many countries and regions have developed hydrogen strategies and roadmaps that include ambitious targets for low-emissions hydrogen.

Sweden, for example, has an energy policy framework built on the 2015 Fossil Free Sweden initiative, which brings together industry, civil society, and government to build consensus around a common vision for decarbonization. The country has also committed to net-zero greenhouse gas (GHG) emissions by 2045. Based on this long-term policy framework, Sweden is reportedly significantly advancing industrial development for low-emissions processes, including hydrogen-based steel production.

“Investors in an immature hydrogen market face high risks without sufficient long-term offtake agreements that provide clarity about the direction of travel. Stable support frameworks and bankable offtake contracts are important to provide long-term investor certainty about hydrogen demand,” IEA said.

Germany, for example, uses a mix of mechanisms to stimulate low-emissions hydrogen demand and reduce risks for investors, the energy agency pointed out, adding that the European Union (EU) has also established a platform to connect buyers and suppliers of hydrogen, providing transparency to market players and information for financial support.

Public procurement has not yet been widely used for low-emissions hydrogen, but according to IEA, it can both help create a market for low-emissions hydrogen and close the cost gap, with initial public offtake agreements that can, in time, lead to economies of scale.

In addition to subsidies, a clear regulatory framework for low-emissions hydrogen can help increase offtake and provide certainty for investors, IEA said, citing the EU’s Renewable Energy Directive (RED), which requires hydrogen produced from renewable electricity to account for at least 42% of all hydrogen used in industry by 2030, increasing to 60% by 2035.

However, the energy agency also stressed that an effective design of regulations is essential, adding: “Policy makers need to strike the right balance between regulatory obligations and support for the uptake of low-emissions hydrogen.”

IEA emphasized: “While there is no one-size-fits-all policy, enabling growth in hydrogen markets in line with the ambitions countries have set will require a greater focus on demand-side measures. There is currently a mismatch between stated low-emissions hydrogen demand-side targets and policies in place, and the production targets set in various strategies and roadmaps.”

“Countries will need to find the right model for demand creation based on their specific contexts. In general, support for hydrogen should aim to create more certainty for market-based investments with a focus on applications that lack more cost-efficient or energy-efficient solutions. Existing hydrogen consumption in industry is a good place to begin, as it can be the first driver of low-emissions hydrogen demand that kickstarts broader market development, particularly when it is supported by well-designed policy measures.”