This cost differential is further eroded over the outlook as improvements in technology and manufacturing efficiency lower the price of both renewable power and electrolysers, the report states.
The outlook is based on three varying scenarios – Accelerated, Net Zero and New Momentum – and acknowledges low-carbon hydrogen plays a critical role in decarbonising the energy system, especially in hard-to-abate processes and activities in industry and transport.
The use of low-carbon hydrogen is most pronounced in Accelerated and Net Zero, complementing growing electrification of the energy system by acting as a carrier of low-carbon energy for activities that
are difficult to electrify. The lower degree of decarbonisation in New Momentum means low-carbon hydrogen plays a relatively limited role.
To 2030, growth of low-carbon hydrogen during the first decade is relatively slow, reflecting both the long lead times to establish low-carbon hydrogen projects and the need for considerable policy support to incentivise its use in place of lower-cost alternatives.
The demand for low-carbon hydrogen by 2030 is between 30-50 Mtpa in Accelerated and Net Zero, the majority of which is used as a lower carbon alternative to the existing unabated gas- and coal-based hydrogen used as an industrial feedstock in refining and the production of ammonia and methanol.
The pace of growth accelerates in the 2030s and 2040s as falling costs of production and tightening carbon emissions policies allow low-carbon hydrogen to compete against incumbent fuels in hard-to-abate processes and activities, especially within industry and transport. Demand for low-carbon hydrogen rises by a factor of 10 between 2030 and 2050 in Accelerated and Net Zero, reaching close to 300 and 460 Mtpa (35-55 EJ) respectively.
Green hydrogen accounts for around 60% of low-carbon hydrogen in 2030 in Accelerated and Net Zero, with that share increasing to around 65% by 2050. Most of the remaining hydrogen is provided by blue hydrogen, with a small amount produced from bioenergy combined with carbon capture and storage (BECCS).
Blue hydrogen acts as an important complement to green hydrogen providing, a lower-cost alternative in some regions as well as providing a source of firm (non-variable) low-carbon hydrogen supply. The growth of blue hydrogen also reduces the extent to which renewable energy is diverted from decarbonising electricity that is consumed directly.
The use of low-carbon hydrogen in iron and steel production accounts for around 40% of total industrial hydrogen demand by 2050 in Accelerated and Net Zero, where it acts as an alternative to coal and natural gas as both a reducing agent and a source of energy. The remaining industrial use of hydrogen is in other parts of heavy industry, such as chemicals and cement production, which also require high-temperature heat processes. By 2050, low-carbon hydrogen accounts for around 5-10% of total final energy used in industry in Accelerated and Net Zero.
The use of hydrogen within transport is heavily concentrated in the production of hydrogen-derived fuels used to decarbonise long-distance transportation in marine (in the form of ammonia, methanol, and synthetic diesel) and in aviation (in the form of synthetic jet fuel). These hydrogen-derived fuels account for between 10-30% of final aviation energy demand by 2050 and 30-55% of final energy use in the marine sector in Accelerated and Net Zero. Most of the remainder is used directly in heavy duty road transport.
By 2050, low-carbon hydrogen and hydrogen-derived fuels account for between 10-20% of total final energy used by the transport sector in Accelerated and Net Zero.
This afternoon, Spencer Dale, bp’s Chief Economist, discussed some of the key points from the report with Elizabeth Press, Director of Planning and Programme Support at IRENA, and Jason Bordoff, Founding Director, Center on Global Energy Policy.
“We’re already very slow and will not make it to 2030 in time,” said Press. “We still deal with the energy transition as if it was a fuel replacement – it’s a systemic change that needs to happen. Our targets are a bit more ambitious than yours – we see about 90% of solutions in the power sector to come from renewables – but when you look where it’s happening, it’s concentrated in the US, China, Europe and partially India. Africa in the last 10 years has had 2% of all finance, so access to affordable finance, infrastructure systems, investment in policy and skillsets all has to come at once.”
Bordoff said people “jump through hoops” when energy security is at risk, and there is a growing sense of urgency to deal with the climate crisis. Echoing a central message from Davos, he said developed countries need to drive decarbonisation in emerging economies.
“After the 1970s crisis we built a toolkit to deal with emergencies and that’s just not fit for purpose anymore. With the new risks we face in the coming decades, from this multi-decade process of transition – which is not going to be smooth and linear – we need a whole new toolkit for private companies and policymakers to make sure we’re able to manage more volatility.”
He said there are now some tensions between the US and Europe over the IRA. “There are many more opportunities to collaborate now, to raise the standards for everyone – we just have to make sure it goes in that direction, and not the protectionist one.”
The session closed with a poll on the impact of the IRA on the speed of the energy transition, and the largest band (40%) saw it accelerating developments in the US but not extending beyond its borders.