This article was first published in H2 View.
By Daryl Wilson, Executive Director, Hydrogen Council
December 12, 2015: a date that should be familiar to us all by now. It was on this day at COP21 in Paris that 195 countries signed a legally binding agreement to keep global warming well below 2°C, signalling a major transformation of the world’s energy system. With climate urgency now pressing, we must move away from fossil-based systems of energy production and consumption to renewable sources like wind and solar.
Clean hydrogen and its derivatives have an essential enabling role in this new energy system which aims to reach Net Zero emissions worldwide by 2050. Complementing other decarbonisation technologies which must be deployed across the global economy, clean hydrogen offers the only long-term, scalable and cost-effective option for deep decarbonisation in hard-to-abate sectors such as steel, heavy-duty transport and ammonia.
From now through 2050, the Hydrogen Council estimates that hydrogen can avoid 80 gigatonnes (GT) of cumulative CO2 (carbon dioxide) emissions. With annual abatement potential of seven GT by 2050, hydrogen could by then be contributing 20% of the total abatement needed. This would require the use of 660 million tonnes (MT) of renewable and low-carbon hydrogen in 2050 – equivalent to 22% of global final energy demand.
So hydrogen is critical in enabling a decarbonised energy system – we highlighted this in the Hydrogen Council’s Hydrogen for Net Zero report, released in 2021. But the reorganisation of today’s economic and industrial structures will be extensive. To decarbonise the global economy as quickly, effectively and cost efficiently as possible, we need international trade of hydrogen to link sources of cheap renewable energy with areas of high demand. This is the focus of the Council’s brand-new report, Global Hydrogen Flows, released in October.
Global Hydrogen Flows, co-authored by McKinsey & Company, connects our previous 2020 report, Path to Hydrogen Competitiveness, which explores the costs and economic benefits of hydrogen as a decarbonisation vector, with Hydrogen for Net Zero, which estimates overall demand growth in line with 2050 Net Zero objectives. The new report provides a perspective on how global hydrogen trade flows may develop and the investments that are needed to unlock it, giving a picture of what the global hydrogen economy could look like by 2050 if it were economically optimised.
The report highlights that cumulative hydrogen investments will grow five times over from 2030 to 2040 ($1 trillion in 2030 to $5 trillion in 2040), then double again by 2050 to $10 trillion. This means that investments into hydrogen will reach $500bn per year by 2050 – equivalent to 25% of today’s overall spending on energy.
The Hydrogen for Net Zero trajectory would see hydrogen demand in 2030 at 145 MT, growing to more than 660 MT by 2050. Global Hydrogen Flows outlines how we could deliver that 660 MT, and the trajectory to it, as efficiently and quickly as possible. Where should the hydrogen be produced? How should it be produced? Using which technologies and resources? And, the heart of the topic, what for – to move electrical energy, as a fuel vector itself, or as a finished product? This will determine the form in which power or hydrogen is moved around the globe.
We recognise there are markets that will be self-sufficient in their own hydrogen production – whether thanks to renewable resources or carbon sequestration facilities. There are countries, and regions, which are massive energy importers today and will continue to be massive energy importers in the future. Then, there are regions which can produce a lot of renewable energy themselves, but not enough to meet their own requirements. Here, it will be a mix of domestic renewable production and imports – and Europe is the obvious example.
In looking at where we think hydrogen will be produced and how it will move around the world, it shows the following:
A third of hydrogen worldwide will be produced locally for local consumption
A third of hydrogen will be produced in areas connected to consumption areas by pipeline – pipelines are the cheapest way to move large quantities of energy around
A third of hydrogen will be moved (in a variety of forms) around the world by ship.
If we don’t have international trade, then all energy will need to be produced near where it’s being consumed. As Global Hydrogen Flows shows, the areas of large energy consumption are not aligned with the areas of large renewable resource availability. If you don’t allow international trade, then you instead have to install a lot more renewable power generation in areas where it’s actually very inefficiently used.
China, India, Japan, South Korea, Europe and North America will account for 75% of global hydrogen demand, with China emerging as the largest consumer, in the years to come. But Japan and Korea in particular will have very limited competitive renewable energy resources – if they had to produce all of their own renewable power, it would be very expensive.
It will continue to be far cheaper to import most of their power and fuel requirements, from Australia for instance, and that energy will arrive in the form of hydrogen or hydrogen derivatives (think ammonia for power generation). It is worth noting that, as a result, the role of fuel cell vehicles could be far more extensive in Japan and Korea than many areas of the world since they will be as, or potentially more, efficient as BEVs at the system level.
The evolution of the global gas and LNG market may have parallels with the prospective global market for hydrogen. However, the key differentiator is that the value of hydrogen is contained in both the value of the physical product and in the value of the environmental attribute – in other words, the certification.
For international trade to take place, we need to have international certification schemes. Hydrogen certification will play a crucial role in building customer trust and enabling customer choice. We need policymakers to create internationally recognised, fungible schemes that allow hydrogen to move around, and for destination markets to be sure of what they are buying. Importing regions and individual customers can make their own decisions about the attributes that they require to meet local standards (renewable content, carbon intensity), but this must be based on a set of generally accepted identification methodologies and principles.
If this certification is realised, it will stimulate demand and enable a market-based approach to hydrogen sourcing. In turn, this will facilitate global, cross-border trade in hydrogen, enabling supply and demand to meet in an efficient manner across geographies.
Of course, to allow hydrogen in very large quantities to be moved around, we need infrastructure to develop. Energy today travels over very long distances and that’s going to be true in the new energy system.
Over the past few years we’ve moved from demonstration projects to the emergence of project clusters in valleys and ports. These local hydrogen hubs are a very strong concept as new industrial structures begin to develop, and they provide an important scaling-up step for new technologies. But hubs will need to be interconnected via a full infrastructure system to serve the energy needs in any particular region, and that means pipelines and interconnected renewables and electrolyser business. I think we’re beginning to see where those infrastructure investments need to be made, and the approximate pace to make those happen.
Momentum continues to grow for hydrogen – the Hydrogen Council is currently tracking 680 large-scale project proposals worth $240bn – reflecting the huge amount of focus on the role hydrogen plays in the energy transition.
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