Green hydrogen's fate in a net zero economy hinges on upscaling

An adaptable energy carrier like hydrogen potentially has numerous decarbonisation use cases in the world’s march to a future net zero economy. It can be deployed directly or in the shape of its derivatives or as a substitute for fossil fuels.

It can provide the basis for decarbonising hard-to-abate sectors like aviation, chemicals, shipping and steel manufacturing. But how sustainable such a switchover is, depends on how clean the hydrogen being used ultimately is.  

That is why hydrogen is currently branded as ‘grey’, ‘blue’ or ‘green’ depending on the amount of CO2 generated over the course of its production. Admittedly, bulk of the hydrogen currently produced around the world is grey hydrogen, made from natural gas through an extremely carbon intensive process known as steam methane reforming (SMR).

Next comes blue hydrogen, a lower carbon version still made using SMR but with carbon capture and storage. And finally, there is the cleanest form or green hydrogen produced via electrolysis of water using renewable power, or in simple terms by splitting hydrogen atoms from water molecules using sustainably generated electricity.  

It yields e-ammonia, e-methanol, and e-fuels. But green hydrogen only accounted for less than 1% of the global production in 2022, according to the International Energy Agency (IEA). Unless this changes, the role of hydrogen is unlikely to be a meaningful one in a net zero future.  

Grasping the opportunity

At the conclusion of COP28 in the United Arab Emirates in 2023, global policymakers and leaders talked up the potential of taking the world’s industries down the green hydrogen pathway. Doing so would deliver anywhere between 75 to 100 gigatons in cumulative CO2 emissions reductions by 2050. That is in the region of around twice what global CO2 emissions were in 2022.

The financial brass tacks of a green hydrogen economy are equally appealing. For instance, global consultancy Deloitte's modelling suggests a thriving clean hydrogen industry may offer the global economy, and especially developing countries, a substantial sustainable growth opportunity.

It expects the green hydrogen market to top the value of the global liquified natural gas (LNG) trade by 2030 to around US$650 billion and grow further to US$1.4 trillion per year by 2050.

Furthermore, “targeted and significant investment” in emerging markets may account for nearly 70% of the US$1.4 trillion annual investment figure in 2050. It may also support up to 2 million jobs globally per year between 2030 and 2050.

Various methodologies and modelling frameworks out in the wider market also put the green hydrogen market’s compound annual growth rate (CAGR) at anywhere between 40% and 70% using the fiscal year of 2023-24 as a calculation benchmarking point for the decade to 2032-33.

While market growth is certainly on the horizon, that is a very broad CAGR bracket and should be treated with a dose of healthy scepticism. Understanding the ground reality of green hydrogen upscaling is vital.

Doubtless, two upcoming global conferences this summer will notch the dialogue and understanding up a level or two – Global Energy Transition Congress in Milan (July 1-3) and Gastech 2024 (September 17-20) in Houston. 

Will projections mirror reality?

By my calculation, nearly 40 countries have formally announced policy, investment or development initiatives over the past five years. The US, UK, China, a Germany-led European Union, United Arab Emirates, Australia, India, Morocco, South Africa and Namibia are just some of the markets with well publicised green hydrogen plans.

The IEA projects the world’s new electrolyser capacity for green hydrogen generation to hit 115GW by 2030. But according to PwC, most current hydrogen projects – both in operation and under construction – are almost exclusively at pre-commercial phase and with limited electrolyser capacities, typically well below 50MW.

The global financial consultancy did note that many proposed plants do have larger capacities of 100MW or more. However, those are still small compared to current grey hydrogen production plants.

Furthermore, there is an inescapable use case reality. At present, roughly 90% of global hydrogen usage is for just three industrial applications – methanol production for fuel blenders, manufacturing ammonia for fertilisers and chemicals, and lowering sulphur content of diesel in refineries.

Several industries considered to be potential users of green hydrogen use none of it at present. A shift in the industrial complex, especially deploying green hydrogen as a heat source, will require heavy investment and reimagination.

And capacity and usage are just two aspects. We cannot lose sight of the infrastructure underpinnings that would be needed. Hydrogen needs to be liquefied (or compressed), stored, and transported (via ground transportation or repurposed pipelines).

Trillions of dollars would likely be needed to make it happen and optimise the global value chain of clean hydrogen. Therefore, a visible upward trajectory of investment and commitments is crucial before the turn of this decade if the world is to turn market projections into reality by 2050.

• Gaurav Sharma is a London-based energy market analyst, commentator and a former global investment banking analyst. He is a regular contributor to global academic forums, energy industry events and OPEC conference streams.