1. Introduction

The European Union (“EU”) considers hydrogen a critical component of the energy transition, and its commitment to reach carbon neutrality by 2050. On 8 July 2020, the EU Commission (the “EC”) published its hydrogen strategy report, setting out the foundations for developing the EU’s hydrogen market (the “Report”). This article provides an overview of the Report, and outlines how the European hydrogen market is likely to develop in the coming years.

2. Background to Hydrogen Market

At present, the industrial sector accounts for the majority of the EU's hydrogen consumption - in particular as a feedstock for petrochemicals and fertiliser. As stated in the Report, most of this demand (98%) is satisfied by using hydrocarbons as a fuel and feedstock to produce hydrogen, resulting in significant carbon dioxide emissions (70 – 100 million tonnes of CO2 annually).

According to the Report, hydrogen use has tripled since 1980 and is expected to increase 7% annually through to 2030. This increase in demand will largely be driven by hydrogen’s use in the energy transition, including as a fuel for transport and as a replacement for other carbon-intensive fuels, as a heat source for buildings and as a fuel for power generation (potentially blended into natural gas).

3. The EC's Approach

To develop the hydrogen market, the EC has adopted a value-chain approach, under which it focuses (in parallel) on the production of hydrogen, associated infrastructure, supply and the creation of market demand. By adopting a value-chain approach, the EC states in the Report that it will ensure that aspects of the market do not develop in isolation.

Although the Report focuses on all areas of the hydrogen market, the following segments are the most significant.

A) Generation

The EC's view is that hydrogen production must become fully decarbonised and, accordingly, the EC has prioritised the development of renewable hydrogen produced predominately from wind and solar energy. This is the most compatible with the EU's climate neutrality and zero pollution goals, and this leverages existing European industrial strength in renewables and electrolyser production.

The EC has established a headline commitment of at least 6 GW of renewable hydrogen electrolysers in the EU by 2024, and 40 GW by 2030. This represents a significant increase compared to today's production capacity of approximately 1 GW. The Report does not expressly outline how these generating capacities are expected to be achieved.

B) Supply/ Infrastructure

Although the EC anticipates that the requirement for hydrogen infrastructure will initially remain limited, as demand will be met by production close to or on site, the Report recognises that the long-term, widespread use of hydrogen as an energy carrier in the EU will require energy infrastructure for connecting supply and demand.

The Report, therefore, also focuses on transportation, anticipating that transport will be multimodal, including transport by:

a) pipeline (repurposing existing gas infrastructure and new dedicated hydrogen pipelines);
b) road and rail (ideally using hydrogen fuel cell electric vehicles); and
c) marine and other vessels.

The Report also recognises that the form of hydrogen (which is likely to be project specific) will need to be considered when determining the most appropriate mode of transport. For example, hydrogen can be transported in gaseous or liquid state or bound in larger molecules that are easier to transport, such as ammonia.

Although no definitive solutions are proposed, the EC notes that sound infrastructure planning is crucial to ensure full integration of hydrogen, and a Ten-Year Network Development Plan is recommended.

4. Specific Mechanisms

To supplement the overall policy objectives, the Report outlines the following headline actions that the EC will take to develop the hydrogen market. The majority of the items listed are at a preliminary stage and, as such, specific details are not publicly available. A full list of initiatives is included in the Report, available here.

Investment Agenda

European Clean Hydrogen Alliance to develop an investment agenda and build a concrete pipeline of projects (by end of 2020).

Boosting demand and scaling production

Propose measures to facilitate the use of hydrogen in the transport sector in the EC's upcoming Sustainable and Smart Mobility Strategy (2020).

Market rules and infrastructure

Commence planning of hydrogen infrastructure including in the Trans-European Networks for Energy and Transport and the Ten-Year Network Development Plans (2021).

5. Conclusion

The Report is a reflection of the unprecedented business and political attention that hydrogen is receiving, and it clearly signals the EC's commitment to developing the European hydrogen market, cementing hydrogen's position as a key part of the energy transition.

Although specific details are limited, hydrogen produced from renewable energy is a clear focus for the EC, and we expect to see significant investment and development in this area in the short to medium term. In the medium to long term, we anticipate that transportation infrastructure will play an increasingly important role in ensuring that hydrogen is available throughout the EU and the wider region.

Baker Botts will be providing initiative-specific updates as more information becomes available.

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