Governments must act now to enable the hydrogen transition

Ardian's Mathias Burghardt on why the main goal of COP26 will only be achieved with the scaled-up use of hydrogen.

Mathias Burghardt
Mathias Burghardt

Global net-zero by 2050 is the number one goal of COP26, but it can only be met if many solutions are developed rapidly and in tandem. Electrons alone won’t satisfy the energy cravings of industry and transport, so scaled-up deployment of truly green hydrogen is essential.

According to CEO-led initiative the Hydrogen Council, hydrogen will provide nearly one-fifth of the world’s energy in a net-zero 2050.

To achieve that, we need to execute a significantly well co-ordinated, co-operative industrial venture.

We are approaching this from a near-impossible position of almost infinitesimal supply and equally small demand. Governments need to commit more to the game. Some are already doing so: Europe, with Germany and France sharing pole position, leads the pack in the West. In the East, China is pursuing hydrogen projects as a climate change solution. The US Department of Energy’s ‘hydrogen shot’ brings America into the action, alongside frontrunners Korea and Japan. Many other countries have hydrogen initiatives. All must be redoubled.

It is clear that we are already out of the blocks in the race to create an integrated international hydrogen economy. The Hydrogen Council is tracking 359 hydrogen infrastructure projects, together worth $500 billion, which had secured at least partial funding by the end of June. That’s nearly triple the number recorded a year earlier. Investment, public and private, is committed at more than $1 billion a week. The basic technology is ready and proven. We need only scale to bring down costs.

Fuel of the future

Private investors are ready to multiply the sums already invested in hydrogen. However, they need relative confidence that their long-term return requirements will be met. Only then will they fund the scale-up needed to produce, store and transport the fuel, which the International Energy Agency says is essential to reach net-zero on time. States must intervene further to help offset the risks associated with hydrogen infra development, and ensure that their decisions never hinder the energy transition.

“First movers’ large capital expenditures can be made palatable only through the financial support of governments”

Any technology at the outset of its industrial development presents much greater financial risk to investors than ventures in mature sectors. Wind and solar energy were much more heavily subsidised in their first decade or so than they are today. The first green electrolysers – refineries that use renewable electricity to transform water into oxygen and hydrogen – will require greater capex than later generations.

First movers’ large capital expenditures can be made palatable only through the financial support of governments. This could be through direct capex subsidisation, through contracts for difference to bolster offtake prices, or through PPAs. All three have already been adopted by governments. Now is the time to roll them out.

A simple, but significant, stimulant of demand is to mandate injection of hydrogen into natural gas grids. Governments may also create demand by adopting fleets of fuel-cell vehicles, from refuse trucks to trains. Most such initiatives will be implemented at local or national levels, but world leaders at COP26 could easily give the green hydrogen economy a boost through a single action: agreeing a universal definition of ‘green hydrogen’ as gas made through zero-emissions refining. All hydrogen is the same, but since it must be refined, the carbon footprint of a given quantity varies from zero to enormous based on the production technique. Customers and regulators need satisfaction that the hydrogen they use is adequately ‘green’.

COP26 presents the ideal opportunity to establish an international standard for green hydrogen. It would be an incredibly valuable outcome, and an easy victory for the world.

Mathias Burghardt is head of infrastructure at Paris-based investment firm Ardian