As carbon policies move to the top of agendas worldwide, governments and companies are setting more stringent decarbonization goals—often targeting net zero emissions by mid-century or before. However, despite newly recommitted targets, global emissions have continued to increase and as each day passes, the possibility of meeting mid-century targets requires more significant and rapid action. The difference between partially and fully decarbonizing our entire economy by mid-century is more than substantial. Full decarbonization requires fundamentally disruptive alternative technologies and solutions that would not be brought to the table under a partial decarbonization scenario. At scale, hydrogen is one of these promising solutions, as discussed in Guidehouse’s white paper, The Emergence of the Clean Hydrogen Economy.

Today, the discussion of hydrogen is focused around the promise of a carbon free fuel that can provide energy balancing for renewable systems and energy storage. What is sometimes missed in these strategy discussions is the consideration of the end user. Hydrogen cannot just be run through existing pipelines without modification, in the same way as renewable natural gas. Scaling hydrogen to a viable, standalone solution is contingent on interest and investors of end users who will need to transform their systems to use this low-carbon fuel.

The most critical end users are from those sectors that are hard to electrify: heavy industry, transportation, and (in some cases) energy production. These end users are looking for capital, policy, and regulatory decisions to push forward the development of this low-carbon fuel:

• In the European Union, steel companies are ready to buy-in on hydrogen but are waiting for the right policy to drive their decision.
• Projects demonstrating commercial production of clean hydrogen are starting to appear globally (outside of laboratory settings), but the relatively high capital and operating expenditures result in assets that are not yet bankable.

Accelerating the transition to a hydrogen economy requires the following:

• Legislation and policy that encourages the development and use of low-carbon fuels, and ensures hydrogen is able to scale so it becomes cost-competitive with fossil fuels. Carbon taxes that accurately reflect the full environmental cost of fuels could help to bridge the gap, but full bans on certain energy carriers may also be necessary. Timing these legislative and regulatory drivers will be critical, as Daan Peters, director at Guidehouse, explained in an interview with Euractiv.
• Structure around long-term purchase agreements will be necessary for industry to be able to purchase these assets and manage the associated risk.
• Infrastructure development to support fueling of transportation, particularly focused around locations that can support hydrogen-powered fleets.

To make the jump from partial to full decarbonization by mid-century, hydrogen and other key decarbonization technologies will need to be leveraged to their fullest. Hydrogen’s advantage is that it can use portions of existing fossil fuel infrastructure for distribution, limiting some of the costs of development. However, to scale the hydrogen economy, focus will need to be on the end users, as hydrogen networks will not be developed without their interest and market interaction.

To learn more about this topic, join Guidehouse's experts for a lively discussion on the role of hydrogen in enabling greater resiliency in a fully decarbonized future, and how organizations can begin tapping into its potential.