Overline: Energiewende

Headline: The International Dimension of Germany’s Hydrogen Ambitions

Hydrogen is dominating the debate on Germany’s energy transition at present. Why? In recent years one long-term scenario after another has suggested that the cost of green hydrogen and PtX products makes them unlikely to contribute significantly towards efforts to achieve an 80 per cent reduction in greenhouse gas emissions. But the adoption of the goal of greenhouse gas neutrality by 2050 by EU member states, with the support of the German government, has put hydrogen back on the agenda for policymakers. This makes all the more sense considering that the relevant technology and market development processes will span years, if not decades. In addition, the investment cycles for energy-intensive industries – an important area of application for green hydrogen – are very long.

Worryingly, the current enthusiasm for hydrogen is not reflected in the debate on the expansion of renewables. Indeed, some actors appear to be ignorant of the trivial fact that electricity generated from renewable sources will form the foundation of a green hydrogen economy. This discrepancy is probably due in part to our temporal remove from the large-scale development of hydrogen infrastructure and to the presumably erroneous assumption that only in Germany will renewables encounter difficulties as they continue to grow. However, there are, of course, regions and countries in which the potential for energy generation from renewable sources energy clearly exceeds domestic demand.

This brings us to the European and international dimension of Germany’s green hydrogen ambitions. The development of a domestic market for green hydrogen is undoubtedly a sensible first step. But it is equally important that policymakers engage as soon as possible with the immense and complex challenges that are likely to arise in the course of establishing an international market.

The EU: Establishing a common playing field and coordinating market development

Some EU member states may become important producers of green hydrogen, and the EU plays an important role in coordinating overarching energy and climate policy and the development of the hydrogen market. In conjunction with the Green Deal and its effects on legislative measures and initiatives at EU level, Germany’s EU Council Presidency presents an opportunity to set a course at the European level.

Germany should encourage the European Commission to develop a European strategy and roadmap for green hydrogen in order to lay the groundwork for the launch of a common market. Setting import volume targets for 2030, 2040 and 2050 would send an important signal to potential exporting countries. Efforts should also be made towards the development of an ambitious EU-wide certification system for hydrogen and PtX products, as this could serve as an important point of reference outside the EU. The impending reforms of the gas market design, the Energy Taxation Directive, the Guidelines on State Aid for Environmental Protection and Energy, and the framework for infrastructure development (to name but a few) will define the playing field on which the market for green hydrogen will develop over the years ahead.

The Commission recently announced that it will establish a Clean Hydrogen Alliance with the aim of developing EU-wide value chains for green hydrogen. German support for this initiative is crucial. Germany should also put its weight behind efforts to establish one or more important projects of common European interest (IPCEI) on green hydrogen. Other steps that could be taken include a comprehensive assessment of hydrogen production potentials across the EU and in neighbouring regions.

Hydrogen generation in countries neighbouring Europe 

With transportation costs an important factor, there are good reasons for Europe to look to neighbouring countries – and the MENA region (Middle East and North Africa) in particular – to produce and supply green hydrogen. Most PtX products such as synthetic fuels, ammonia and methanol can be transported over long distances using existing infrastructure without incurring excessive costs.

Political stability, a strong rule of law, and effective institutions are also important location factors for investment. Cutbacks in these areas have an unfavourable effect on investor willingness and push up the cost of capital. Security issues will also play an important role in the construction and operation of the pipelines that would enable the cost-effective transport of hydrogen. Improving investment conditions is a long and difficult process, as previous experience in the expansion of renewables and development cooperation shows.

Referencing the Desertec project, many experts highlight the need to take the interests of exporting countries into account. And while this is indeed important, the challenges should not be underestimated. In the least developed countries, nationwide access to electricity is yet to be achieved and countries keen to transform their energy systems, such as Morocco, might consider using electricity from renewables and green hydrogen for domestic purposes. The need to consider social aspects such as job creation should also be mentioned here.

There is also a security and geopolitical dimension to the development of international value chains for hydrogen and PtX products. New opportunities could emerge for current exporters of fossil fuels such as Russia and Saudi Arabia. Germany’s relations with Russia are a particular focus of the country’s security policy. These considerations raise the question of whether Germany should – at least during the transition phase – be open to the use of blue and turquoise hydrogen. But such an approach would only make sense if it achieved economic viability sooner, did not hinder the dissemination of sustainable technologies over the longer term, and if GHG emissions along the value chain are accounted for properly.

Keeping global greenhouse gas emissions in focus

Finally, we must remember that the ultimate purpose of developing a green hydrogen economy in Germany and the EU is to achieve the goals of the Paris Agreement and limit global climate change. As we move to develop large generation capacities for renewable electricity and green hydrogen abroad, we must also consider whether it might not be more advantageous to use output locally (for example in Morocco, where coal still plays a significant role in electricity generation).