Green hydrogen transition ‘tough but necessary’

A new report highlights the difficulty of kickstarting “green hydrogen” production—an essential step to decarbonizing some parts of the global economy.

Nearly all hydrogen production today is “gray hydrogen,” which is made from natural gas and produces carbon dioxide as a byproduct, thereby contributing to climate change.

Green hydrogen is produced by splitting water (H₂O) into hydrogen and oxygen, and can be carbon-free when it is powered by electricity from renewable sources.

The new report, by Cambridge Econometrics and the University of Exeter, explores whether targeted government policies could spark a cost-competitive green hydrogen industry globally.

The researchers—who found that current policies are insufficient to achieve this at the global level—simulated the effects of a global mandate requiring the use of green hydrogen in fertilizers, and a global carbon price on hydrogen production.

They conclude that green hydrogen can be cost-competitive with gray hydrogen when these policies are combined.

“Our findings might temper the ‘hydrogen hype’ from some governments and businesses,” said Dr. Femke Nijsse, from Exeter’s Global Systems Institute.

“However, green hydrogen is the only realistic option for decarbonizing fertilizer production and for making clean steel, and it may have a role in other sectors such as aviation.

“Achieving the ‘tipping point’ of cost-competitive green hydrogen is tough but necessary, and will likely require strong and sustained policy support.”

The term “green hydrogen” can have varying definitions. In this policy brief, it means any form of electrolysis, whether it is grid-connected or off-grid.

Using green hydrogen to make ammonia for fertilizers is viewed by many market analysts and governments as an early route to creating a large-scale green hydrogen market.

This would cut emissions from ammonia production—which currently accounts for about 2% of all global emissions—and could reduce production costs and unlock the use of green hydrogen in other sectors.

The report highlights large differences across regions.

Simone Cooper-Searle, Head of Global Environment at Cambridge Econometrics, said, “In Brazil—which has great potential for wind power generation—green hydrogen can be cost-competitive with domestic fossil-fueled hydrogen under current policies.

“Our modeling shows that policy support could lead to the country becoming self-sufficient in nitrogen-based fertilizers, reducing import dependency and even becoming a regional exporter of low-carbon hydrogen products.

“However, even in regions with cheap renewables like Brazil, there is a risk of demand and supply being mismatched without demand-side policies such as mandates.”

The report is part of the Economics of Energy Innovation and System Transition (EEIST) project.