Opportunities and Barriers to the Implementation of Green Hydrogen
In recent years, much attention has been given to the potential role that clean hydrogen could play in enabling net zero emissions. While the use case in many applications has weakened over recent years, as costs and technical challenges have become apparent, clean hydrogen remains the best option to decarbonise hard-to-abate industries such as iron, steel, aviation, and agriculture. It can do this by replacing fossil fuels either directly, or by displacing ‘grey’ hydrogen made from fossil fuels in industrial processes and chemical production.
In our recent work at Globalfields, we supported clients in seeking finance for #green hydrogen projects. This article outlines some of the key issues to understanding green hydrogen and its best uses. Thanks to Andreas Biermann and Charlie Martindale for this insight.
What is Green Hydrogen?
‘Hard-to-abate’ industries refer to those in which commercially available low-carbon solutions are not widely available and where efficiency gains and green electrification do not address most emissions, making the continued reliance on traditional fuel sources necessary for maintaining current operational demands and economic viability. However, current green hydrogen production, produced by electrolysis entirely powered by renewable energy, accounts for less than 1% of the total hydrogen produced globally, with roughly 70% of production met by natural gas, and 30% by coal. Replacing grey hydrogen with clean hydrogen presents relatively little technical challenge due to the fact it is a like-for-like switch rather than a fuel substitution, though the hope is that, as the industry matures, clean hydrogen can penetrate other use-cases.
In the case of agriculture, the largest opportunity for green hydrogen lies in its ability to replace fossil fuels in the production of ammonia, a process responsible for 1.3% of CO2 emissions, 70% of which is used to make fertilisers. The current production of ammonia occurs through the Haber-Bosch process, which strips hydrogen from natural gas using steam, before combining that hydrogen with nitrogen at extremely high temperatures and pressure. However, this process is extremely dirty- emitting roughly two tons of CO2 into the atmosphere for every ton of usable ammonia.
Opportunities
The replacement of natural gas in this process by making hydrogen from renewably-powered electrolysers enables the production of emission-free ‘green ammonia’ and fertiliser. Furthermore, removing the need for natural gas in making fertiliser will reduce reliance on gas imports, reducing vulnerability to price shocks due to natural or geopolitical events, such as observed after the onset of the war in Ukraine. This will directly impact farmers' ability in developing nations to access stable, price-efficient fertilisers, decreasing the risk of unstable agricultural yields and associated poverty.
The ability to use existing renewable energy resources to be harnessed instead for domestic green hydrogen production, therefore, bolsters access to vital fertilisers, as domestic production of fertilisers will contribute to domestic and regional economic resilience and local capacity building. The decarbonisation of fertiliser has also been noted as the most promising tool available towards achieving net zero by 2050, aligning with regional, national, and global priorities, particularly the Paris Agreement. Scalable electrolyser and fertiliser production will enable countries to more easily reach NDC targets, reduce dependence on fossil fuels, promote more sustainable agricultural practices and enhance food security.
For example, in Paraguay, the green fertiliser company ‘Atome’ has signed a 145MW PPA with the national power company to utilise excess electricity produced by the Itaipu dam to produce over 260,000 tons of Calcium Ammonium Nitrate (CAN) fertiliser a year.
Barriers to Implementation
Green hydrogen, both for fertiliser production and other use cases, is not without its limitations, and there are several important barriers to its uptake. Firstly, there are concerns about the bankability of green hydrogen projects due to the relatively high cost of its production, which is 2-3 times more expensive than its fossil-fuel-based counterpart. For this reason, there is little appetite from commercial banks to finance green hydrogen-related projects, particularly in more challenging emerging markets, where the social impacts of such projects would be greater. To overcome this barrier, concessional financing and support from institutions such as the International Finance Corporation (IFC) and the Green Climate Fund (GCF), particularly in early-stage development, is key in derisking green hydrogen projects and ensuring that financing partners become more comfortable with investment.
Another barrier is the current lack of policy and regulatory support for green hydrogen initiatives in many countries. These are essential in ensuring future cost declines and meeting net-zero targets. This support could come in the form of carbon taxes and caps, and/or a more streamlined environment for green hydrogen-related permits and approval.
Giving potential customers the confidence to buy or subsidise green hydrogen will also depend on the real ‘green’ credentials, highlighting the importance of developing a green hydrogen taxonomy. For example, the EU’s green hydrogen taxonomy specifies that hydrogen can be classified as ‘green’ if produced using nuclear energy under certain circumstances, despite its Renewable Energy Directive not classifying nuclear as a renewable energy source. Such complex and politically contentious aspects of green hydrogen production will need to be more clearly defined before green hydrogen production can be scaled confidently.
Conclusion
While green hydrogen is an extremely promising energy carrier for hard-to-abate industries such as fertiliser, enabling countries to reduce reliance on fossil fuel imports, work towards NDC targets, and enhance food security, there are issues with the willingness of commercial banks and corporates to fund projects, particularly in emerging markets where the social impact would be highest. This is exacerbated by a lack of policy and regulatory support to streamline green hydrogen development.
