Carbon pricing to spur hydrogen

Around 30pc of existing hydrogen production could be retrofitted with carbon capture and storage (CCS) with a CO2 price of $50-100/t and appropriate government policies, lobby group Hydrogen Council said.

Most carbon capture and storage (CCS) retrofits of grey hydrogen production break even in this price range, the group said.

This suggests adding CCS to existing grey hydrogen facilities — making the hydrogen "blue" — may be economical at some sites in Europe, as the price of EU emission trading system (ETS) allowances is currently around €60/t CO2e ($69.30/t CO2e).

But carbon pricing alone will not be enough, Hydrogen Council said. It argued that carbon contracts for difference (CCFDs) are a useful tool to de-risk investments, citing the Dutch SDE++ scheme as a potential model. The SDE++ is settled against the EU ETS price, meaning subsidies fall as the ETS price rises.

The Dutch scheme has already awarded CCFDs for users of the Porthos CO2 storage facility. [Porthos previously told Argus](https://direct.argusmedia.com/newsandanalysis/article/2239774) that it expects its customers — which include an Air Liquide hydrogen plant — to have average CCS costs of €80/t CO2, with Porthos charging around €50/t CO2 to transport and store the CO2, and the remaining cost coming from carbon capture.

Around 90mn t of hydrogen is used in refining, ammonia and methanol production, but this is expected to rise in these sectors by 13mn t/yr by 2030, according to a report by consultancy McKinsey, commissioned by Hydrogen Council.

To put the world on track for net zero emission by 2050, around 38mn t/yr of this hydrogen would need to be carbon-free or low carbon, the report said.

But another 39mn t/yr of clean hydrogen would be needed by 2030 to begin decarbonising steel, mobility, heating and power generation, it said (see table).

While hydrogen use in steel is just 6mn t/yr by 2030 in the net zero scenario, it accounts for almost 20pc of emissions avoided by hydrogen, because using coking coal in blast furnaces currently emits 1.85t of CO2 per tonne of steel produced, the report said. It also means a CO2 cost of $50-100/t CO2 equivalent (CO2e) makes green steel projects competitive with conventional steel in most regions.

Ground mobility accounts for 10mn t/yr of hydrogen demand by 2030. Around 60pc of this is from heavy duty trucks, which take an 11pc market share by 2030. These should become competitive with diesel trucks in 2025-35 in most regions, even without any CO2 pricing, the report said.

The economics are more challenging in maritime industries, with carbon prices well over $100/t CO2e required for hydrogen-based fuels to compete with heavy fuel oil or marine diesel. Biofuels will be more competitive in the short run, but they are not sufficiently scalable, the group said. Likewise, a price of $100/t CO2e would be needed to make hydrogen compete with natural gas turbines in the power sector.

And in aviation, carbon prices of over $200/t CO2e are required for e-kerosene to compete with conventional kerosene.

Scaling up in the 2020s will be critical to realise hydrogen's potential, the group argued. Hydrogen could help to abate 80bn t of CO2 by 2050, with an abatement potential of 7bn t/yr by 2050, it said.

Reaching these 2030 targets would require a total investment of $700bn, the report said. Of this, around $300bn is for production, and $200bn each for infrastructure and end-uses. So far the industry has announced $160bn of investments in more than 520 large scale projects and over 90GW of electrolyser capacity. And of the currently announced investments, just $20bn has passed the final investment decision with another $64bn in the feasibility of front-end engineering and design stage.

By Killian Staines