Global Hydrogen Review 2021
After several false starts, a new beginning around the corner
The time is ripe to tap into hydrogen’s potential contribution to a sustainable energy system. In 2019, at the time of the release of the IEA’s landmark report The Future of Hydrogen for the G20, only France, Japan and Korea had strategies for the use of hydrogen. Today, 17 governments have released hydrogen strategies, more than 20 governments have publicly announced they are working to develop strategies, and numerous companies are seeking to tap into hydrogen business opportunities. Such efforts are timely: hydrogen will be needed for an energy system with net zero emissions. In the IEA’s Net Zero by 2050: A Roadmap for the Global Energy Sector, hydrogen use extends to several parts of the energy sector and grows sixfold from today’s levels to meet 10% of total final energy consumption by
- This is all supplied from low-carbon sources.
Hydrogen supplies are becoming cleaner … too slowly
Hydrogen demand stood at 90 Mt in 2020, practically all for refining and industrial applications and produced almost exclusively from fossil fuels, resulting in close to 900 Mt of CO2 emissions. But there are encouraging signs of progress. Global capacity of electrolysers, which are needed to produce hydrogen from electricity, doubled over the last five years to reach just over 300 MW by mid-2021. Around 350 projects currently under development could bring global capacity
up to 54 GW by 2030. Another 40 projects accounting for more than 35 GW of capacity are in early stages of development. If all those projects are realised, global hydrogen supply from electrolysers could reach more than 8 Mt by 2030. While significant, this is still well below the 80 Mt required by that year in the pathway to net zero CO2 emissions by 2050 set out in the IEA Roadmap for the Global Energy Sector.
Europe is leading electrolyser capacity deployment, with 40% of global installed capacity, and is set to remain the largest market in the near term on the back of the ambitious hydrogen strategies of the European Union and the United Kingdom. Australia’s plans suggest it could catch up with Europe in a few years; Latin America and the Middle East are expected to deploy large amounts of capacity as well, in particular for export. The People’s Republic of China (“China”) made a slow start, but its number of project announcements is growing fast, and the United States is stepping up ambitions with its recently announced Hydrogen Earthshot.
Sixteen projects for producing hydrogen from fossil fuels with carbon capture, utilisation and storage (CCUS) are operational today, producing 0.7 Mt of hydrogen annually. Another 50 projects are under development and, if realised, could increase the annual hydrogen production to more than 9 Mt by 2030. Canada and the United States lead in the production of hydrogen from fossil fuels with CCUS, with more than 80% of global capacity production, although the United Kingdom and the Netherlands are pushing to become leaders in the field and account for a major part of the projects under development.
Expanding the reach of hydrogen use
Hydrogen can be used in many more applications than those common today. Although this still accounts for a small share of total hydrogen demand, recent progress to expand its reach has been strong, particularly in transport. The cost of automotive fuel cells has fallen by 70% since 2008 thanks to technological progress and growing sales of fuel cell electric vehicles (FCEVs). Thanks to the efforts by Korea, the Unites States, China and Japan, the number of FCEVs on the road grew more than sixfold from 7 000 in 2017 to over 43 000 by mid-2021. In 2017, practically all FCEVs were passenger cars. Today, one-fifth are buses and trucks, indicating a shift to the long-distance segment where hydrogen can better compete with electric vehicles. However, the total number of FCEVs is still well below the estimated 11 million electric vehicles on the road today. Several demonstration projects for the use of hydrogen-based fuels in rail, shipping and aviation are already under development and are expected to open new opportunities for creating hydrogen demand.
Hydrogen is a key pillar of decarbonisation for industry, although most of the technologies that can contribute significantly are still nascent. Major steps are being taken. The world’s first pilot project for producing carbon-free steel using low-carbon hydrogen began operation this year in Sweden. In Spain, a pilot project for the use of variable renewables-based hydrogen for ammonia production will start at the end of 2021. Several projects at a scale of tens of kilotonnes of hydrogen are expected to become operational over the next two to three years. Demonstration projects for using hydrogen in industrial applications such as cement, ceramics or glass manufacturing are also under development.
Governments need to scale up ambitions and support demand creation
Countries that have adopted hydrogen strategies have committed at least USD 37 billion; the private sector has announced an additional investment of USD 300 billion. But putting the hydrogen sector on track for net zero emissions by 2050 requires USD 1 200 billion of investment in low-carbon hydrogen supply and use through to 2030.
The focus of most government policies is on producing low-carbon hydrogen. Measures to increase demand are receiving less attention. Japan, Korea, France and the Netherlands have adopted targets for FCEV deployment. But boosting the role of low-carbon hydrogen in clean energy transitions requires a step change in demand creation. Governments are starting to announce a wide variety of policy instruments, including carbon prices, auctions, quotas, mandates and requirements in public procurement. Most of these measures have not yet entered into force. Their quick and widespread enactment could unlock more projects to scale up hydrogen demand.
Low-carbon hydrogen can become competitive within the next decade
A key barrier for low-carbon hydrogen is the cost gap with hydrogen from unabated fossil fuels. At present, producing hydrogen from fossil fuels is the cheapest option in most parts of the world. Depending on regional gas prices, the levelised cost of hydrogen production from natural gas ranges from USD 0.5 to USD 1.7 per kilogramme (kg). Using CCUS technologies to reduce the CO2 emissions from hydrogen production increases the levelised cost of production to around USD 1 to USD 2 per kg. Using renewable electricity to produce hydrogen costs USD 3 to USD 8 per kg.
There is significant scope for cutting production costs through technology innovation and increased deployment. The potential is reflected in the IEA’s Net Zero Emissions by 2050 Scenario (NZE Scenario) in which hydrogen from renewables falls to as low as USD 1.3 per kg by 2030 in regions with excellent renewable resources (range USD 1.3-3.5 per kg), comparable with the cost of hydrogen from natural gas with CCUS. In the longer term, hydrogen costs from renewable electricity fall as low as USD 1 per kg (range USD 1.0-3.0 per kg) in the NZE Scenario, making hydrogen from solar PV cost-competitive with hydrogen from natural gas even without CCUS in several regions.
Meeting climate pledges requires faster and more decisive action
While the adoption of hydrogen as a clean fuel is accelerating, it still falls short of what is required to help reach net zero emissions by 2050. If all the announced industrial plans are realised, by 2030:
- Total hydrogen demand could grow as high as 105 Mt – compared with more than 200 Mt in the NZE Scenario
- Low-carbon hydrogen production could reach more than 17 Mt – oneeighth of the production level required in the NZE Scenario
- Electrolysis capacity could rise to 90 GW – well below the nearly 850 GW in the NZE Scenario
- Up to 6 million FCEVs could be deployed – 40% of the level of deployment in the NZE Scenario (15 million FCEVs)
Much faster adoption of low-carbon hydrogen is needed to put the world on track for a sustainable energy system by 2050. Developing a global hydrogen market can help countries with limited domestic supply potential while providing export opportunities for countries with large renewable or CO2 storage potential. There is also a need to accelerate technology innovation efforts. Several critical hydrogen technologies today are in early stages of development. We estimate that USD 90 billion of public money needs to be channeled into clean energy innovation worldwide as quickly as possible – with around half of it dedicated to hydrogen-related technologies.
Stronger international co-operation: a key lever for success
International co-operation is critical to accelerate the adoption of hydrogen. Japan has spearheaded developments through the Hydrogen Energy Ministerial Meeting since 2018. Several bilateral and multilateral co-operation agreements and initiatives have since been announced, including the Clean Energy Ministerial Hydrogen Initiative, the Hydrogen Mission of Mission Innovation and the Global Partnership for Hydrogen of the United Nations Industrial Development Organization. These join the existing International Partnership for Hydrogen and Fuel Cells in the Economy and the IEA Hydrogen and Advanced Fuel Cells Technology Collaboration Programme. Stronger coordination among such initiatives is important to avoid duplication of efforts and ensure efficient progress.
IEA policy recommendations
Governments must take a lead in the energy transformation. In The Future of Hydrogen, the IEA identified a series of recommendations for near-term action. This report offers more detail about how policies can accelerate the adoption of hydrogen as a clean fuel:
- Develop strategies and roadmaps on the role of hydrogen in energy systems: National hydrogen strategies and roadmaps with concrete targets for deploying low-carbon production and, particularly, stimulating significant demand are critical to build stakeholder confidence about the potential market for low-carbon hydrogen. This is a vital first step to create momentum and trigger more investments to scale up and accelerate deployment.
- Create incentives for using low-carbon hydrogen to displace unabated fossil fuels: Demand creation is lagging behind what is needed to help put the world on track to reach net-zero emissions by 2030. It is critical to increase concrete measures on this front to tap into hydrogen’s full potential as a clean energy vector. Currently, lowcarbon hydrogen is more costly to use than unabated fossil-based hydrogen in areas where hydrogen is already being employed – and it is more costly to use than fossil fuels in areas where hydrogen could eventually replace them. Some countries are already using carbon pricing to close this cost gap but this is not enough. Wider adoption combined with other policy instruments like auctions, mandates, quotas and hydrogen requirements in public procurement can help de-risk investments and improve the economic feasibility of low-carbon hydrogen.
- Mobilise investment in production, infrastructure and factories: A policy framework that stimulates demand can, in turn, prompt investment in low-carbon production plants, infrastructure and manufacturing capacity. However, without stronger policy action, this process will not happen at the necessary pace to meet climate goals. Providing tailor-made support to selected shovel-ready flagship projects can kick-start the scaling up of low-carbon hydrogen and the development of infrastructure to connect supply sources to demand centres and manufacturing capacities from which later projects can benefit. Adequate infrastructure planning is critical to avoid delays or the creation of assets that can become stranded in the near or medium term.
- Provide strong innovation support to ensure critical technologies reach commercialisation soon: Continuous innovation is essential to drive down costs and increase the competitiveness of hydrogen technologies. Unlocking the full potential demand for hydrogen will require strong demonstration efforts over the next decade. An increase of R&D budgets and support for demonstration projects is urgently needed to make sure key hydrogen technologies reach commercialisation as soon as possible.
Establish appropriate certification, standardisation and regulation regimes: The adoption of hydrogen will spawn new value chains. This will require modifying current regulatory frameworks and defining new standards and certification schemes to remove barriers preventing widespread adoption. International agreement on methodology to calculate the carbon footprint of hydrogen production is particularly important to ensure that hydrogen production is truly low-carbon. It will also play a fundamental role in developing a global hydrogen market.