EU announces ‘full switch’ of existing gray hydrogen production to green H2, backed by carbon contracts | Reload

The European Commission (EC) will roll out Carbon Contracts for Difference (CCfD) grants (see panel below) for green hydrogen by using cash from its Innovation Fund “to support the full shift of existing hydrogen production in industrial processes from natural gas to renewables and the transition to hydrogen-based production processes.” hydrogen in new industrial sectors such as the steel industry”.

As previously announced, the new REPowerEU plan sets a target of ten million tonnes of green hydrogen to be produced in the EU by 2030, with an additional ten million tonnes imported. The combined 20 million tonnes would require around 600 GW of new wind and solar power and 200 GW of electrolysers.

“The Commission will deploy Carbon for Difference contracts to support industry uptake of green hydrogen and specific funding for REPowerEU under the Innovation Fund, using emissions trading revenues to further support the abandonment of Russian dependencies on fossil fuels.”

Repeated mentions of “renewable, fossil-free hydrogen” suggest there is no room for blue H2 subsidies in EU plans.

EC says it will ‘consider’ joint purchasing mechanism to purchase renewable H2 on a large scale at low cost.

“Hydrogen imports will be facilitated by a new dedicated workflow under the EU Energy Platform which is expected to operationalize the European Global Hydrogen Facility and support Green Hydrogen Partnerships, which will kick-start the global renewable hydrogen market,” he said.

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Other measures include the increase of national hydrogen production “through the rapid adoption of State aid decisions on IPCEIs [important projects of common European interest]a full assessment of which will be finalized by the summer, and complementing Horizon Europe’s investments in the Hydrogen joint venture (€200 million) to double the number of hydrogen valleys [ie, industrial hubs]”.

The EC said it is “committed to finalizing the regulatory framework for hydrogen”, as well as publishing a draft law “to define and stimulate the production and market development of renewable hydrogen in Europe “.

“To accelerate the hydrogen market, increased sub-targets for specific sectors should be agreed by the co-legislators. The Commission also publishes two delegated acts [in the coming days] on the definition and production of renewable hydrogen to ensure that production leads to net decarbonisation.

He added: “The Commission will also support the development of three major hydrogen import corridors via the Mediterranean, the North Sea area and, as soon as conditions allow, with Ukraine.

“Work should also accelerate with industry on technical hydrogen standards and the acceleration of authorization procedures for hydrogen infrastructure.”

More money will also be made available for transporting hydrogen.

“In parallel, the Commission proposes the next steps for the development of dedicated hydrogen infrastructure and towards a European hydrogen backbone, including electrolysers for hydrogen production, internal EU pipelines and the storage.

“In addition, hydrogen shipping capacity also needs to be developed. Financial support will be provided by unlocking new financing options for renewable hydrogen projects under the TEN-E Regulation and by mobilizing EU funding under the Connecting Europe Facility, the cohesion policy, the common agricultural policy and the Recovery and Resilience Fund.

REPowerEU also suggests that existing renewable energy projects will not be allowed to be used to produce green hydrogen under its “additionality” principle, including in exporting countries.

“To avoid the risk that renewable energy investments will be diverted from the energy transition in partner countries towards the production of renewable hydrogen as an export product, strict standards will ensure that imports of renewable hydrogen to EU can only be produced from additional renewable energy sources. . This is particularly relevant, for example, in sub-Saharan Africa, where countries also have the added challenge of addressing energy access.

How would a Carbon Contracts for Difference program work?

Under a Carbon Contracts for Difference (CCfD) scheme, end users would receive an amount guaranteed by governments to avoid CO2 emissions. This would consist of savings from not paying a carbon price under the ETS, plus an additional subsidy to achieve the “strike price” agreed in the CCfD.

The amount actually paid by governments would therefore depend on the fluctuation USA carbon price, and would mean that if it exceeded the strike price, end users would actually pay the difference back to the government.

The UK is set to introduce a slightly different Contracts for Difference scheme for green H2 this year, which would offer a grant representing “the difference between a ‘strike price’ reflecting the cost of producing the hydrogen and a ‘ reference price ‘reflecting the market value of hydrogen’.

Essentially, this would allow green hydrogen to be available on the market at the same price as gray hydrogen produced from methane without reduction.

However, it should be noted that several analysts, including BloombergNEF and Rystad Energy, believe that green hydrogen would actually be cheaper to produce in Europe today than gray or blue H2 due to exorbitant natural gas prices.

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