Building Pace: Hydrogen, CCS, and Power-to-X
New technologies and incentives are making green hydrogen an economic reality—in the near term, blue hydrogen with carbon capture and storage can fill the gap
Development of clean hydrogen has been widely identified as a critical pathway to meet global decarbonization goals. For instance, a 2021 report claimed that “clean hydrogen (both renewable and low carbon) offers the only long-term, scalable, and cost-effective option for deep decarbonization in the hard-to-abate sectors such as steel, maritime, aviation, and ammonia”—and could abate up to 80 gigatons of CO2 by 2050.
The sector has attracted significant investment from governments and the private sector, with the European Union alone committing 300 billion euros in funding support. However, delivery is proving difficult. In 2024, some of the world’s biggest developers have delayed or scrapped hydrogen development plans as the sector struggles to find its way forward. Germany’s “hydrogen backbone” has reached final investment decision (FID) but is now expected to be completed five years later than originally forecast. In Australia, BP has delayed production of hydrogen from its AREH and GERI projects until a future “phase 2.”
Macroeconomic headwinds aren’t helping. Inflation has sent soaring the price of the electrolysers needed to transform water into green hydrogen. Just this March, it cost over 50 percent more to produce and install electrolysers in China, the US, and Europe than in the year prior, making it difficult to reach market objectives.
These signals indicate that green hydrogen market demand and project technology and cost readiness are out of balance. The immediate challenges are to find a way to address the market need for low-carbon energy and simultaneously encourage the development of technology. Fortunately, emissions from blue hydrogen (e.g., hydrogen produced from fossil fuels) can be abated with the implementation of existing carbon capture and storage (CCS) technologies. Though such initiatives represent just a fragment of the total hydrogen market, new projects increased by 250 percent in the last year—and are advantageous to do at scale.
The bottom line is: rather than crawling along at a snail’s pace, policymakers, corporations, and energy companies need to get up and walk, stimulate adoption of low-carbon blue hydrogen at scale, and then be ready to run with green hydrogen. They can engage with blue hydrogen and CCS until green hydrogen becomes economically feasible.
The State of Green Hydrogen: Opportunities and Challenges
Global hydrogen demand today is around 97 million tons per year (Mtpa), growing at around 2.5 percent per year and largely concentrated in the petrochemical and refinery sector. Only about 1 percent of global demand is supplied by low-carbon hydrogen, but that is changing.
The International Energy Administration (IEA) predicts that low-carbon hydrogen projects that have taken FID will contribute 3.4 Mtpa by 2030, split between electrolysis (1.9 Mtpa) and fossil-fuel origin with CCS (1.5 Mtpa). While encouraging, these gains will not keep pace with organic demand growth, let alone begin to displace existing hydrogen demand or meet the ambitious policy targets of governments around the world.
The challenges on the green hydrogen supply side are clear, and governments are moderating demand forecasts accordingly. The IEA reports that government policies and targets for green hydrogen demand add up to approximately 11 Mtpa by 2030, nearly 3 Mtpa lower than last year. The wide gap between government targets and project FIDs is a call to action.
The question is: what can be done to meet desired demand targets?
One answer comes from the European Union. The mandates contained in the ReFuelEU regulation for sustainable aviation fuel levels represent a readily growing sector hungry for green hydrogen. Meeting the 2030 ReFuelEU target will require 0.6 Mtpa of synthetic kerosene, which in turn requires 0.3 Mtpa of hydrogen equivalent.
Other policies will have a similar effect:
- Contracts-for-difference instruments incentivize investment in low-carbon projects and are proving successful in spurring low-emissions hydrogen in countries like Germany and Japan.
- The United States’ 45Q tax credit for CCS project development originated in 2008 and was expanded in 2018 and 2022.
- China’s industrial policy has made it home to 60 percent of global electrolyser manufacturing capacity and is quickly bringing down costs as it continues to scale.
Yet more must be done. Lingering regulatory questions are contributing to present difficulties:
- Will all EU member states implement the Renewable Energy Directive III, which mandates that a significant portion of hydrogen used in industry across the region must come from renewable sources?
- What will the final rules be for section 45V of the Inflation Reduction Act (IRA), which relates to tax credits for production of clean hydrogen in the US?
- The International Standards Organization has released its methodology standardizing approaches to assess greenhouse gas emissions. Will governments implement regulations that establish thresholds for acceptable emissions levels for producers of hydrogen?
- How will regions like the US and EU speed up grid interconnection queues to connect renewable projects to the grid and reduce delays of various subsidies?
There are other hurdles. Rising interest rates, inflationary pressures, and geopolitical conflicts have increased the price of renewable energy and electrolysers. Transporting and storing hydrogen, meanwhile, is still expensive; there is currently a paucity of commercially available storage options, and the likelihood of leakages with hydrogen is high.
The solution may be an industry hub model, where demand from sectors like steel, shipping, and aviation is pooled, therefore reducing offtake risk and mitigating costs and risks of transport and storage. Production of hydrogen at the demand point reduces or potentially removes the risks and costs of transportation.
Filling the Gap
As the market for green hydrogen grows toward maturity, policymakers, corporations, and other stakeholders can look to blue hydrogen with CCS.
A 2021 study from the International Renewable Energy Agency, for instance, reported that green hydrogen is two to three times more expensive than blue hydrogen produced from fossil fuels with CCS. In September 2023, TotalEnergies called a tender for 500,000 tons per annum of green hydrogen to be delivered to its European refineries and reported receiving offers at an average price of EUR 8/t (US$9/t), whereas blue hydrogen from coal with CCS typically costs $1.9 to $2.4/kg. That could be even lower where natural gas is used (e.g., in the US, where natural gas tends to be inexpensive). Blue hydrogen derived from natural gas can also benefit from existing transport and storage infrastructure, while many industrial companies have already implemented CCS into their value chains.
Policymakers and technology developers have an opportunity to facilitate and accelerate integration of hydrogen into the global fuel mix by encouraging low-carbon (blue) hydrogen to be paired and integrated with green hydrogen—and eventually displaced by it as the economics and supply chain logistics allow.
