Hydrogen market formation: an evaluation framework
Hydrogen is a versatile clean energy carrier that offers the global economy the flexibility to rapidly decarbonize existing industries as well as the scalability to transition to new energy pathways. These properties make hydrogen a critical option for reaching economywide net zero emissions. While hydrogen is used mostly in the petrochemical and fertilizer industries, there is growing investment and policy activity in several regions including the United States, Canada, the European Union, the U.K., Japan, and China to expand clean hydrogen production and end use. These countries represent over half of the global hydrogen market today and have policy targets for up to 40 million metric tons per year (Mt/yr) of clean hydrogen production by 2030. The level of global interest in hydrogen has never been higher. One industry association tracked more than 1,000 clean hydrogen project proposals as of January 2023, representing 38 Mt/yr of new clean supply. The EFI Foundation is tracking 440 clean hydrogen projects
in the United States alone. However, only a handful of projects have reached final investment decisions one estimate finds roughly 0.06 Mt/yr of clean hydrogen production in operation today because of market uncertainty, high technology costs, and a range of other issues that will be discussed below.
Most new clean hydrogen projects integrate supply and demand often with limited or no midstream infrastructure.
In the United States, a focus on clean hydrogen hubs aims to address such connectivity issues. In China, the lack of hydrogen pipelines connecting hydrogen supply in the west with demand centers in the east is hindering the production of renewable-based hydrogen. Repurposing existing infrastructure to foster hydrogen market development is one pathway. In the U.K., where 85% of buildings are connected to the
natural gas network, ongoing industry trials to demonstrate safety will determine whether blending up to 20% hydrogen by volume into the Great Britain gas distribution networks will be allowed. Blending studies are underway in the EU, where the European Hydrogen Backbone has great potential to connect demand and supply centers over long distances. However, many issues, including infrastructure variability, emissions reduction concerns, and roundtrip efficiency challenges across the continent make converting existing gas networks to hydrogen challenging. Japan and Canada are focusing on hydrogen imports
and exports, respectively, but a global clean hydrogen market is still in its infancy.
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