Report - Belfer Center for Science and International Affairs, Harvard Kennedy School

The Future of Renewable Hydrogen in the European Union: Market and Geopolitical Implications

Note: The authors of this report published a related article, "Competitive and Secure Renewable Hydrogen Markets: Three Strategic Scenarios for the European Union," in The International Journal of Hydrogen Energy in September 2022.



Executive Summary

As countries around the world pledge to remove nearly all carbon emissions from their economies within the next forty years, the spotlight has moved to the deep decarbonization of all energy sectors. This aggressive push to decarbonize has sparked renewed interest in clean hydrogen—defined as hydrogen produced from water electrolysis with zero-carbon electricity. While hydrogen has been a staple in the energy and chemical industries for decades, renewable hydrogen is now enjoying unprecedented political and business momentum as a versatile and sustainable energy carrier that could be the missing piece in the carbon-free energy puzzle. While success is possible, this transformational effort will require close coordination between policy, technology, capital, and society to avoid falling into the traps and inefficiencies of the past.

This report focuses on the market and geopolitical implications of renewable hydrogen adoption at scale in the European Union (EU) and presents long-term strategies based on three reference scenarios. Each scenario focuses on one key strategic variable: energy independence, cost (optimization), or energy security.

Our analysis shows that only by working together can the EU become a global leader in clean hydrogen innovation and simultaneously contribute to the EU’s climate and energy security goals, a more robust economy, and a more integrated union.

What would it require to become hydrogen independent? Where should production be located for cost-competitive supplies? What is the enabling infrastructure that needs to be developed and deployed at scale? How could supply risks be mitigated? Only a thorough analysis of future scenarios can provide policymakers and investors with answers to these key questions, as well as a deep understanding of the associated market and geopolitical implications.

Why renewable hydrogen?

Hydrogen produced from renewable electricity by splitting water has a variety of potential uses, both in mobility and stationary applications. But most importantly, renewable hydrogen has the potential to tackle hard-to-abate emissions in sectors such as iron and steel production, high-temperature industrial heat, aviation, shipping, long-distance road transportation, and heat for buildings. These sectors account for over one-fourth of global carbon dioxide (CO2) emissions.1

While renewable hydrogen’s production costs are still higher today than those from fossil fuels, renewable electricity and electrolyzer costs are forecasted to decrease significantly as deployment grows.

Why the European Union?

The EU aims to become carbon neutral by 2050 and sees renewable hydrogen as key to achieving this objective.

In July 2020, the EU published its hydrogen strategy, setting electrolyzer deployment targets to 2030 and outlining the ambition to develop an open and competitive EU hydrogen market. The strategy forecasts that renewable hydrogen will reach maturity and be deployed at scale in all hard-to-decarbonize sectors by 2050 but sets no targets beyond 2030 and provides few details on how the EU could meet this hydrogen demand.

The EU stands at a crossroads. Today, it is no doubt at the forefront of the global hydrogen race. But to maintain its leadership, the EU needs to quickly define and implement a cohesive long-term strategy for developing competitive and secure hydrogen markets.

Our prior work on renewable hydrogen's global geopolitical and market implications2 shows that while some resource-rich member states, like Spain, can evolve into regional exporters, no member state can become a global export champion. On the other hand, regional partners like Morocco have this potential and could play a significant role in EU hydrogen markets.

As discussed, to shed light on alternative development pathways, this report considers three reference scenarios in which the EU prioritizes one of three strategic variables: energy independence, cost (optimization), or energy security:

  • Hydrogen Independence: the EU prioritizes energy independence and develops internal, self-sufficient renewable hydrogen markets.
  • Regional Imports: the EU prioritizes cost optimization by complementing the lowest-cost internal production with imports from neighboring export champions (Morocco and Norway) and renewable-rich countries (Iceland and Egypt).
  • Long-Distance Imports: the EU prioritizes energy security and cost optimization by combining long-distance imports from export champions (Australia and the United States) with regional imports and internal production.

Each scenario analysis consists of three steps. First, overall renewable hydrogen potentials are calculated for each country (based on renewables, freshwater, and land availability; infrastructure potential; and competing demand for renewable electricity). Second, each country’s production cost curves are computed (based on local renewable electricity and electrolyzer costs). Lastly, trade optimizations are carried out (based on production cost curves and transportation costs).

Our study highlights how all three scenarios are viable pathways to meeting the EU’s projected renewable hydrogen demand. However, hydrogen independence would only be possible if member states traded significant amounts of hydrogen between them, which would require deploying integrated enabling infrastructure and harmonizing standards and regulations, including certificates of origin.

Furthermore, the analysis of cost-curves shows that renewable hydrogen supplies in the Regional and Long-Distance Imports scenarios are more cost-competitive than the Hydrogen Independence scenario thanks to significantly lower production costs attainable outside the EU. While member states like Spain and Ireland could develop their full potentials cost-effectively, other states like Denmark would see costs rise as production increases, leading to higher supply costs overall.

As shown in the trade optimization step, while the Regional Imports scenario allows for meeting demand at the lowest cost, member states—even when accounting for the higher transportation costs—may rely on a single regional partner to supply a significant fraction of their hydrogen needs. This reliance on a single regional partner would replicate past patterns of energy dependence and security risks.

Supply diversification from long-distance export champions like the United States would be an effective way to increase overall energy security for the EU while maintaining low supply costs.

While all three scenarios are viable pathways to meeting projected EU renewable hydrogen demand, the overall market and geopolitical implications are significantly different in terms of the above key strategic variables and enabling infrastructure investment allocations.

In the end, today’s policy choices will determine which scenario will unfold, but policymakers need to evaluate alternative requirements and competing needs carefully. Overall renewable hydrogen adoption at scale in the EU will require policymakers to:

  • Lower market risk and remove commercialization barriers to achieve the required economies of scale.
  • Define clear policies to stimulate strong growth in renewable energy sources, particularly in member states that could become regional exporters.
  • Fund innovation and pilot projects to accelerate progress towards cost-competitive renewable hydrogen technologies.
  • Coordinate enabling infrastructure development and deployment across the continent.
  • Harmonize standards and regulations, including certificates of origin, to ensure that renewable hydrogen flows seamlessly across borders.

Implementation of the Regional Imports or Long-Distance Imports scenarios will also require the definition of:

  • Long-term contracts and direct investments to help reduce market risk for producers.
  • Transparent regulations and long-term investments in enabling infrastructure to send strong signals to investors in producing nations and trigger production-capacity investments.
  • International standards for renewable hydrogen production, transportation, and use.

Renewable hydrogen offers a unique opportunity to accelerate the EU’s transition to a low-carbon economy. Still, deployment at scale faces fundamental challenges that neither the private nor public sector can address alone. Only by working together can the EU become a global leader in renewable hydrogen innovation and simultaneously contribute to its climate and energy security goals, a more robust economy, and a more integrated union.

[1] Davis et al. (2018) "Net-zero emissions energy systems," Science, 360(6396).

[2] Pflugmann and De Blasio (2020) Geopolitical and Market Implications of Renewable Hydrogen: New Dependencies in a Low-Carbon Energy World, Belfer Center for Science and International Affairs, Harvard Kennedy School of Government, March 2020.

For more information on this publication: Belfer Communications Office
For Academic Citation: Nuñez-Jimenez, Alejandro and Nicola De Blasio. “The Future of Renewable Hydrogen in the European Union: Market and Geopolitical Implications.” Belfer Center for Science and International Affairs, Harvard Kennedy School, March 2022.

The Authors