5 ways to make green hydrogen available around the world

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Prasad Thakur, Alumnus of IIT Bombay, IIM Ahmedabad, Labanya Prakash Jena, Senior Manager and Head, Centre for Sustainable Finance, Climate Policy Initiative

• Green hydrogen will be a key net-zero driver – but the related infrastructure must be developed.
• Trade tariffs on green hydrogen need lowering, with harmonized policy standards to further smooth movement of goods.
• Fossil fuel subsidies must be diverted towards promoting green technology.

Green hydrogen (GH2) is expected to become the next-gen, low-carbon solution to decarbonize hard-to-abate industries, long-distance transportation and the agriculture sector. All the large economies, including the USA, China, Japan, Germany and India, are betting on GH2 to reduce their carbon footprints. It is worth noting that such countries have announced significant investments in GH2 with in-built provisions to cater to the large export demand firming up rapidly.

Unlike renewable energy, GH2 derivatives are expected to be convenient to store and supply even at long distances. As per the International Energy Agency (IEA), the development of GH2 markets is an important step towards enhancing the transition of world energy security and clean energy. Presently, the global GH2 ecosystem is in its nascent stages – and hence, it is important to lay the foundations of an efficient, transparent and equitable trading ecosystem to enable reaching net zero as early as possible.

1. Slash trade barriers

Trade-related costs will be a critical component that influences the development of global supply chains for GH2. As per a recent WTO-IRENA report, the average applied tariff rate on H2 (all hydrogen, including green) is around 5.3% in most WTO members, higher than for ammonia (4.4%) and methanol (5%). As of December 2023, only 38 countries allowed duty-free trade of H2, 47 for ammonia and 53 for methanol. Supporting the flow of goods and services relevant to the GH2 value chain through a low-cost trade regime is equally important to stimulate the emergence of a globally integrated and standardized GH2 market. In this area, only 18 countries allow for the duty-free trade of fuel cells, 25 for compressors, 23 for H2-compliant steel containers, 48 for H2-compliant pipelines, and 63 for electrolyzers. Thus, one may conclude that there are mountains to move in this domain.

2. A predictable global policy environment

As far as creating national policies is concerned, only around 30 countries have national strategies for low-carbon hydrogen (including GH2). Only 44 hydrogen-related policies emerged between 2009-21, typically demonstrated in technical and financial support measures, such as grants, loans or tax concessions. As the GH2 sector grows, these countries will come out with new policies and revamp existing ones; countries who are on the fence to join the GH2 bandwagon will emerge with their own policies. It is crucial these policies are in alignment with the Agreement on Technical Barriers to Trade (TBT) & Agreement on Subsidies and Countervailing Measures (SCM). This will help weave in predictability, coherency and transparency in accordance with WTO frameworks. It can reduce the cross-border value-chain costs associated with the GH2 ecosystem. International institutions can provide policy-related technical assistance to developing countries to bring coherence to the GH2 trade ecosystem.

3. Harmonized quality standards to promote ‘green’ trade

Policies that simultaneously influence trade and climate are an important manifestation of the interdisciplinary approach taken by national governments. In addition to tariffs, H2 and commodities manufactured using it as a feedstock (ammonia, steel, refinery products, etc.) may attract tax regimes based on their embedded carbon content. The recently introduced EU-Carbon Border Adjustment Mechanism (CBAM) serves as a prominent example. Starting in 2026, GH2/ammonia or steel produced with GH2 may be subject to lower taxes compared to their carbon-intensive variants in the EU. In the USA, four bills were introduced in Congress recently to address issues related to the application of a fee on some imported goods whose carbon intensity exceeds that of the same goods produced in the USA. Other countries are expected to follow suit.

Hence, it is important to promote equity and coherence in national legislation to avoid global value chain disruptions. Accordingly, a recent WTO-IRENA report states that a robust and internationally harmonized “quality infrastructure” (QI) system can create a design basis for the global development of the GH2 ecosystem. The newly created ISO 19870 can suggest pathways that may be adopted to determine the carbon footprint attributable to the manufacturing, conditioning and transfer of hydrogen to its consumption centres. Trading entities can leverage such QI systems to demonstrate the trustworthiness of their underlying carbon quantification systems. It can also facilitate the work of accredited, independent and competent agencies to verify the carbon footprint of H2 before it gets imported into territories that apply trade-related carbon policies.

4. Redirect fossil-fuel subsidies

To decisively steer towards a net-zero pathway by 2050 for the globe, an average of $136 billion a year is necessary across the hydrogen value chain between 2023 and 2050; the world is looking at a significant investment gap of $790 billion by 2030. To bridge this viability gap and to facilitate an equitable clean energy transition, existing subsidies provided to carbon-intensive fuels like diesel, kerosene, LPG, etc. can be phased out, while being respectful of the needs of less-privileged communities. The resulting savings can be used to reduce/eliminate trade-related barriers on products and services that support faster clean energy adoption to create a level playing field for emerging substitutes like GH2 and its derivatives. The resulting incentives can aim to boost green innovation, e.g. cleantech solutions, development of adaptation measures, and market development for green products and services.

5. International cooperation in government procurement

A progressive and climate-friendly government procurement regime can provide a fillip to the deployment of GH2 and related technologies by creating predictable demand and reducing uptake uncertainty. Here, the WTO’s Agreement on Government Procurement, together with other relevant WTO rules, can be used as a reference to ensure open government procurement markets to support GH2 ecosystems. The importance of transparency, dialogue and global cooperation to avoid trade tensions cannot be over-emphasized. Subsidies for local energy transition requirements can entice investment inflows in climate-sensitive infrastructure and technology. At the same time, they can be interpreted as barriers to free global trade. Therefore, incentives should be conceived to strike a balance between economic, social and trade considerations to support a just and equitable transition.

DISCOVER

How is the World Economic Forum facilitating the transition to clean energy?

The ultimate objective of creating any GH2 trade policy framework should be to improve the quality of life of people all around the world. It should ensure the optimal use of global natural resources and pave the way to achieve the global ambition of rapid adoption of clean energy.