Why zero-emission green hydrogen production is so challenging

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

Author: Flor Lucia De la Cruz, Principal Analyst, Hydrogen and Derivatives, Wood Mackenzie, Simon Flowers, Chairman and Chief Analyst, Wood Mackenzie

• Green hydrogen can be produced with zero emissions.
• But, net zero green hydrogen relies on using renewable energy.
• Many countries do not produce enough renewable energy to power green hydrogen production.

As the hydrogen rainbow colours start to blur, choosing between green and blue won’t be straightforward. Yet, green hydrogen looks to be the winner. Manufactured from water using electrolyzers powered by renewables, green hydrogen offers the potential for zero-emissions hydrogen. It’s expensive today, but innovation and scaling up should make it a competitive energy source by the early 2030s.

As brown hydrogen is made from coal and grey and blue hydrogen is created from natural gas with released CO2 captured, the common perception is that green will dominate the future hydrogen supply colour map, wiping the floor on costs and carbon intensity.

But is it cut and dried? A recent Wood Mackenzie report – Over the rainbow: why understanding full value-chain carbon intensity is trumping the colour of hydrogen – identified four factors that complicate the rise of green hydrogen that developers and potential buyers need to be aware of.

1. There are shades of green hydrogen

First, genuinely green hydrogen has a very low carbon intensity, typically between zero and 0.5 kgCO2eq/kgH2. That’s 20 times lower than blue, 50 times lower than grey and 100 times lower than brown. But that’s only if green hydrogen is produced using renewable power – and solar and wind’s variability sharply reduces electrolyzer utilization, driving costs up.

The 24/7 solution is to plug the electrolyzer into the local grid during renewables downtime to maximize electrolyzer utilization. Therein lies the problem. Most grids are a long way from zero emissions so using grid-power will increase the carbon intensity of the produced green hydrogen. On our calculations, electrolytic hydrogen produced from 100% grid power can have even higher carbon intensity than brown hydrogen.

Electrolyzer technology also matters. China dominates global manufacturing capacity, but its favoured alkaline electrolyzers need a continual electrical load to remain within safety limits, inevitably resulting in higher emissions.

Proton exchange membrane (PEM) technology, favoured by Western original equipment manufacturers (OEMs), allows developers to mirror hydrogen production to renewable generation. The concern is that we end up with a two-tier global market, as Chinese OEMs push low-cost alkaline electrolyzers to carve out market share in countries with less stringent rules on emissions.

2. PPA availability could be limited for green hydrogen developers

Second, policymakers are trying to establish rules – and incentives – to certify that a green hydrogen molecule coming onto the market does what it says. The EU has set strict limits on the use of grid-connected electrolyzers.

In the US, the rules around the use of grid power and renewables for electrolyzers, which determine tax credit eligibility, are based on carbon intensity. Other markets – including Japan, Australia and India – are lagging.

The obvious option in any market is for the developer to buy 100% green power through power purchase agreements (PPAs). Developers, however, find that PPAs at the scale and duration required aren’t available today in most power markets.

Discover

What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Centre for Energy & Materials is working on initiatives including Clean Power and Electrification, Energy and Industry Transition Intelligence, Industrial Ecosystems Transformation, and Transition Enablers to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Partnership (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.

3. Emissions from hydrogen transport and processing must be taken into account

Third, emissions from green hydrogen aren’t confined to the production process. Future hydrogen supply traded globally will be produced in renewables-rich countries, such as Saudi Arabia and Australia, and then exported to the big demand centres of Europe and North Asia. Once converting, compressing, transporting and reconverting hydrogen are factored into the equation, emissions intensity becomes a whole new ball game.

To ship hydrogen, which has a low density, by sea, it must be compressed or liquefied, or converted into derivatives, such as ammonia or methanol, which are already common cargoes in sea trade. Our analysis suggests ammonia synthesis, shipping and cracking will add another 20% to 25% to the emissions intensity of most green and blue hydrogen for export.

4. Carbon intensity benchmarks could mean it’s time to get over the hydrogen rainbow

Fourth, the rules around the carbon intensity of grids and the transportation value chain muddy the waters as to what constitutes the lowest carbon-intensive hydrogen. The surefire bet is 100% renewables-powered green hydrogen, which clocks in below the EU-intensity ceiling of 3.4kgCO2eq/kgH2. That benchmark though is beyond most developers and only hydro-rich Norway can guarantee 100% renewables at scale.

Most green hydrogen projects in the Middle East, US and Australia will likely have to use the local grid for at least some power. Taking ammonia and shipping into account, these green hydrogen projects will not only exceed the EU threshold, but could potentially have a carbon intensity similar or higher than blue hydrogen projects in the same country.

Electrolytic hydrogen offers the potential for a truly green energy supply. But as our report shows, the road to zero emissions will be long and bumpy for the burgeoning green hydrogen industry. Efforts to minimize carbon intensity through the value chain will impact costs and eligibility for subsidies. Increasing access to renewable power via green PPAs has to be the starting point.

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