The European Hydrogen Strategy Threatens to Fail 

By Ralf Diemer, CEO of the eFuel Alliance. 

The regulations adopted in the Green Deal stimulate no more than a fraction of the required hydrogen demand. The European Commission’s hydrogen strategy, published in mid-2020, was seen as a glimmer of hope for the entire value chain, but the shine faded – the expansion of renewables, plant construction, and the development and establishment of a suitable infrastructure are threatening to fail in the face of political reality. An analysis by the eFuel Alliance shows that with the current regulatory regime, the goals of the European hydrogen strategy will be missed by a factor of 10.

The starting point of the European hydrogen economy can be dated to July 2020. This is when the EU Commission presented its hydrogen strategy and set targets by which it now must be measured. The EU aims for 6 GW of electrolysis capacity in 2024 and a production capacity of 1 million tonnes of green hydrogen. In 2021, only 0.135 GW was installed. By 2030, 2×40 GW should be available – 40 GW within the EU and 40 GW for export of hydrogen and eFuels to the EU. 

After Russia’s war of aggression on Ukraine, the import dependency of the EU – especially Germany – showed its vulnerable side and caused further political acceleration. Besides climate protection, reducing import dependency on fossil fuels is seen as a new strong argument for a European hydrogen market. The RePowerEU package was intended to reduce these dependencies, and the hydrogen targets became more ambitious. With 10 million tonnes of imports and another 10 million tonnes of domestically produced green hydrogen, the European Commission wanted to position itself in the best possible way. 20 million tonnes of green hydrogen correspond to an electrolyser capacity of 150 gigawatts (GW) at 4,500 full load hours and a demand of 667 terawatt hours (TWh) by 2030 – so the targets. However, the inventory of relevant legislation from the Green Deal or the Fit for 55 package paints a pessimistic picture. The targets seem to have slipped into the distance.

Since the publication of the Fit-for-55 package in July 2021, the EU has presented a collection of legislative proposals aimed at putting the achievement of climate targets and the reduction of import dependency into a concrete regulatory framework. The use of green hydrogen and its derived products (in EU language: RFNBOs for “renewable fuels of non-biological origin) in transport, heat and industry are defined in the Renewable Energy Directive (RED), for which a final compromise was reached between the Council and Parliament on 30 March 2023. Although the efforts to raise the target for renewable energies in all sectors to 42.5 percent by 2030 raise hopes. However, the Renewable Energy Directive (RED) thwarts the strategic goals of the hydrogen sector that were set in advance. 

The ambition level of the revised RED is clearly too low. In transport, the EU adopted a quota of 1 percent RFNBOs in 2030, which is further affected by several multipliers that reduce the actual demand. RFNBOs count double towards the targets and an additional 1.5 times if they are used in aviation and shipping. Upscaled, with the projected fuel demand in 2030 according to the EU’s own scenarios, this quota only creates a demand for hydrogen and eFuels of around 10 TWh – equivalent to an electrolysis capacity of just under 2.2 GW. The Commission’s original recommendation in RePowerEU was a quota of 5 percent RFNBOs by 2030, which would have stimulated demand of about 250 TWh or 55 GW of electrolysis capacity. During the legislative process, this target was even increased to 5.7 percent by the European Parliament. During the trilogue negotiations, however, the Council watered down the ambition level to the 1 percent mentioned, including various multipliers.

The manufacturing industry is also facing a new binding target for using RFNBOs. By 2030, 42 % of the hydrogen used must come from renewable energy sources, with exceptions for using hydrogen from nuclear power. This applies, for example, to the production of fertiliser (production of ammonia) or green steel but also in the chemical industry or refineries (desulphurisation). According to consultations with several European associations, an additional demand of about 50 TWh by 2030 is realistic. Unfortunately, there are no binding RFNBO quotas in the RED for the heating sector that would generate additional demand. In summary, the RED does not cover one-tenth of the targeted two times 10 million tonnes of green hydrogen (667 TWh).

Besides the RED, the FuelEU Maritime and ReFuelEU Aviation, there are no other EU regulations defining demand – assuming that CO2 prices, e.g. in the EU ETS, remain at a level until 2030 so that differential costs to fossil fuels cannot be fully compensated. Green hydrogen and eFuels will, therefore, remain more expensive than fossil equivalents so that companies, to avoid competitive disadvantages, are unlikely to overfulfil the given regulation. 

The ramp-up of the hydrogen market and its derivatives requires a sufficient planning horizon to give operators the necessary investment security. This is complicated by the fact that legislation such as the RED or FuelEU Maritime does not include longer-term targets for RFNBOs. For the RED, the targets end in 2030, and for FuelEU Maritime, they end in 2034. Future legislation needs to be more ambitious and reach further into the future. The ReFuelEU Aviation exemplifies that the path to 2050 can be paved – even if the share of climate-friendly aviation fuels (SAF) and RFNBOs at 70% (with 35% RFNBO) is not yet in line with the climate neutrality target.

After years of uncertainty for producers and buyers, realism has arrived in the European hydrogen strategy. Even with a review of the targets and ambitions in 2026 and 2027, the targets set cannot be realised by 2030. This leaves the implementation of real climate protection on the EU member states. After the RED enters into force this autumn, the following 18 months are the key to more ambitious quotas. National parliaments are urged to close the demand gap to meet the climate targets.

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