Hydrogen could help address the ‘toughest third’ of emissions

The study: Hydrogen Economy Outlook, finds that clean hydrogen could be deployed in the decades to come to cut up to 34% of global greenhouse gas emissions from fossil fuels and industry – particularly hard-to-decarbonise sectors like steel, heavy-duty vehicles, shipping and cement – at a manageable cost. 

However, this outcome will only be possible if demand exists to drive down costs and necessary delivery infrastructure is built. BNEF asserts this won’t happen without new government targets, subsidies and policies.

The report suggests that $150bn in cumulative subsidies would be needed by 2030 to press costs downward – including those associated with storage and pipelines – to$4.4/MWh. This price point would make hydrogen cost-competitive with current natural gas prices in major economies such as China, Brazil, India and Germany.

Furthermore, investments totalling $640bn will be needed by 2050 to provide enough storage infrastructure to achieve the same level of energy security as natural gas, says BNEF. 

Producing hydrogen from renewables will be an important part of cutting emissions. In 2018, however, over 99% of hydrogen was made using fossil fuels. BNEF predicts that with the falling cost of wind and solar power and the arrival of cheaper alkaline electrolysers (which were 40% cheaper in 2019 than in 2014), renewable hydrogen could be produced at $0.8 to $1.6/kg before 2050. 

For effective, widespread use of hydrogen, the report finds that supportive policy is critical. ‘The clean hydrogen industry is currently tiny, and costs are high. There is big potential for costs to fall, but the use of hydrogen needs to be scaled up and a network of supply infrastructure created,’ said Kobad Bhavnagri, Head of Industrial Decarbonisation at BNEF. ‘This needs policy coordination across government, frameworks for private investment, and the roll-out of around $150bn of subsidies over the next decade.

 ‘That may sound daunting, but it is not, in fact, such a huge task – governments around the world currently spend more than twice that every year on fossil fuel consumption subsidies,’ Bhavnagri adds.

A sufficient carbon price would also be necessary to grow the hydrogen economy. The study found that a carbon price of $50/tCO2 would be enough to switch from coal to clean hydrogen in steelmaking by 2050, and $60/tCO2 is sufficient to use hydrogen for heat in cement production. Heavy trucks could also be cheaper to run on hydrogen than diesel by 2031, although batteries remain a cheaper solution for cars, buses and light trucks.