Hydrogen State of the Union: Where We Stand in 2024
Why 2024 promises to be a year of significant progress for green hydrogen.
RMI wrote last year about green hydrogen being at an inflection point on an S-curve — not a slow, gradual transition but a rapid adoption of a powerful tool to decarbonize the most difficult parts of our modern economy. We believe hydrogen’s flexibility, its ability to act as a chemical catalyst and reach the high heat needed to produce steel and other vital materials, and its ability to be transformed into established chemicals such as ammonia and methanol, all mean it will play an important role in our future energy system.
The news so far this year hasn’t changed this thinking. Policy debate over the hydrogen tax credit — 45V — in the United States and incentives in other countries are important and necessary given the complex, diverse lifecycle emissions of the different hydrogen technologies and the fact that these technologies will have to be competitive in different geographies, and at different points in time. Such debates take time and create a period of uncertainty. But we have witnessed tremendous progress too with, for example, the rules of the game being defined for renewable hydrogen in the EU last year.
Inflationary pressures on the cost of renewables, which constitute up to two-thirds of green hydrogen’s production cost, are real. Some green hydrogen developers such as Iberdrola and ENGIE are revisiting their medium-term ambitions because of this. The International Energy Agency has also revised some of its hydrogen market projections, but in response to other factors: its new scenarios correctly recognize the reduced role for hydrogen in sectors that are better directly electrified.
OUR FUTURE NEEDS YOU.
Call it a gift. We call it the momentum behind our zero-carbon future.
Taken together, do these signals mean that the green hydrogen economy has entered a zone of turbulence? And, if so, how long will it last?
We believe these are signs of constructive iteration in the market, not of looming failure. It is crucial to differentiate between short-term pressures and longer-term trends. As Bill Gates famously said: “Most people overestimate what they can do in one year and underestimate what they can do in ten years.” Although inflationary pressures and remaining policy uncertainties may prove to be short-term speed bumps for green hydrogen projects, we believe that the trend for massive growth in this decade is in motion and won’t revert, just like it won’t revert for renewables despite the headwinds that we saw in 2023 for the offshore wind industry.
From our work across geographies and on the front lines of the transition, we’re seeing signs that 2024 stands to be a year of continued growth for green hydrogen. Even if it is difficult to see from where we stand now, green hydrogen can hit the mark we need to stay aligned with a 1.5°C trajectory. Here’s why.
Significant policy supporting green hydrogen is in place — and will stay there.
The national and regional governments that most urgently need to act on industrial decarbonization — namely the United States, European Union, Canada, Japan, South Korea, China, Australia, and India — are putting strong policies in place which encourage hydrogen project development. Even though 2024 is a so-called “super election” year, with many countries ushering in political change, these policies are coming into place and will stay there: a $20 billion plan to encourage hydrogen demand in Japan is expected by June; more than $3.5 billion has been allocated by the German government to the country’s pioneering green hydrogen purchasing program, in addition to $900 million previously earmarked; and the $7 billion US hydrogen hubs program was one of the highlight announcements of last year, coupled with the generous 45V production tax credit.
In addition, state governments, provinces, and even city-level initiatives encouraging hydrogen hubs have understood and are acting on the opportunity that clean hydrogen development offers local economies and industries.
Project announcements speak to a level of investment that is moving the needle.
Only a few years ago, the largest low-emissions hydrogen facility under construction had 20 megawatts (MW) in capacity. Today, several 100 to 250 MW projects are under development, with a few visionary, first-mover developers taking megawatts to gigawatts. H2 Green Steel, a Swedish startup, raised €6.5 billion to fund the world’s first large-scale green steel plant powered by Europe’s first giga-scale electrolyzer. ACWA Power raised $8.5 billion and began the construction of a 2.2 GW project in the desert of Saudi Arabia, with plans to export the hydrogen to renewables-constrained Europe in the form of green ammonia.
RMI’s Green Hydrogen Catapult, a coalition of 10 hydrogen front-runners including H2 Green Steel and ACWA, is on track to meet its 2030 target to bring 45 GW of green hydrogen projects to final investment decision, with 14 GW already in final engineering design stage or with final decision being made. And we see gigawatt-scale electrolyzer manufacturing plants that have already been built with the rest of the supply chain ramping up capacity, too.
Large, consumer-facing corporations are getting serious about decarbonizing their supply chain — and they’ll need clean hydrogen to help them do this.
Climate-minded investors, credit agencies, and regulators are getting ever more sophisticated about parsing real emissions action from empty ambition statements. Corporate climate disclosure requirements in the United States, Europe, and other large markets will provide increasing transparency and incentives to act. As one of the most promising decarbonization solutions to heavy industry and long-haul transport, hydrogen is relevant in addressing corporations’ supply chain and travel emissions — by far the largest contributors to most businesses’ carbon footprint and the most complex to reduce.
Businesses are innovating and finding meaningful ways to make change. The Sustainable Steel Buyers Platform (SSBP), established last year by RMI, is bringing together corporations that use large amounts of steel — think automakers, tech, and construction — and ambitious steelmakers to help make zero-emissions steel production happen in North America. Substituting natural gas and coal with clean hydrogen in key stages of steel production is one of the most promising ways to reduce emissions. But building these new, hydrogen-fueled plants will take financing. Raising this large amount of capital requires offtake agreements at a price required to support the business case. The SSBP’s membership aims to pool demand into a collective request for up to 2 million tons of near-zero emissions steel this decade to help make low-emissions steel projects bankable.
The SSBP uses a model that RMI helped pioneer in the sustainable aviation fuel market, connecting the dots between ambitious corporate buyers with fuel suppliers and airlines to rapidly increase the availability and use of low-emissions hydrogen-based fuel. RMI, with our partners at the Maersk McKinney Moller Center, is using the same model for the maritime shipping sector: bringing together shipping lines and cargo owners to facilitate easy, transparent, and credible exchange of sustainability attributes to catalyze the uptake of zero-emission fuels in a digital system.
Where we’re looking now
RMI is helping energy-intensive industries understand how new international markets for clean hydrogen will evolve — including those for low-emissions hydrogen derivatives like ammonia and methanol and direct-reduced iron ore. With green hydrogen projects taking off at scale, we are focused on potential market development bottlenecks and see three interconnected areas that require urgent attention.
First: demand. The challenge — and the opportunity — of 2024 will undoubtedly be hydrogen offtake. While many factors are creating barriers to renewable and low-carbon hydrogen commercialization, scant offtake contracts are the biggest cause of project delays. The good news is this is a problem that sector leaders have spotted and are addressing through radical collaboration. RMI is partnering with public and civil society leaders in initiatives such as the US Department of Energy-backed H2DI, and the Clean Energy Ministerial Hydrogen Initiative’s Hydrogen Breakthrough Agenda’s Demand Creation & Management Priority Action that brings together the World Bank, WBCSD, Mission Innovation, the World Economic Forum, Hydrogen Council, H2Global, UNIDO, UN HLCC, and the Hydrogen TCP.
We believe several factors will spur heavy industry and transport to take the leap to engage low-emissions hydrogen developers, including a growing sense of urgency to meet carbon reduction goals and the investment cycles of many assets coming due. The shipping industry, potentially the largest industrial consumer for low-emissions hydrogen by mid-century, is a case in point. Over the past three years, companies have launched the first methanol-fueled vessel, ordered more than 250 methanol-fueled ships, and placed the first-ever order for ammonia-fueled vessels. This year stands to bring bigger news, with already over 30 shipping leaders committing to scale up use of renewables-based hydrogen fuels to nearly 11 million tons by 2030.
Second: infrastructure. Uncertainty about demand is in part linked to uncertainty about the presence of connective infrastructure to ensure hydrogen supply. End users need assurance that hydrogen will be present at the prices, volumes, and consistency required, and midstream infrastructure can help unlock this. We see a great degree of urgency to start infrastructure planning efforts in key regions of the United States and China, and there are many lessons to be learned from what’s been done so far in Europe. This is why RMI has partnered with Guidehouse to kick off the North American Hydrogen Backbone initiative.
Third: public acceptance, siting, and permitting. Without a unified regulatory framework at the federal level, the hydrogen market will remain fragmented, delaying the growth of a more liquid, competitive market. Hydrogen production and infrastructure projects are reluctant to proceed when a clear regulatory framework is not in place, since developers can’t establish clear and predictable financial plans without understanding the conditions under which they will be operating. This challenge intensifies when development spans state lines. This lack of clarity regarding which federal agency should oversee hydrogen pipeline transportation heightens risk perception in hydrogen midstream investments. Regulatory clarity is also needed to create robust safety and environmental standards to manage hydrogen’s unique properties and potential hazards.
Finally, the social license for project development is changing — for the better. Developers must create community benefits plans and legally enforceable agreements by carrying out meaningful two-way community engagement, implement strategies to decrease burdens through the lifetime of the project and create local, high-quality jobs in the communities that host them.
We believe that with the right signals, the market will move at the speed and intensity needed to make clean hydrogen a go-to fuel in the very near future. Those signals already abound: from encouraging (and stable) domestic policies, to giga-scale projects, to corporate curiosity.
The barriers to reaching that future are real, but we know what we’re up against. At RMI we will continue to work tirelessly with those focused on creating a clean energy future. Clean hydrogen is a major part of that vision, and you can be sure that when we assess the industry’s landscape this time next year, we’ll have even more good news to share.