Abstract

To accelerate the global transition to a low-carbon economy, all energy systems and sectors must be actively decarbonized. While hydrogen has been a staple in the energy and chemical industries for decades, renewable hydrogen is drawing increased attention today as a versatile and sustainable energy carrier with the potential to play an important piece in the carbon-free energy puzzle. Countries around the world are piloting new projects and policies, yet adopting hydrogen at scale will require innovating along the value chains; scaling technologies while significantly reducing costs; deploying enabling infrastructure; and defining appropriate national and international policies and market structures.

What are the general principles of how renewable hydrogen may reshape the structure of global energy markets? What are the likely geopolitical consequences such changes would cause? A deeper understanding of these nascent dynamics will allow policy makers and corporate investors to better navigate the challenges and maximize the opportunities that decarbonization will bring, without falling into the inefficient behaviors of the past.

Why renewable hydrogen?

The successful deep decarbonization of energy intensive sectors— including power, mobility, buildings, and industry—will likely require the deployment of clean energy carriers at scale. Hydrogen produced from renewable electricity has a variety of applications and the potential to tackle “hard-to-abate” sectors while mitigating the shortcomings of renewable energy sources such as intermittency. Renewable hydrogen can be used in both mobility and stationary applications. As a sustainable mobility energy carrier, it can power fuel-cell electric vehicles and/or be the base for synthetic fuels. In stationary applications it can be used to store renewable energy—both at utility scale and/or off-grid—hence providing backup to buffer renewable energy sources (RES) intermittency and/or serve as a carbon-free heating source. Furthermore hydrogen can be stored in large quantities for extended periods of time at lower costs than electricity.

Thanks to its unique versatility, renewable hydrogen is often described as the “missing link” in global decarbonization.

What would renewable hydrogen systems look like?

Though recent reports vary in estimating demand by 2050, renewable hydrogen could capture up to 14% of the future global energy markets. Two factors will determine hydrogen’s rate of global growth: competitiveness of production costs and deployment of enabling infrastructure at scale.

Currently, renewable hydrogen is around two to three times more costly to produce than fossil fuel-based hydrogen. However, countries and companies can consider a range of strategies to increase its competitiveness, including technological improvements, cost reductions along the value chain, and/or carbon pricing policies.

What are the geopolitical and policy implications of adoption at scale?

If renewable hydrogen is adopted at scale in the coming decades, future market dynamics will likely resemble today’s regional natural gas markets—with corresponding potential for geopolitical conflict. Whether renewable hydrogen will be as regionally concentrated as today’s oil markets or decentralized like renewables is dependent on technology, availability of enabling infrastructure, and future market structures.

Our analysis shows that countries will likely assume specific roles in global renewable hydrogen systems based on their levels of renewable energy resource and water endowment as well as their infrastructure potential. As a result, the geopolitical realities of resource-poor countries in Europe and South-East Asia might resemble the present, since these countries are expected to import renewable hydrogen from new energy export champions—including Australia and Morocco—that possess strong cost positions and access to large import markets.

These countries may implement policies to trigger technology innovation and infrastructure investments, paving the road toward dominant positions in future hydrogen markets. At the same time, sustaining high renewable deployment rates will also be key to achieve the necessary scale. Targeted federal policies could also reduce investment risk while addressing commercialization barriers.

On the other hand, importing countries must prepare and embrace strategic long-term supply diversification to increase national energy security.

It will also be essential for both importing and exporting countries to establish international standards for renewable hydrogen production, transportation, and use.

In summary, the many variables dictating renewable hydrogen’s future include technology, infrastructure, environment, finance, global markets, and geopolitics. This paper provides a framework to address both the challenges and the opportunities they offer. Geopolitical competition, economic factors, technology, and safety concerns have thus far limited renewable hydrogen’s reach; but new geopolitical forces, fuelled by the growing crises of climate change and global energy demand, may reshape the international conversation. Policy makers around the world have a decision to make: will they invest in such a transformative effort?

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