1. It’s not hype this time.
Since the 1950s, hydrogen has repeatedly been touted as the fuel of tomorrow. But always as a fuel for transport. Then, each time fuel-cell vehicles didn’t materialize or didn’t meet consumers’ expectations, hydrogen would lapse into obscurity again. This time, however, the focus is on decarbonization. Reaching net-zero carbon emissions by 2050 will require hydrogen for two main reasons. First, some sectors will need a molecular fuel to replace oil and gas. Second, the electricity system won’t be able to operate reliably on solar and wind alone. One advantage of hydrogen is that it can store energy across seasons: energy from a sunny summer can heat homes in a cold, dark winter. BloombergNEF thinks that hydrogen could one day provide more than 20% of the world’s energy. In short, this time hydrogen is here to stay.
2. A flourishing hydrogen economy requires carbon pricing
Hydrogen will probably never be cheaper than fossil fuels. Certainly not when it’s made from them. To flourish, it needs the right regulatory environment. The most obvious mechanism is carbon pricing. So far, however, carbon prices have tended to be too low to be effective. Producing green hydrogen currently costs about €1 per kilogram. For that to be profitable, emissions would need to cost $50 to $100 per metric ton. Also, governments need to set quotas and create incentives for investment, just like they have with renewables. It wasn’t so long ago that solar and wind were pretty expensive. Now they’re the cheapest electricity source in many regions of the world, including much of the EU. That never would’ve happened without massive subsidies.
3. Hydrogen will transform transport, but not for passenger vehicles.
Carmakers have perpetually claimed to be on the verge of producing efficient, affordable fuel-cell vehicles. Yet less than 100,000 such vehicles exist worldwide, far less than the millions of battery-powered cars. Because the latter are much cheaper, this ratio is unlikely to change. That said, a battery’s energy density is worse than hydrogen’s. The bigger the vehicle, therefore, the more sense it might make for it to be powered by hydrogen. Big trucks could very well transition to hydrogen. The same goes for maritime transport. Hydrogen could also be viable for medium-haul aircraft, which is a large segment of the aviation market.
4. Blue hydrogen can play a niche role.
Today, nearly all hydrogen is produced in a carbon-intensive process called natural gas reforming. The result is referred to as grey hydrogen. If the direct carbon emissions of grey-hydrogen production are captured and stored or used, the result is known as blue hydrogen. Our research suggests that green hydrogen is going to become cheaper than blue hydrogen, possibly as early as 2030. Nevertheless, blue hydrogen has a future. That’s because some countries lack the space or weather for renewables-based green hydrogen but may have fossil reserves. For them, blue hydrogen may be a viable option. Right now, however, the maximum carbon-capture rate of blue hydrogen is about 90%. Capture technology would have to improve—or producers would have to buy carbon offsets—for blue hydrogen to be truly net zero. Both options are costly and might make blue hydrogen even less competitive.
5. Geography matters, but not in the way that some people might think.
Some countries have a geographical advantage in green-hydrogen production. Weather obviously plays a role. But having lots of sun isn’t everything. Our studies indicate that the cheapest way to make green hydrogen is to use a combination of solar, wind, and batteries. More importantly, the hydrogen economy needs more than just producers. It needs ways to get hydrogen to consumers. Consequently, countries with access to gas transmission pipelines might be better positioned than those that have abundant sunshine but are far away from potential buyers and lack access to gas infrastructure. Hydrogen’s energy density per unit volume is much lower than that of natural gas. It therefore needs more complex infrastructure for cooling and so forth. Also, it takes more energy to condense hydrogen than natural gas and more ships to transport the same amount of energy. That said, the price of transporting hydrogen by pipeline is roughly similar to that of transporting natural gas by pipeline. So infrastructure and relative proximity to client countries are key.
6. One of the biggest challenges: storage
The options for storing natural gas include depleted natural gas fields and salt caverns. The former might not be ideally suited for storing hydrogen, but salt caverns are. Hydrogen takes up a lot more space than natural gas, however, so there would need to be three to four times as many salt caverns to store the same amount of energy. Germany is lucky in this respect: it has salt deposits and companies that know how to make salt caverns. Countries that don’t have salt deposits would have to find other storage options, such as lining underground rock caverns with steel or plastic. Sweden is testing this approach. But the storage challenge will remain for some time to come.
7. Tomorrow determines today
A hydrogen economy will require foresight and proactivity. For example, gas turbines manufactured today should also be configured to burn hydrogen. Gas pipelines should be made hydrogen-ready as well. Companies can do some of this themselves. But governments also need to set standards at the national and international level. Everyone should be thinking 30 years into the future. And, ideally, taking the steps necessary for hydrogen to reach its climate-protection potential.