Speaking in Egypt, German Chancellor Olaf Scholz announced extra funding for the government’s global hydrogen funding instrument, H2Global, to facilitate the global market ramp-up.
Hydrogen, currently produced almost entirely by burning fossil fuels and somewhat damaging to the climate, does not emit CO2 when burned. If made using renewable sources, it can be considered “green.” The odourless and invisible gas has become a beacon of hope for economies hoping to decarbonise.
“Green hydrogen is the key to decarbonising our economies, especially for hard-to-electrify sectors such as steel production, the chemical industry, heavy shipping and aviation,” explained Scholz during a roundtable titled “Investing in the Future of Energy: Green Hydrogen” at COP27 on Tuesday (8 November).
About 75 million tonnes of fossil-based hydrogen are already produced annually and usually used locally. Yet, Scholz said, “green hydrogen is not some distant future fantasy.”
To speed up the way there, Germany has rallied the wealthiest industrial nations.
“During our current [German] G7 presidency, we agreed on a hydrogen action pact to accelerate the market ramp-up of low carbon and renewable hydrogen and derivatives,” Scholz highlighted.
The G7 hydrogen action plan is considered controversial for its recognition of low-carbon hydrogen, an alternative term for “blue” hydrogen, where the rising CO2 emissions are captured and stored. “Blue” hydrogen can be just as bad for the climate than burning the gas used for its production, is dependent on high CO2-capture rates and less energy efficient than just burning the gas for energy.
Germany’s steel makers and chemical industry, like world leader BASF, are hungry for hydrogen.
“We are adapting our plans for domestic production of green hydrogen from five gigawatts to ten gigawatts of electrolyser capacity by 2030,” Scholz noted.
“This will only meet one-third of the expected demand. The majority needs to come from abroad.”
Making a global market
Scholz pointed out the chicken and egg dilemma the foundation wants to tackle.
“Green hydrogen producers are ready to invest massively, but they require long-term off-take agreements and steel factories or chemical plants as potential consumers must be sure they will receive sufficient and competitive supplies before they invest,” he explained.
The instrument of choice in Berlin is the government-funded foundation H2Global, led by Kirsten Westphal. It was founded in May 2021, backed by €900 million of government money.
At last year’s COP26 in Scotland, the foundation announced its instrument: Hintco. Before reselling it to the highest bidder, they guarantee ten-year purchasing contracts for hydrogen, a so-called double-auction model.
Government money steps in to cover the difference between the costly production and the lower price buyers are willing to pay. And Scholz is looking to boost them further.
“We plan to invest more than €4 billion [into H2Global]. The first tenders will be launched soon,” he announced. H2Global is addressed explicitly to non-EU countries.
On the other side, the EU’s hydrogen bank, expected to arrive late next year, is smaller at €3 billion and targets EU hydrogen producers.
“The pilot phase of the Bank will start next year with a contracts-for-difference scheme under the Innovation Fund to support 100% of the cost gap compared to grey hydrogen produced in the EU,” explained EU Green Deal Chief Frans Timmermans on 25 October.
The bank would work in conjunction with H2Global to support “access of European consumers to hydrogen imports; according to Jonas Helseth, hydrogen is not an energy source but an energy sink, requiring vast amounts of electricity to be produced and to assist the emergence of early hydrogen hubs in the EU,” he added.
Thus, Germany’s unilateral global hydrogen market is far heftier than the EU’s domestic tool.
So far, COP27 has seen the EU commit to additional initiatives as well. On Wednesday, Commission President Ursula von der Leyen signed a memorandum of understanding (MoU) establishing a strategic partnership between the EU and Namibia, which features hydrogen prominently.
On Tuesday, she signed one with Kazakhstan and a more concrete agreement with Egypt is set to follow, which will likely include EU-Egypt hydrogen trading provisions, something Germany has long pushed for.
Scholz explained that Germany was working with Brazil, Morocco, South Africa and Tunisia to “build local capacities” around the green hydrogen value chain.