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Policy review

Policy Toolbox

for Low Carbon

and Renewable

Hydrogen

Enabling low carbon and renewable hydrogen globally

November 2021

Published in November 2021 by the Hydrogen Council. Copies of this document are available upon

request or can be downloaded from our website: www.hydrogencouncil.com.

This report was authored by the Hydrogen Council.

The report has been compiled both from public sources and proprietary data of the Hydrogen Council.

Its messages have been acknowledged by an Observatory Group, that consists of representatives

from government agencies and academia, as well as associations and companies active in sectors

like regenerative electricity generation, electricity grid equipment manufacturing, electric vehicle

charging, fleet management.

The authors of the report confirm that:

a. There are no recommendations and/or any measures and/or trajectories within the report that

could be interpreted as standards or as any other form of (suggested) coordination between the

participants of the study referred to within the report that would infringe EU competition law; and

b. It is not their intention that any such form of coordination will be adopted.

Whilst the contents of the Report and its abstract implications for the industry generally can be

discussed once they have been prepared, individual strategies remain proprietary, confidential

and the responsibility of each participant. Participants are reminded that, as part of the invariable

practice of the Hydrogen Council and the EU competition law obligations to which membership

activities are subject, such strategic and confidential information must not be shared or coordinated –

including as part of this Report.

TABLE OF CONTENTS

Executive summary

Introduction and approach

Policy assessment and packages

Enabling policies

Country archetypes

Societal value and values

Appendix – detailed policy assessment results and quantification methodology

Policy Toolbox for Low Carbon and Renewable Hydrogen

Hydrogen Council

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PolicyreviewPolicyToolboxforLowCarbonandRenewableHydrogenEnablinglowcarbonandrenewablehydrogengloballyNovember2021PublishedinNovember2021bytheHydrogenCouncil.Copiesofthisdocumentareavailableuponrequestorcanbedownloadedfromourwebsite:www.hydrogencouncil.com.ThisreportwasauthoredbytheHydrogenCouncil.ThereporthasbeencompiledbothfrompublicsourcesandproprietarydataoftheHydrogenCouncil.ItsmessageshavebeenacknowledgedbyanObservatoryGroup,thatconsistsofrepresentativesfromgovernmentagenciesandacademia,aswellasassociationsandcompaniesactiveinsectorslikeregenerativeelectricitygeneration,electricitygridequipmentmanufacturing,electricvehiclecharging,fleetmanagement.Theauthorsofthereportconfirmthat:a.Therearenorecommendationsand/oranymeasuresand/ortrajectorieswithinthereportthatcouldbeinterpretedasstandardsorasanyotherformof(suggested)coordinationbetweentheparticipantsofthestudyreferredtowithinthereportthatwouldinfringeEUcompetitionlaw;andb.Itisnottheirintentionthatanysuchformofcoordinationwillbeadopted.WhilstthecontentsoftheReportanditsabstractimplicationsfortheindustrygenerallycanbediscussedoncetheyhavebeenprepared,individualstrategiesremainproprietary,confidentialandtheresponsibilityofeachparticipant.Participantsareremindedthat,aspartoftheinvariablepracticeoftheHydrogenCouncilandtheEUcompetitionlawobligationstowhichmembershipactivitiesaresubject,suchstrategicandconfidentialinformationmustnotbesharedorcoordinated–includingaspartofthisReport.TABLEOFCONTENTSExecutivesummaryIntroductionandapproachPolicyassessmentandpackagesEnablingpoliciesCountryarchetypesSocietalvalueandvaluesAppendix–detailedpolicyassessmentresultsandquantificationmethodology41826364454563PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilExecutivesummary4PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilTherecentsurgeininterestbypolicymakersforlowcarbonandrenewablehydrogen1reflectsagrowingrecognitionofitsimportantroleindecarbonizingtheenergysystem.Hydrogenwillplayakeyroleinenablinggreaterandfasterintegrationofrenewableenergyinthesystemandfosteringgreaterresilience,cost-efficiency,andoptimizationatthesystemlevel.Goinghand-in-handwithelectrification,thedevelopmentofthehydrogeneconomyissettoenabledeepdecarbonizationworldwideinaneffectivemanner,allowingcountriestomeettheirclimategoals,boostgreengrowth,andcreatesustainablejobs.Over30countrieshavealreadyintroducedhydrogenstrategies,whileindustryhasannouncedmorethan520large-scalelowcarbonandrenewablehydrogenprojects.Whilerapidtechnologicallearningbringscostcompetitivenesswithinreachforsomeapplications,unlockingthefullpotentialoflowcarbonandrenewablehydrogen(definedintheAppendix)requiresfurtherpolicydevelopment.Notwithstandingaverylargevolumeofprojectsandfundingannouncements,thereremainsasignificantgaptorealizeglobalclimatechangemitigationambitions.ThefullpotentialofhydrogenrequiresdirectinvestmentofaroundUSD700bnby2030.ProjectsandgovernmentsupportworthUSD160bnhavebeenannouncedalready,leavingagapofnearlyUSD540bn2.Fortheseinvestmentstotakeplace,theindustryneedsaclearpolicyandregulatoryframework,andsupportforscalinguphydrogensolutions,especiallyduringtheearlymarketbuildingphase.Coordinatingpolicyandregulatoryactivityontheonehandwithprojectsandinvestmentactivityontheotheriskeyforindustryandgovernmentstojointlydeliveronthesharedclimateobjectivesassoonaspossible.CountriesinEuropeandinAsiahavebeenattheforefrontofhydrogeneconomydevelopment.IntheEU,dedicatedhydrogensupportinstrumentssuchasContractsforDifferences(CfDs)andCarbonContractsforDifference(CCfDs),designedtoprovidea‘push’forsupplyanda‘pull’fordemandrespectively,arealreadyunderdevelopment.Retrofittingandrepurposingtheexistinggasinfrastructureandbuildingnewdedicatedtransmissionandstoragesystemsforhydrogenconstitutesanotherpriorityfortheindustryandpolicymakers.InEurope,forexample,aplanforthedevelopmentofaHydrogenBackboneconnectinglarge-scaleproductionofhydrogenwithdemandclustershasbeenputforward.Atthesametime,manyotherregionshavesettheirlowcarbonandrenewablehydrogenambitionsandarelookingatdevelopingthelegislativeframeworksthatwouldenabletheirachievement.Againstthisbackdrop,thisreport,providesapracticalguidetothefullpolicytoolbox.Itisdirectedatpolicymakersandlegislatorswhocanuseitasamenuofpolicytoolstodeploywhendesigningorimplementinghydrogenpolicyandregulatoryframeworks.Thestudyisbasedonanassessmentoftheperformanceofhydrogenpoliciesindifferentstagesofmarketmaturity(e.g.,beforeandafterthetechnologyiscommerciallyviable)andsegmentsofthevaluechain(e.g.,hydrogenproduction,mid-streamhydrogeninfrastructureandhydrogenuse).48policieswereshortlistedbasedontheireconomicefficiencyandeffectivenessandmappedtobarriersacrossthevaluechainandovertime.Thesepoliciesweresubsequentlyclusteredintopolicypackagesforthreecountryarchetypes:aself-sufficienthydrogenproducer,animporter,andanexporterofhydrogen.Lastbutnotleast,weexploredthesocietalvaluethatcanbeunlockedbycountriesthankstothedevelopmentofthehydrogeneconomy,lookingatitthroughthelensofSustainableDevelopmentGoals(SDGs).Sixkeyprinciplesforeffectivehydrogenpolicyandregulatoryframeworksemergedfromthisanalysis.Itshouldbenotedthatallsixpillarsareequallyimportantandthesequenceatwhichtheyappeardoesnotreflectanyparticularhierarchy.1SeeAppendixsectionDefininglowcarbonandrenewablehydrogen2Appendix2.15PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil6pillarsofefficientpolicydesignforlowcarbonandrenewablehydrogenMakeuseoflocalstrengths&benefitfromcross-bordercooperationSupportrobustcarbonpricingCreatecertaintythroughtargetsandcommitmentAdoptharmonizedcertificationschemesProvidehydrogen-specificsupportacrossthevaluechainFactorinsocietalvalueandvaluesLeveraginglocalstrengthsisanimportantstartingpointinpolicydesign,whichshouldbecomplementedbycross-bordercooperationandtradetounlockefficiencygains.Robustregionalcarbonpricingmechanismsshouldbebuiltupfromexistingschemes,andworktogetherwithhydrogen-specificsupporttodriveefficientandeffectiveuptakeinthelongerterm,whilstmitigatingcarbonleakage.Todrivedowncostandattractinvestment,governmentscancreatecertaintythroughlegislation,reducingpolicyrisksandmarketuncertainty.Internationalstandardsandrobustcertificationsystemsplayacrucialroleinthedevelopmentofthehydrogeneconomy,enablingcross-bordertradeinhydrogen.Tocatalyzeandgrownewmarkets,hydrogen-specificsupportisrequiredacrossproduction,midstreaminfrastructure,andend-usesectorslikeindustryandtransport.Societalvalueandvaluescanbefactoredintopolicydecisions.Well-designedhydrogenpoliciescanmakeapositivecontributiontoseveralUNSustainabilityDevelopmentGoals.1425366PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilHydrogenisakeyenergyvectortoreachnetzeroemissionsglobally.Asastartingpoint,countriesseekingtoparticipateinthehydrogeneconomyarelikelytotakeintoconsideration•Countries’resourcesandtechnologicalendowments(e.g.,renewableelectricityandnaturalgasproductioncapacity;existinggasinfrastructureandprospectsforrepurposingorretrofittingittotransportorstorehydrogen,aswellassynergieswithCO2infrastructure)(seeBox1)•Localinstitutionalandregulatoryframeworkswheretheenergyindustrycurrentlyoperates(whileinsomejurisdictionstheenergysectorisfullyliberalized,inothersitmaybeverticallyintegrated)Mostcommonly,thesestartingconditionsarefactoredintopolicydesignattheoutset.Basedonthesepremises,weidentifythreearchetypalcountrygroups:•Self-sufficientcountriesaimingatproducingandconsuminghydrogenwithintheirrespectivejurisdictions.Thesecountrieswouldneedtocreatetheentirevaluechain:upstreamsupply,midstreamtransmissionandstorage,distribution,anddownstreamdemand.•Exporterswouldfocusondevelopingexportinfrastructureandoptimizingprojectlocationstocreateexporthubsinamannerthatcontributestothedevelopmentofthelocalhydrogeneconomy.•Importerswouldfocusondevelopingimportinfrastructure,workwithexporterstoensuretheygetaccesstoaffordablelowcarbonand/orrenewablehydrogenanddevelopdownstreamapplications,ensuringtheyhavecontroloverwherehydrogenisused.Atthesametime,countriesandregionscanreapthebenefitsbroughtbyinternationalcooperationandoptimizationofcross-borderinfrastructure.Inmanycases,cross-borderintegrationcanmaximizeinfrastructureuseandimprovetheoverallsystemefficiencybylinkinggreaterproductioncapacitywithlargerdemandcenters.Internationaltradeinhydrogenwillplayakeyroleinefficientlymatchinglowercostsupplylocationsandmajordemandpoolsacrossgeographies.Leveraginglocalstrengthsisanimportantstartingpointinpolicydesign,whichshouldbecomplementedbycross-bordercooperationandtradetounlockefficiencygains.17PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilJurisdictionsseekingtounlocktheirlowcarbonhydrogenpotentialcanusededicatedpolicytoolstoincentivizecarboncaptureandretrofitexistingcarbon-intensivehydrogenproduction.Forexample,intheUK,privatelawcontracts,similartoCfDs,willbeintroducedtoprovidetheemitterwithapaymentpertonofcapturedCO2.Inaddition,manyjurisdictionsarealreadyconsideringpolicyinstrumentstosupportCO2pipelinenetworkandportinfrastructuredevelopment(e.g.,theEUproposalforTEN-ErevisionofDec2020).ProvisionofCAPEXsupportformultimodaltransportationofCO2canalsohelpavoidstrandedassetsinthelongterm(bywayofenablingaswitchtotransportinghydrogenorammonia)andunlockaccessforCO2storageinlocationswherethereisnobusinesscaseforhydrogenpipelinenetworkdevelopment.TheUK’sCarbonCaptureReadinessDirective,introducedin2009,statesallplannedcombustionplantsabove300MWneedtobeconstructedwithspaceallocatedforCCSfacilitiesandinfrastructure.InJuly2021,therewerecallsforthistobeexpandedtoincludecombustionplantsbelowthecurrent300MWgenerationthreshold.33UKGovernment,Decarbonisationreadiness:callforevidenceontheexpansionofthe2009CarbonCaptureReadinessrequirements,2021.https://www.gov.uk/government/consultations/decarbonisation-readiness-call-for-evidence-on-the-expansion-of-the-2009-carbon-capture-readiness-requirementsLowcarbonhydrogenproduction:synergieswithCO2infrastructureBox18PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilTodrivedowncostandattractinvestment,governmentscancreatecertaintythroughlegislation,reducingpolicyrisksandmarketuncertainty.2Reducingriskisavitalcomponentofdeliveringhydrogenatscale,giventhehighcapitalcostofmanyapplicationsanduncertaininvestmentenvironment.Highpolicyriskcanmakeinvestmentdifficultorraisethecostofcapital.De-riskingeffectivelylowersthecostofcapitalforhydrogenprojects,whichbothreduceshydrogencostsandhencedrivesuptake.Thisnotonlymeansdecarbonizationtargetsaremorelikelytobeachieved,butalsothattheoveralltransitionwillbedeliveredatlowertotalcosts.Policyriskcanbereducedthroughapackageoftargets,roadmaps,andreshapeddomesticpolicytounderpinnationaldelivery:•Targetsfordecarbonizationoftheeconomyandnationalhydrogenstrategiesorroadmaps.Policymakerscanreducepolicy-relatedriskthroughacombinationoflong-termgoalsandshort-termtargets.Long-termdecarbonizationgoals,clearroadmaps,andenablinglegislationcoupledwithbindingshort-termtargetsforhydrogendeployment,quantifiedCO2reductiontargets,quotasandstandardsincentivizinglowcarbonandrenewablehydrogeninend-usesectorscanpavethewayforthehydrogeneconomy.Thesepolicytoolshelpprovidedirectionandmarketforesighttotheindustry.Forexample,aspartoftheimplementationoftheEUHydrogenStrategy,theEuropeanCommissionrecentlyannounceditsproposalforanEU-wide2030targetfora50%shareofrenewablehydrogenconsumptioninindustry.4•Commitmenttoascheduleofbudgetsforhydrogen.Whereprojectdeliverydependsonsubsidies,itisimportanttoprovidevisibility,ideallyfor5-10yearsinadvance,overthelikelysubsidizationregime.Thiscouldbethroughascheduleofbudgets,commitmentofaminimumvolumeofprojectsandcleardecisionrulesabouthowsubsidizationmaychangeovertimeinresponsetotechnologicaldevelopments.Giventhemulti-yearleadtimesforthedevelopmentofmanyhydrogenprojects,thisvisibilityiscrucialtoreducingriskandmakingprojectsfinanceable.•Correctingmarketdistortionsthatdisincentivizelowcarbonandrenewabletechnologyadoption.Forexample,removingsubsidiesforfossilfuelscanmakecleantechnologies,includinglowcarbonandrenewablehydrogen,morecompetitive.•Streamliningpolicyandremovingexcessiveregulatorybarriers,includingsimplifyinglicensingandpermittingprocessesandremovingunduelegislativebarriersforrenewableandlowcarbonhydrogenproduction(seeBox2).4ThistargetisproposedintheframeworkoftheEuropeanCommissionproposalfortherevisionofREDII(recastRenewableEnergyDirective)publishedon14July20219PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilMarketrisks,suchasuncertaintyoverpricesforhydrogeninthemarketcanbereducedbyprovidingrevenuestabilizationthroughgovernment-backedcontractssuchasCfDsandCCfDs(seeCCfDdeep-dive).Theserevenuestabilizationschemes–whichprovidea‘push’forsupplyanda‘pull’fordemandrespectively–areincreasinglyrecognizedandadoptedaspartofaholisticpolicyframeworkfordecarbonizationencompassingahydrogenstrategy.Examplesoftheseschemesarealreadybeingenacted.Forinstance,theGermangovernmentissettinguptheH2Global5initiativefeaturingaCfDschemethatenablestemporarycompensationforthedifferencebetweenthepurchaseprice(productionplustransportcosts)andthesalesprice(currentlythemarketpriceforfossilhydrogen)ofrenewablehydrogenandderivedproducts.Itisduetobeappliedtoimportedrenewablehydrogenspecificallyintheinitialphase,anditmaybeexpandedtoincentivizerenewablehydrogenproductionatthenationallevel.Downstream,severalcountriesareconsideringintroducingcarboncontractsforthedifference(CCfDs)forhydrogencoveringindustrialsectorsinitially,aimingtoexpandittootherend-usesectorsinthefuture.5H2Global,https://h2-global.de/10PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilDuringthemarketcreationandgrowthphases,apackageofhydrogen-specificsupportisessentialtoattractinvestmentininfrastructure,hydrogenproduction,andcreatedemandforlowcarbonandrenewablehydrogenandtheirproducts.Aholisticapproachtopolicydesigniscrucialtounlockingthefullpotentialofhydrogenasanenergyvector.Suchanapproachshouldunderpinroadmapsandreflectthekeyroleofhydrogeninenablingfasterandgreaterintegrationofrenewablecapacity,greatercost-efficiencyandoptimizedenergysystems.Supply-pushanddemand-pullmeasuresshouldbeaccompaniedbyeffortstorepurposeandretrofitexistinggasinfrastructure,andbuildnewdedicatedtransmissionandstoragecapacityforhydrogenasappropriate..Thisreportidentifiedeffectivehydrogenpolicypackagesfromanew,comprehensiveevaluationof12keypoliciesdesignedtoincreasehydrogenadoption.Theanalysismeasuredthesepoliciesagainstsixperformancecriteria,includingtheirabilitytodeliverfirstofakind(FOAK)projects,minimizesocietalcosts,spanvaluechainsandtheirflexibilityofambition,easeofimplementationandeaseofbankability.Theresultingpolicypackagesarebroadlyapplicableacrossthevaluechain.Policypackagescanbetailoreddependingonpolicymakerpreferencesformaximizingefficiency,retainingcontroloverwhereandhowmuchhydrogenisproducedormaximizingthespeedofdeployment.Designofsupportcanevolveasthemarketmatures.Duringthemarketcreationandgrowthphases,apackageofhydrogen-specificsupportforthewholehydrogenvaluechainisessentialtoattractinvestmentininfrastructure,hydrogenproduction,andtocreatedemandforlowcarbonandrenewablehydrogenandderivedproducts.CAPEXandOPEXsupport,alongsidededicatedtargetsandquotasforrenewableandlowcarbonhydrogendeploymentinendusesectors-industryandtransportinparticular-willbecrucialinearlymarketandmarketrampupphase.Overtime,thispackagecanandmustevolve,exposingdevelopersandinvestorstomoreriskandcompetition,anddrivingcostsdownfurther.Tocatalyzeandgrownewmarkets,hydrogen-specificsupportisrequiredacrossproduction,midstreaminfrastructure,andend-usesectorslikeindustryandtransport.Designofsupportcouldevolveasthemarketmatures.311PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilOnekeyfindingisthattheevolutionofpolicyandregulatorymeasuresshouldbefactoredintopolicydesignupfront,providingthenecessarypolicyandregulatorypredictabilityformarketparticipantsandinvestments.Thisevolutioncanbeseeninthepoliciesappliedtothreedifferentphasesofmarketmaturity.1.Marketcreation.Afullpolicypackageconsistingofincentives,de-riskinginfrastructure,anddownstreamdemand-pullmeasurescanhelpcommercializetechnologiesandcreatedemand.Thecoreelementsofapolicypackageinclude:•De-riskinginfrastructurecanreducecostsandunlockprivateinvestment.Policyinstrumentstoachievethisobjectiveincludedebtguarantees,aswellasloansandgrantsforhydrogenprojectsupstream(e.g.,hydrogenproduction)andmidstream(e.g.,retrofittingandrepurposingtheexistinggasinfrastructureandnewdedicatedgasinfrastructure).•Demandcreationpoliciestargetingthedownstreamsegmentofthevaluechainincludepricesupportmechanisms(e.g.,revenuetop-upandstabilizationmechanisms)coupledwithquotas,targets,andstandardsforaminimumquantityofhydrogenusedinspecificmarketsegments.Toolsenablingmarket-basedvaluationofthesustainabilityattributesofhydrogen,inparticularrobustcertificationsystems,willplayakeyroleincreatingconsumertrust,pullingforwarddemand.2.Marketgrowth.Movingtowardsincreasedexposuretomarketpricesandincreasingcompetitivetensiontodrivecostsfurtherdown:•Costreductioncanbeachievedthroughdesigningadeliverymechanismthatencouragescompetition,suchasallocatingsubsidiesthroughauctions.Countriesmaychoosetoholddistinctauctionsforlowcarbonandrenewablehydrogenprojectsbasedontheirpolicychoices.•Asthenumberofmarketparticipantsincreasesandhydrogenuptakegainsmomentum,hydrogenproducersandusersshouldreacheconomiesofscale,therebyreducingcostsfurther.•Injurisdictionswherecarboncap-and-tradesystemsandCCfDschemesareinplace,thegapbetweenthestrikepricerequiredforhydrogenprojectsandthereferencepricecoveredthroughCCfDswillgraduallydecrease,providedthatthecarbonpricebecomesmorerobust.3.Marketmaturity.OnceinvestmentexpensesarerecoveredandOPEXsupportisnolongernecessary,revenuestabilizationmechanismscanbephasedout,andthemarketcanstartrelyingonrobust(mostlikely,regional)benchmarkpricesforhydrogen.Thesebenchmarkpriceswouldbesupportedbycarbonpricesrobustenoughtoleveltheplayingfieldforhydrogensolutions,lettingthemcompetewithotherlowcarbontechnologiesandhighemissionscounterfactuals,ensuringefficientresourceallocationandminimizingsocietalcosts.12PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilEnablingpoliciesplayakeyroleacrossallphasesofmarketdevelopment(seeprinciple4below).Inparticular,robusthydrogencertificationschemes(evidencingtheorigin,carbonfootprintandothersustainabilitycharacteristicsofhydrogenproduction)arekeytoenableamarket-basedapproachtohydrogensourcing.23,00004,0002,0001,0005,0006,000UUppssttrreeaamm2020-25DDoowwnnssttrreeaamm2025-352035onwardsMMiiddssttrreeaamm2301,8005,550Investmentperperiod,USDbn1HydrogenDirectInvestmentMarketmaturityMarketmaturityMarketgrowthMarketcreationFigure1Evolutionofpolicymeasuresalongdifferentstagesofmarketdevelopmentcanbefactoredinupfronttounlockthepotentialflowofinvestment1.Investmentinlinewiththe«HydrogenforNetZero»scenario;upstreamincludeshydrogenproduction(electrolyzers,CCSretrofitsforblueH2,newSMR/ATRplants),excludesrenewables/gasupstream;midstreamincludesdistribution,transmission(shipping,pipelines,conversionetc.)andstorage;downstreaminvestmentsforend-applications(ammoniaplants,fuelcellsetc.)Source:HydrogenforNetZero13PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilRobustcarbonpricingmechanismscanincentivizehydrogendeploymentinthelongertermandhelpprovidealevelplayingfieldforlowcarbonandrenewablehydrogentocompetealongsideotherlowcarbontechnologies.Regionalcap-and-tradecanbuildtowardsagloballylinkedcarbonpricingregimeorregionalcarbonprices.Interactionsbetweencarbonpricesanddirectincentivescanbemanagedthroughpolicyandmarketdesign.Whilecarbonleakagecanbepreventedbywell-designedcarbonborderadjustmentmechanisms.Keydesignconsiderationsforcarbonpricingschemesimplementation:•Efficientdelivery:CO2pricescanplayakeyroleinensuringcompetitivenessofhydrogenapplicationsandbringingthem‘intothemoney’withconventionaltechnologies.Cap-and-tradesystemsacrossregionshavealreadydemonstratedtheireffectivenessatincentivizingfuelswitchingfromcoaltonaturalgas.Similarly,carbonpricingcanencourageswitchinginsegmentswherelowcarbonandrenewablehydrogenisclosesttobeingcost-competitivewiththeincumbenttechnology,suchasfromgreytolowcarbonandrenewablehydrogeninindustrialapplication,especiallyifthecostofswitchingfromgreyhydrogentolowcarbonandrenewablehydrogenbecomesthekeypricingparameterdrivingcap-and-tradesystems6.Inestablishedmarkets,reinforcingandexpandingcap-and-tradesystemstocoverallend-usesectorsasfarasappropriate,candrivecostcompetitivenessacrossawiderangeofapplications7.Insomegeographiesandsectors,thiscost-competitivenesscanbeachievableby2030,withheavydutytrucks,ammoniasynthesisprocessemissions,andurbanbusesbeingabletobreakevenwithconventionaltechnologiesatcarbonprices<100USD/t.•Preventingcarbonleakageandcarbondisplacement:Policiesthattargettradedsectorsneedtobesecuredtoensurecarbonisnotmerely«displaced,»puttingproducersatacompetitivedisadvantage.Therightpolicymeasures,suchasintroducingorstrengtheningcarbonpricing,canpropagatedecarbonizationpolicyelsewhere.Carbonleakage,wherecarbon-intensiveproductionre-locatetheirproductionfacilitiestootherjurisdictionsthathavenocarbonpriceinplace–orwherethecarbonpriceisnotsufficientlyrobust–canbeaddressedthroughawell-designedcarbonborderadjustmentmechanism(CBAM)toensureinternationalcompetitionandalevelplayingfieldforindustriesexposedtocarbonpricing.8•Evolutionatinternationallevel:Carboncap-and-tradesystemsintroducedatnationallevelandcomplementedbyanti-leakagemechanismsifnecessarycanpavethewayforregionalorevenglobalcarbonpricinginthelongerterm.•Potentialpolicyinteractions:Thecombinationofdirectincentivesforhydrogenandcarbonpriceschemescouldcreatebothpositivepolicyinteractionsandpotentialpolicyoverlaps.Best-practicedesigncanensurethattheinteractionsbetweendirectincentivessuchastaxcredits,CCfDs,andcarbonpricingareaccommodatedintheschemes’designandmanagedsuccessfully.Forexample,theNetherlands’proposedSDE++schemeisavariablepremiummodelwhichappliestoavarietyoflowcarbontechnologies(includingrenewablehydrogen,lowcarbonhydrogenandCCUS)thatfadesasthemarketvalueofcarbonincreases.6BNPParibas,DeepDecarbonization:greenhydrogen,netzeroandthefutureoftheEU-ETS,20207Partoftheauctioningrevenuesfromcap-and-tradesystemscanbeusedtoaddressitspotentialdistributionaleffects,suchasprovidingfinancialsupporttovulnerablehouseholds(e.g.,EuropeanCommissionproposalfortheestablishmentofaSocialClimateFund)8BNPParibasAssetManagement,DeepDecarbonization,GreenHydrogen,NetZero,andtheFutureoftheEU-ETS,(October2020),https://docfinder.bnpparibas-am.com/api/files/FB39FAB1-A279-41CC-9CDD-4D22827359B0Carbonpricesworktogetherwithhydrogen-specificsupporttodriveefficientandeffectivehydrogenuptakeinthelongerterm.414PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilEnsuringthatpolicydesignatthecountryorregionallevelisinformedbycommoninternationalstandardsisacrucialprerequisitefortheemergenceofglobal,cross-borderhydrogenmarkets.Internationalstandardscreateacommonlanguagefortheindustryacrossthevaluechainandfacilitatethecommercializationofhydrogentechnologiesandhydrogen-basedproducts.Astandardmethodologyfordeterminingthecarbonfootprintandothersustainabilityattributesofhydrogenproductionpathwayswillplayacrucialroleininformingthedevelopmentofharmonizedhydrogendefinitionsandcertificationsystems.Hydrogencertificationsystems,inturn,arenecessarytobuildconsumertrustandstimulatedemandwhileenablingcross-bordertradeinhydrogenandfosteringmarketliquidity.Ultimately,internationalstandardsandharmonizedrulesunderpinningcertificationsystemsarekeytofacilitatingglobaltradeinhydrogen,efficientlymatchingsupplyandallowingthemostcostcompetitiveproductionregionstobetappedinto.InJapan,reductionoftheadministrativeburdenonimportfromAustraliathroughinternationalstandardsandcertificationcouldgenerateUSD2bnofsavingsin2030.9WhileinthecaseofGermany,bymeeting50%offorecastedlowcarbonorrenewablehydrogendemandin2030throughpipelineimportsfromSpain,annualsavingsof~USD340mncanberealized.10CountrieswithproductioncapacityconstraintssuchasJapanandKorea,couldimportcost-competitivelowcarbonorrenewablehydrogenfromarangeofexporterregions.9Appendix2.610Appendix2.5Internationalindustrystandardsandharmonizedhydrogencertificationschemesplayakeyroleinenablingmarket-basedvaluationofhydrogensustainabilityattributes,therebybuildingconsumertrust,stimulatingdemand,andfosteringinternationalhydrogenmarkets.515PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilRemovingregulatoryandmarketdesignbarriersforrenewableandlowcarbonhydrogenuptakeBestpracticestoaddressmethaneemissionsBox2Box3•Lengthyorcomplexlicensingandpermittingprocessesforprojectsinthejurisdictionswheretheyseektooperatemayconstituteabarriertorenewableandlowcarbonhydrogendeploymentandshouldbeaddressedbypolicymakers.•Theremaybeunintendedconsequencesofrenewableand/orlowcarbon-specifichydrogensupportthatneedtobemanaged.Insomejurisdictions,policymakersareconsideringplacingstringentobligationsonhydrogenproducerstoqualifytheelectricityusedforhydrogenproductionasrenewable(e.g.,inEurope,therevisedRenewableEnergyDirective11islikelytoincludesuchaprovision).Inflexibilitymayintroduceadditionalcostsandactasanotherbarriertodeployingrenewablehydrogenandderivedfuelsatscale.12•Itiscrucialtomodifytheexistingenergymarketdesigntogenerateincentivesforgridbalancingandstorage,whichrenewablehydrogencanprovide.Thiswouldallowrenewablehydrogenproducerstocompeteonalevelplayingfieldwithotherenergytechnologiesrelyingonrenewableenergyandtodeliveroverallenergysystemefficiencyandoptimizationbyprovidinggridbalancingandflexibilityservices.Industryplayersaremakingeffortstoreducefugitiveemissionsassociatedwithlowcarbonhydrogenproduction.Arobustinternationalpolicyattheinternationallevelandregulatoryframeworkaimedatreducingfugitiveemissionscanhelpleveltheplayingfieldattheinternationallevelformarketparticipants,consideringtheperformanceoftheCCStechnologiesthattheindustryseekstodeploy(suchasSMR+fluegasCCUSorSMR+CCUSandATR+CCUSwith>95%overallcapturerates).11TheDelegatedActsonRenewableFuelsofNon-BiologicalOrigin(RFNBO)envisagedunderArt.27(3)andArt.28(5)ofREDIIwillsetoutthemethodologyforqualifyingelectricityusedforRFNBOproductionasrenewableandthemethodologyforassessingtheGHGemissionssavingsfromRFNBOrespectively(bothDAsaretobeadoptedby31December2021).12Eurelectricpoweringpeople,RFNBOsRenewableFuelsofNon-BiologicalOriginspublishedinJanuary2021.https://cdn.eurelectric.org/media/5182/eurelectric_reaction_paper_on_rfnbos-2021-030-0013-01-e-h-B5F7EAF8.pdf16PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilAlongsidethetransitiontowardscarbonneutrality,countrieswouldbenefitfromconsideringthefullrangeofsocietalimpactsandthebenefitsthatcanbeunlockedthroughthedevelopmentofthehydrogeneconomy.ThehydrogeneconomycanbenefitsocietydeliveringoncertainUNSustainableDevelopmentGoals(SDGs),including:•Goodhealthandwell-being•Greengrowthandsustainablejobs•Diversity,equity,andinclusion•Opportunitiesforindigenouscommunities•SustainablecitiesandcommunitiesSectionEofthereportelaboratesontheaboveinmoredetail.Societalvalueandvaluescanbefactoredintopolicydecisions.617PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilIntroduction&approach18PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilStrongmomentumforlowcarbonandrenewablehydrogenreflectsarecognitionofitsvitalandsystemicroleindecarbonizingtheenergysystem.Over30countrieshavenowintroducedhydrogenstrategies,whilemorethan520large-scalelowcarbonandrenewablehydrogenprojectshavebeenannouncedbytheindustry,amountingtoatotalanticipatedinvestmentatthetimeofwritingofUSD160bnuntil2030.Consideringtherapidgrowthinrenewableelectricitycapacityforeseenforthedecadestocome,theflexibilitythathydrogenprovidescanreducetotalsystemscostssignificantly.Insimulationsofenergysystemswithoutexistinghydropowerandnuclearpower,thisflexibilitytranslatesintoasavingof10-15%oftotalpowersystemcosts.Lookingatwell-integratedenergymarkets,suchasthoseintheEU,withaccesstoflexiblecapacityprovidedbyhydropowerandnuclear,savingsaresomewhatlower-2-3USD/MWh–butstilltranslateintoannualsavingsofroughlyUSD12bn13.Thispointstothekeyroleofhydrogenastheenablerforfasterandgreaterintegrationofrenewablecapacity,aswellasgreatercost-efficiencyandoptimizationatenergysystemlevel.Rapidtechnologicallearningisbringingcostcompetitivenesswithinreachformanyprojectsandapplications.Scalingupprojectswillfurtheraccelerateadownwardcosttrajectory.HydrogenCouncilresearchhasfoundthatscalinguphydrogensolutionscanreducecostsalongthevaluechainby45-70%14.Inthecaseofelectrolyzersusedforrenewablehydrogenproduction,scalingupcanleadtocostreductionofasmuchas50%by2030.Midstream,themaximizationoftheuseofhydrogeninfrastructurecouldrealizea70%reductioninthecostoftransmissionanddistributionofhydrogen.Downstream,a45%reductioninthecostoffuelcellstackscouldberealizedthroughmanufacturingscaleup(e.g.,producing200,000unitsoffuelcellstacksratherthan10,000)15.Scalinguphydrogentechnologiesquicklyacrossawiderangeofapplicationscanresultinearliertippingpointsbeingachievedforbreakevenwithconventionaltechnologies.However,unlockingthefullpotentialoflowcarbonandrenewableshydrogenrequireswell-designedenablingframeworks.Despitethecurrentpolicyandinvestmentmomentumforlowcarbonandrenewablehydrogen,thereisUSD540bninvestmentgaptomeetannouncedgovernmenttargets.Europe,Japan,andKoreaareexamplesofleadersinthedevelopmentofdedicatedhydrogenstrategies.Atthesametime,manyothercountriesandregionshavesetouttheirlowcarbonandrenewablehydrogenambitionsandarelookingatdevelopingthepoliciesandregulationsthatwouldenabletheirachievement.Countriesandinternationalorganizations,includingIRENAandIEA,recognizetheimportanceofpolicyframeworkstoensurelowcarbonandrenewablehydrogencandeliveritsfullpotential16.Investmentgapsvarybyregion,withthehighestinChinaandlowestinJapanandKorea(Figure2).13Appendix2.714HydrogenCouncil,PathtoHydrogenCost-Competitiveness:acostperspective,202015HydrogenCouncil,PathtoHydrogenCost-Competitiveness:acostperspective,202016IEA,GlobalHydrogenReview2021,202119PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilFigure2Investmentsannouncedvs.therequiredinvestmentstomeetstatedgovernmenttargetsfor2030.1717Appendix2.135020001001501001015060Japan&Korea608020NorthAmerica905020Europe160150ChinaRoW470180200Cumulativeinvestmentrequired1byregion,USDbillion,2030Gap2Announcedinvestments31.Excludingdownstreaminvestments(e.g.,factories,mines)andrenewablesandCCUSinfrastructure)2.Directinvestmentsonly3.Takingintoconsiderationofthedirectinvestmentsandthe~USD150bnofgovernmentdirectinvestments4.RestoftheworldSource:HydrogenInsightsProjectandInvestmenttracker20PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilThereportisdirectedinparticularatpolicymakersandlegislatorswhocanuseitasamenuofpolicypackagesandtoolstodeploywhendesigningorimplementinghydrogenpolicyandregulatoryframeworksintheirjurisdictions.Thereportdeliversthisby:•Capturingtheevolutionofpolicydesignalongdifferentstagesofhydrogentechnologyandmarketmaturity.Itdemonstratestheroleofdirectsupportmeasuresforhydrogenintheearlymarketbuildingphase.Italsoshowsthatthescopefortheevolutionofthesemeasuresasthemarketmaturesovertimecanbefactoredinpolicydesignupfronttoensurepolicyandregulatorypredictabilityformarketparticipants.•Settingoutpolicypathwaysthroughcountryarchetypeexamplesthatcanbeusedtoinformhydrogenpolicyandregulationindifferentnationalandregionalcontexts.Thereisno‘onetypefitsall’policytounlocklowcarbonandrenewablehydrogenacrossgeographies.Throughthedevelopmentofmultiplepolicypathways,theassessmentletspolicymakerschoosepolicypackagesthatbestservetheirambitions,preferences,andlocalandregionalcontext.•Offeringinsightsintothecross-cuttingpoliciesandmeasuresthatarevitaltoenablecrossbordertradeinhydrogen,whilebuildingconsumertrust.Theseincludedevelopmentofinternationalindustrystandardsandharmonizedrulestounderpincertificationsystemsforhydrogen.•Identifyinglearningsfromthedeploymentofotherlowcarbonandrenewabletechnologies,consideringthesuccessstoriesinpolicydesign(suchasdirectsupportschemesandquotasforrenewableelectricity),aswellastheremainingpolicybarriersandchallenges(includingthoseassociatedwithlicensingandpermittingrequirements).•Sheddinglightonthebroadersocietalvalueofhydrogenpolicy,includingpositiveimpactsthathydrogencanhavealongtheUNSustainableDevelopmentgoalsthatgobeyondcarbonreduction.Theseincludeimpactsongoodhealthandwell-beingbyreducingairpollution,developingaffordableandcleanenergy,providinggreengrowthandjobsallowingcountriestocontinuetobenefitfromtheirnaturalendowments,andothers.Researchers,NGOs,andthewidercommunitythinkingabouttheenergytransitionandtheroleofhydrogeninitmayalsofindthisreportausefulpointofreferenceonhydrogenpolicydesign.Roleandvalueofthisreport21PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilWhatareCarbonContractsforDifference(CCfDs)?CCfDsaregovernmentorinstitution-backedcontractsbetweentwopartieswherebythebeneficiaryiscompensatedforthedifferencebetweentheeffectiveCO2priceandthemitigationcostsofabreakthroughtechnology,alsoknownasthe‘strikeprice’.CCfDshavebeenconsideredbytheEuropeanCommissionandmemberstates,suchasGermany.HowdoCCfDswork?ACCfDconstitutesahedginginstrumentforfuturecarbonpricesandcanhelpbridgethegaptowardsaviablebusinesscasesforlowcarbonandrenewablehydrogenprojects.CCfDsuseamarketspecificcarbonpriceasreference,forinstancetheEUcarbonprice,andcalculatetheeffectiveCO2mitigationpriceor‘strikeprice’ofintroducinglowcarbonorrenewablepoweredtechnologiesrelativetoconventionaltechnologies.CCfDsquantifyavoidedCO2betweenemissionsofbreakthroughtechnologyandthoseofaconventionalbenchmarkandcompensatesproducersforthedifferencebetweenthemarketCO2priceandthe‘strikeprice’.Subsequently,asdecarbonizationeffortsprogressandCO2pricesincreasethesubsidyisreducedovertime.CCfDsareaflexibletoolwhichsupportlowcarbonandrenewablehydrogenproductionanduse,whileavoidingover-subsidization.CCfDssupportandsubsequentlyenabletheimplementationofhydrogenstrategiesandroadmaps,includingsectoraltargetsforhydrogenandhelpacceleratinghydrogenuptakeaspartofbroaderdecarbonizationefforts.WhatbarrierstoadoptioninlowcarbonandrenewablehydrogendoCCfDsaddress?•Limitedinvestmentduetolongpaybackperiodandhighriskandlimitedabilitytorecoupproductioncosts:IntheabsenceofstableandsufficientCO2prices,CCfDsincreasestabilityofrevenuesandensureaminimumpricetoenableproducerstorecoupproductioncosts.•Lowavailabilityandhighcostofcapital:CCfDsspreadanddecreasethefinancialriskoflowcarbonandrenewablehydrogeninvestments,therebyincentivizingprivateinvestment.•Inefficientsubsidizationofunabatedfossilfuelsthatencouragessupply:TheintroductionofCCfDscanstrengthenexistingcapandtradesystemsandprovidesastrongsignaltothemarketsonthedirectionofCO2priceandexpectedlevelsinthelongterm(e.g.,by2040-50).•Lowavailability,andtechnicalandcommercialviabilityofenduseapplianceforhydrogen:Buildingoninnovation-fundedpilots,CCfDscanprovidecontinuitybetweendemonstrationprojectsandcommercialscaleprojects,therebysupportingthecommercialviabilityoflowcarbonandrenewablehydrogenprojects.CCfDdeep-dive22PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilKeydesignprinciplesandconsiderationsforCCfDs1.BenchmarkingandapplicationWhatconventionalbenchmarksshouldbeused?•Sincethe‘strikeprice’isdefinedasthecurrency18/tCO2fortheintroductionofemissionabatingtechnologiesagainstaconventionalenergyortechnologybenchmark,itwillvarydependingontheapplicationTherewillneedtobeconsensusbetweenpublicandprivatesectoractorsonaconsistentmethodologyforapplication-specificbenchmarks(e.g.,EUETSproductbenchmarks)Shouldthecarbonpricereferencebeontheproducerorconsumerside?•Producer-sidecarbonpricereferencemaynotbereflectiveoftheactualsalespricepointofabatedCO2unitsandcouldleadtoover-subsidization.•Aconsumer-sidecarbonpricereferencewouldensureharmonybetweensubsidyandtheactualsalespriceandwouldensurethe“strike”priceisadaptedtospecificend-usesShouldthestrikepricebeadjustedwithindexation?•Fixedstrikepriceleavesproducersmanagingtheirinputpricerisks,resultinginhigherstrikepricesbeingbidfor.•Strikepricescanbeindexedtonaturalgaspricesforlowcarbonhydrogenandtorenewableelectricitypricesforrenewablehydrogenassignificantdriversofproductioncost,tomitigateinputpricerisk.2.ContractdurationandevolutionofpremiumWhatistheoptimalcontractlength?•Longercontracts(minimum10years)helpprovidestability.•Clausesprovidingforregularreviewsofthestrikepricecanhelpavoidover-compensation.•Evolutionofthestrikepriceshouldreflectlikelyhighercostsandlowerefficienciesincurredbyfirstmovers.Howshouldthevariablepremiumbemodelledtoreflectmarketevolution?•Methodologyneedstobeestablishedtomodelthevariablepremiumtoensureiteffectivelyrepresentstheevolutionofthehydrogenmarketandcanbeappliedtodifferentendusecases.18Currencydependentonthecurrencyagreeduponaspartofthecap-and-tradesysteminquestion23PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil3.GovernanceandpredictabilityWilltheprocessbegovernedbynationalgovernmentsorinstitutions?•NationalgovernmentstendtohavetheabilitytoabsorbmoreriskandtherebyprovidemorefundingforCCfDsintheinitialphasesofmarketgrowth•StandardizingthemethodologyforCCfDsattheinternationallevel(e.g.,IMF),however,wouldsupportquickeradoptionandagreaternumberofjurisdictionsandminimizecompetitionriskHowdoregulatorsensureconsistencyandpredictabilityoftheregulatoryframework?•Evolutionoftheinstrumentshouldbefactoredintotheupfrontpolicydesigntoensurepredictabilityforinvestorsandguardagainstsignificantregulatorychanges(e.g.,5-yearlyreferenceand‘strikeprice’reviews)•RegulationneedstobeestablishedtoensureprojectsreceivingcontractsarenotthenliabletoreceiveETSsubsidiesorabletosignsupplycontractssoover-subsidizationisprevented.4.AllocationprocedureWilltheallocationprocedureoccurthroughauctionsornegotiations?•IntheinitialphaseofCCfDs,withalimitednumberofprojectsandtotestbenchmarkingandapplications,negotiationsaremostappropriate•Negotiationsshouldbuildintransparencymechanismstoavoidinformationasymmetryoncostsandensurebiddingroundsaresetattheappropriatelevelonceallocationmovestocompetitiveauctions•Oncesufficientcompetition(e.g.,numberofprojects)isestablished,allocationshouldshifttoauctionstoensurethemostcostcompetitiveprojectsaresupported•Inadditiontocosts,auctionsshouldconsiderthestrategicnatureofprojectstoprioritizeprojectswhichunlockfurtherlowcarbonand/orrenewablehydrogenuse(e.g.,instrategiclocationsnearprospectivedemandclusters).Additionalcriteriacouldincludeavoidedemissions(fulllifecycleandGHGbased)andanticipatedvolumesoflowcarbonordecarbonizedproducts.•Apre-selectionphaseduringauctionswouldensureprojectsthatarealignedwithspecificparametersandnationalprioritiesareincludedwhichcomparisonsaretoobroad(e.g.,transportvspower)andoverburdeningtheprocesswherecomparisonsaretoonarrow(e.g.,projectbyprojectreview).Itcouldbealsousedtoensureover-subsidizationispreventedthroughapre-requisiteforprojectstobeincludedbeingthattheydonothavesupplycontractssigned.Whatlevelofprojectclusteringshouldbeused?•Projectsshouldbeclusteredonanapplicationbasis(e.g.,steelorammonia)toensurecomparabilityandavoidoverlookinglowcarbonorrenewablehydrogenapplications.24PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil5.FundingoptionsWhatfinancingmechanismshouldbeused?•HighfundingrequirementsmeansthatgeneraltaxrevenuesorETSrevenueswouldneedtobeutilizedtomeetthesesubsidylevelsrequiredintheshortterm.Moremedium-termoptionswouldbeapplyingaclimatesurchargeonfinalproductswithahighshareofbasicmaterial,acarbonborderadjustmentmechanism(CBAM)regimeorappropriatequotasandgreenpurchaseobligations.25PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilPolicyassessment&packages26PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilWhiledozensofpotentialpolicyandregulatorymeasurescouldpromotehydrogendevelopment,thisreport’spolicyanalysisfirsthelpsdeterminewhichonescanbedeployedeffectivelyagainstdifferentmarketdevelopmentpriorities.Thissectiondiscussesthemajorbarriersfacinghydrogendevelopmentateachstepofmarketdevelopment:marketcreation,marketgrowth,andmaturemarket.Itthenpresents12keypoliciestopromotemarketdevelopmentandtheevaluationcriteriausedtoselectthem.Thesectionthenconcludeswiththreepolicypackagesthatprovidearecipebookforpolicymakerswithdifferentexplicitorrevealedpreferences,beittheneedtodeployhydrogenatthemostefficientcost,theabilitytocontrolthewhereandhowmuchhydrogenisproduced,ortherequirementthathydrogenbedeployedasfastaspossible.Asthestartingpoint,thepolicyassessmentframeworkinthisreportanalyzesbarrierstodeployment.Figure3presentsbarrierstohydrogendeploymentcollatedfromliteraturereviewandasurveywithHydrogenCouncilmember.Barriersdifferalongthehydrogenvaluechainsegmentsandmarketmaturitystages.However,somebarrierscenteredaroundlackofregulatoryframework,standardization,andcollaborationareoverarchingacrossthevaluechainandmarketmaturity.Consequently,thevariabilityinthebarriersrequiresdifferentpoliciesfordifferentsegmentsofthevaluechainanddifferentphasesofmarketmaturity,butalsothesepoliciesneedtovaryinsynctoaddressinterdependenciesalongthesetwodimensions.Thethreemarketmaturitystageseachhavetheirownobjectivesandbarriers:•Marketcreationobjectives:demonstrateviabilityoffull-scalefacilitiesanddevelopanindustryofmultipleprojectdevelopers,investors,andkeyvaluechainstakeholdersthatcouldscalethemarket.Thisphaseextendsfromthepointoftechnicalreadiness(mosthydrogentechnologieshavereachedthispointalready)tothepointatwhichthereisanindustrythathavedeliveredmultiplelarge-scaleprojectsinacountryorrelevantregionalmarket.•Marketgrowthobjectives:marketexpansionandcostreduction.Thisphaseextendsfromthepointwheretheindustryhasdeliveredmultiplelarge-scaleprojects,toamatureindustry(seebelow).•Maturemarketobjectives:deployhydrogenatpricesthatarecompetitivewithalternativesandtoreachthefullmarketpotentialofhydrogen.Amatureindustryisonedeliveringalargepipelineofprojectswithcostscomparableorlowerthanalternativetechnologies.27PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilFigure3ThedeploymentandfinancingbarriersareconcentratedinthefirsttwomarketmaturityphasesEnablingpoliciesUpstreamsupplyMidstreamtransmission,distribution,andstorageinfrastructureDownstreamdemandA.1.1Limitedresearch,development,demonstrationanddeploymentspecificfundingB.1.1Locked-intoexistingassetsandfossilfuels(e.g.,usingcoal/oil)C.1.1Immatureand/orinefficientstorageoptionsanddevelopment(incl.liabilityissues)D.1.1Locked-intoexistingassetsthatdonotuseH2,e.g.,fleetB.1.2Limitedphysicalaccesstorequiredinputs,e.g.,renewableelectricityinstallationsC.1.2LackofplanningofH2infrastructure(e.g.,transport,storage,HRS)resultingindelayininvestmentdecisionD.1.2Lowavailability,andtechnicalandcommercialviabilityofenduseapplianceforH2,e.g.,boilersB.1.3Lowdeploymentoftechnology,e.g.,electrolysers,carboncaptureandstorageB.1.4LimitedinvestmentduetolongpaybackperiodandhighriskB.2.1Inefficientsubsidisationofunabatedfossilfuelsthatencouragessupply,e.g.,carbonpricingC.2.1Lackofrepurposing,retrofittingorbuildingnewinfrastructure,e.g.,pipeline,refuelingstations,portfacilitiesD.2.1Limiteddemand-pullanduptakeofH2inend-usesectors,e.g.,industry,transport,buildingsB.2.2Limitedabilitytorecoupproductioncosts,e.g.,uncertainvolumesandpriceC.3.2Lackofmonetisationoftheflexibility(e.g.,buffering,storage)thathydrogenwillprovidetotheenergysystemD.2.2LackofH2familiarityforofftakers,causesreluctancetoadoptorneedlongleadtimeandcannotreachminimumviablescaleB.2.3LowavailabilityandhighcostofcapitalB.3.1.Unstablenetworkandsupply,includinginsufficientaccesstorenewableenergyandcarboncaptureandstorageC.3.1Lackofreliableinfrastructure,incl.lastmiledistributioninfrastructureA.1.2Lackofstandardmethodologiesandregulatorybodytoqualify1H2asrenewableorlowcarbon,andcertificationsystemstosupportthedevelopmentoftheH2marketatinternationallevelA.1.3Lackofaregulatory/legalframeworkdefiningstandardsforH2technologies,applications,andH2-derivedproductsA.1.4LackofH2strategyandsocietalacceptanceaspartofbroaderdecarbonisationeffortsresultinginuncertaintiesaroundfuturedirection/lowsectoralcollaborationMarketcretationMarketgrowthMarketmaturityH2valuechainTime/maturityABC1.Thereisalsoaneedforalignmentbetweentaxonomies(i.e.howtoqualifyeconomicactivitiesassustainable)toensureH2productioniscompliantSource:Literaturereview,expertinterviews28PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilTodeterminethepolicyspace,theassessmentmapsalonglistofpoliciesonthebarriersandgroupstheseinto12keypolicies(seeTable1).Eachkeypolicyisagroupingofpoliciesaimingtoovercomedifferentbarriers.Forexample,policieslikeCfDs,CCfDs,FiTs,FiPs,andtaxincentivesandcreditsaregroupedwithindirectsupportmechanisms.Alltheseinstrumentsprovideadditionalrevenuetoprojectsbyprovidingsubsidiesanddecreaserisksaroundrevenueandlongpaybackperiods,makingtheprojectsbankable.KeypolicyDescriptionInstrumentscontainedPrimarybarrierforpolicytoovercomeEmissionTradingSchemesAcentralauthoritycapscarbonemissionsandallocatesalimitednumberofpermitstoemitters.Emitterscanbuypermitsinthemarkettocovertheirexcessemissionsorselltheirexcesspermitstogeneraterevenue.Internalizessocialcostofcarbonemissions,makingrenewableandlowcarbontechnologiescompetitiveEmissionTradingSchemes,includingexpansionsofexistingschemestocoveradditionalsectorsNomarketforlowcarbontechnologiesCarbontaxLeviestaxoncarbonemissionsofeconomicactivitiestointernalizesocietalcostofcarbonemissions,makingrenewableandlowcarbontechnologiescompetitiveCarbontaxNomarketforlowcarbontechnologiesAlternativerevenuestreamsProvidessecondaryrevenuestreamalongsidethemainbusinessPaymentsforelectricitygridflexibility,(e.g.,gridfirmingservices,buffering,andstorage)NomarketrecoupcostsDirectsupportmechanisms(involvingcompetitiveauctions)Formsofsubsidiestoguaranteeinvestorsahigherrevenueorloweroperationcost.IncreasesrevenuecertaintyandprofitabilityContracts-for-Difference(CfDs),CarbonContracts-for-Difference(CCfDs),FeedinTariffs(FiTs),andtaxincentives,suchastaxcredits,lowertaxesonelectricityandexemptionsfromrenewableelectricitylevyLimitedinvestmentduetohighriskorlongpaybacksFinancialsupportmechanismsFinancialsupportprovidedbygovernmenttoprojectsthatmeetspecificrequirements.LowersupfrontinvestmentcostsMonetarysupport,suchasgrantsandloansLowavailabilityandhighcostofcapitalTable1Thepolicyspaceconsiders12keypolicies29PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilKeypolicyDescriptionInstrumentscontainedPrimarybarrierforpolicytoovercomeGuaranteedofftakeCommerciallong-termcontractswherevolumesofhydrogenandhydrogen-basedproductsareguaranteedtobesoldtoanentityatafixedpriceforthelengthofacontract.ProvidesdemandandrevenuecertaintyLong-termcontractsLimiteddemandpullanduptakeinend-usesectorsInvestmentde-riskmechanismsCollaborationbetweenagovernmentagencyandaprivate-sectorcompanythatcanbeusedtofinance,build,andoperateprojects.LowersconstructionandtechnologyriskBalancesheetsupporttools,suchasdebtguaranteesandequityLowavailabilityandhighcostofcapitalPhasingoutoffossilfuelsubsidiesRemovaloffossilfuelsubsidies.Makeshighemissionstechnologieslesscompetitive-InefficientsubsidizationofunabatedfossilfuelsPublicprocurementPublicprocurementrequirementsaddedtocontractstokick-startmarkets,suchaspreferentialtreatmentofhydrogenandhydrogen-basedproducts.Createshydrogendemand-Limiteddemandpullanduptakeinend-usesectorsReturnoninvestmentde-riskSecuresreturnoninvestmentfordevelopersbypassingcostsdowntoconsumers.Increasesrevenuecertainty.RegulatedAssetBaseModel(RABM),availabilitypayments,minimumrevenueguarantee,futurepurchasecommitmentLimitedabilitytorecoupproductioncostsQuotas,andtargetsDictatesmandatoryemissionreduction/intensityorlowcarbonand/orrenewablehydrogencapacitytargetsthroughlegislation,canbecatch-allorapplytospecificsectors,introducequotasforhydrogen/lowcarbonproductstobeusedaselectricitysources.Createshydrogendemandandsupply.Quotas,targets,lowcarbonand/orrenewablehydrogencapacitytargets,emissionreductionandintensitytargets,targetsforspecificsectorssuchastransportandindustry;incertaincases,midstreamtargetsforhydrogeninjectionintoexistinggasgridsLimiteddemandpullanduptakeinend-usesectorsStandardsDictatesminimumstandardsbywhichindustrymustabide.Blendingstandardscanbeappliedtomid-streaminfrastructureandemissionperformancestandardscanbemandatedinupstreamanddownstreamEmissionperformancestandardsandblendingstandardsLimiteddemandpullanduptakeinend-usesectorsNote:Althoughpoliciesoftenaddressamultitudeofbarriers,thetablereferstothebarrierthatismosteffectivelyaddressed,consideringitasitsprimarybarrier30PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilThese12keypolicieswereassessedagainstsixperformancecriteriatolayouttheirstrengthsandtrade-offs.Table2describesthesixperformancecriteriausedfortheassessmentandliststhequestionsaskedtotesthowapolicyperformsagainsteachcriterioninpractice.Thequestionsassessperformanceofthepoliciesalongthetwodimensionsusedtomapthebarriers.Rangingfromdeliveryof“firstofakindprojects”to“easeofbankability”,thesixcriteriaaredesignedtocoverthepolicycharacteristicsthataremostrelevantforanewtechnologythatisinitsmarketcreationphaseandrequirestobuildasystemreachingacrossupstream,midstream,anddownstream.Thereby,theframeworkprovidesabasisforcomprehensivecomparisonbetweenthekeypoliciesanddrawsouttheirkeystrengths.Thefullassessmentofallkeypoliciescanbefoundintheappendix.CriterionDescriptionQuestionsDeliversfirstofakind(FOAK)projectsSuccessofthepolicyinincentivizingtechnologydeploymentbyprovidingsufficientrevenueandcertaintytolowcarbonandrenewablehydrogeninvestments1.Doesthepolicyprovidesufficientrevenueorotherbenefitstoincentivizetechnologydeployment?2.Doesthepolicyprovidesufficientcertaintytoattractprivateinvestment?3.Isthereatrackrecordofanalogouspoliciesincentivizingsignificantdeployment?MinimizessocietalcostsExtentthepolicyminimizessocietalcostbypromotinginnovation,competition,andeconomiesofscale,whileavoidingrentcreation4.Doesthepolicyminimizecostsandmaximizeoutput(e.g.,throughinnovation/economiesofscale)?5.Doesthepolicyallowformarketplayerstodeploythemostefficientoption?6.Doesthepolicyminimizeopportunitiesforrentcreation?SpansvaluechainScopeofpolicyapplicationtoup-,mid-anddownstreamwithoutadditionaleffortsfromapolicymaker7.Doesthepolicyautomaticallyapplyup-,mid–anddownstream?8.Canthepolicyapplyup-,mid–anddownstream?FlexibilityofambitionExtentthepolicycanbeamendedorabandonedasmarketcircumstanceschange9.Canthepolicybeadjustedovertimetoreflectincreasingmaturity?EaseofimplementationEaseofimplementationandadministeringofthepolicyandthelevelofadversitythepolicypresentsanditssocialacceptability10.Doesthepolicyavoidadverseeffectsforthecompetitivenessofindustry,jobs,costofliving,etc.?11.Canthepolicybeeffectivewithoutcloselymonitoredaccountingpractices?EaseofbankabilityExtentthepolicyaddressesriskstoencourageprivateinvestment12.Aretherisksoftheprivatesectortoolargetofinancetheproject?Table2Sixperformancecriteriaareusedtoassesspoliciesstrengthsandtrade-offs31PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilStrongperformingpoliciesarethenmappedtothebarriersateachofthethreestagesofmarketmaturityandvaluechain.Thesepolicypackagesareshowninthefollowingsectionforeachcountryarchetype–aself-sufficienthydrogenproducer,anexporter,andanimporter.Thefullsetofpoliciesisshownintheself-sufficienthydrogenarchetype,giventhatthisistheexamplewhereallstagesofthevaluechainarerelevantinonelocation.(Figure4)Inassemblingthepoliciesacrosstheevolutionofmarketandtechnologicalmaturity,thefollowingobservationsarerelevant:•Acrossthemarketcreationandmarketgrowthstages,itisimportanttomaintainlongtermcertaintyoverthesizeofthemarket,eitherthroughdecarbonizationorhydrogenspecifictargets.•Alongsidedirecthydrogenpolicy,itisimportanttobuildarobustcarbonpricesignalatthesametime,startingwithregionalschemesandthenlinkingthem,whilstmitigatingleakagethroughbordertariffadjustments.•Asthenumberofplayersincreasesinthemarketgrowthphase,competitionwillincrease,facilitatingcost-effectiveallocationoffundingsupport.Somecountriesmaydecidetointroduceauctionsaccountingforthesustainabilityattributesofhydrogentechnologies.•Alongsidehydrogenpolicyitisvitaltoexpandmarketstogeneraterobustmarketsignalsforflexibletechnologies,ashydrogencanprovidelow-costflexibilitytothepowersystem.Thefullpotentialofhydrogencanonlybereachediftheseflexibilitymarketsarecompletedalongsidecarbonmarkets.Figure4PolicyroadmapforlowcarbonandrenewablehydrogenPolicyobjectivePolicyroadmapCertaintyConsumertrustEconomy-wideuptakeH2investmentUpstreamMidstreamDownstreamEmissionstargetsandhydrogenstrategiesDevelopharmonizedstandardsandcertificationschemesBlendingstandardsandquotasProductlabellingBuildrobustregionalcarbonpricesCAPEX&OPEXsupport(e.g.,CfDs,taxcredits),Financialde-risking(e.g.,grants,loans,andguarantees)CAPEX&OPEXsupport,financialde-risking(e.g.,pricepremiums,CCfDs,freeallocation),Publicprocurement,targets/quotasCAPEX&OPEXsupport,financialde-risking(e.g.,regulatedreturns,priceceilingsandfloorsfortransmissionanddistributionnetworks,subsidiesforstorageinfrastructureandrefuelingstations)Evolvetoincreasecompetition(e.g.,auctions-potentiallyseparateforlowcarbonandrenewablehydrogen-withalargepipelineofbidders)Evolvetoincreasecompetition(e.g.,auctions-potentiallyseparateforlowcarbonandrenewablehydrogen-withalargepipelineofbidders)ShiftincentivestocarbonpricesandmarketstodeliverinvestmentShiftincentivestocarbonpricesandmarketstodeliverinvestmentMarketcretationMarketgrowthMarketmaturity32PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilMovingdownthevaluechain,thefollowingdesignelementsofpolicypackagesareimportant:•Inupstreamanddownstream,itisimportanttoutilizesubsidyefficiently,giventhepotentialformultipleoverlappinginstruments.Hydrogensupportcontractsmaybeprovidedbothupstream(suchashydrogensupplycontractsCfDs,and/orgrantssupportingOPEXandCAPEX)and/ordownstream(suchasCCfDs).Dependingonthejurisdiction,policymakersmaychoosetointroduceinvestmentandproductiontaxcredits.Theinteractionbetweenthesemechanismsshouldbemanagedsotheydonotoverlap.Itisalsoimportanttomanagetheinteractionwiththecarbonprice,bysettinganysubsidypolicyagainstafulleffectivecarbonprice(whichmayconsistofthe“marketprice”forcarbonplusadditionalcarbontaxesiftheyexistineachjurisdiction).Ifthefullcarbonpriceisnotused,over-subsidizationmayoccur.•Forthemidstream,infrastructure(transmission,distribution,storage)shouldbeincentivizedusingregulatedreturnsandlearningthelessonsfromefficientdeliveryofelectricityandgasnetworks(e.g.,withpricingbasedonimprovingperformanceandefficiencyovertime).Theintroductionofpriceceilingsandfloorcanalsobeusedtoensurethatefficiencyisachieved.•AsforHRS,supportonbothCAPEXandOPEXarenecessaryforanefficientdevelopment•Industrialdownstreamusesofhydrogenmayneedspecificsupport,suchastheuseinsteel,chemicals,andrefineries.TherelativeadvantagesofCCfDs,feedinpremiaortariffsshouldbeconsidered.•Downstreamquotasortargetsmayberequiredasadditionalsupporttogeneratedemandinthemarketcreationphase.Policypackagesmayalsodifferdependingonwhethertheyprioritizespeedorefficiencyofdelivery.Moredirectivepoliciesandregulatorymandatescanachievegreaterspeed,whereasmarket-basedpoliciescansupportmoreefficientdelivery:However,wewouldrecommendimplementingthecombinationofbothpackagesatthesametimeforanoptimaldeploymentoftherenewable/lowcarbonhydrogensector.33PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil1.Apolicypackagefocusedonefficiencyisbestsuitedforpolicymakerswhoprioritizecost-competitivenessofsupportinstruments.19Inearlymaturitystages,directsupportmechanisms,suchasCfDs,FiTs,andproductiontaxcreditsinupstream,andCCfDsindownstream,providerevenuecertaintyandallowinvestorstocovertheirupfrontinvestmentandoperationcosts,makingFOAKprojectseconomicallyviable.Incountrieswheretheenergysectorisliberalizedandwherewell-functioningmarketsinelectricityandingasalreadyexist,policymakersmaywanttoofferdedicatedgrantsandloansattheinitialstageofmarketdevelopment(especiallytoprojectsofstrategicimportance),andgranttemporaryexemptionstotheexistingstateaidrules.20Atlatermaturityphases,exposingmarketparticipantstoacarbonpricewhilephasingoutrevenuestabilizationmechanisms(suchasCCfDs)willpromotecompetitionandinnovation,minimizingthesocietalcost.2.Apolicypackagefocusedonrapiddeploymentisdesignedforpolicymakerswherethepriorityisrapidscalingofmarketsandinfrastructure.Standards,quotas,andemissionsreductionandintensitytargetsprovidevisibilityanddecreaseuncertaintiesaroundsupply,demand,andprices.Thislowersborrowingcostsandprovidesrevenuecertainty,makingprojectsbankable.Financialsupportmechanismsalsolowertheinitialcapitalrequirements,makingFOAKprojectseconomicallyviable.Bothtypesofpoliciesaresimpletodesign,implementandmonitor,allowingpolicymakerstochannelresourcestothelowcarbonandrenewablehydrogensectorquickly.Duetoinformationasymmetriesanduncertaintiesaroundnewtechnologies,policymakersmayfailtoidentifythelowestcosttechnologyortheonethatmaydominatethemarketinthefuture,possiblycausinginefficienciesandhencehighersocietalcostcomparedtotheEfficiencypackages.Figure5laysoutthekeypoliciesformingeachpolicypackageandhoweachpolicypackageperformsagainstthesixperformancecriteria,whileemphasizingtheirstrengths.21Finally,detailedpolicydesignwillneedtoaddressthespecificimplementationchallengesineachlocation.Thepolicypackagesaddressdeploymentandfinancialbarriersacrossthelowcarbonandrenewablehydrogenvaluechain,butdependingonthecountrycontext,implementationchallengesmayremain.Forexample,iftherearefewornoexamplesofcompletedlowcarbonand/orrenewablehydrogenproductionplantsinacountry,constructionandtechnologyrisksassociatedwithahydrogenproductionprojectmaybetoohigh,puttingoffinvestors.Policymakerscandeployinvestmentde-riskpolicies,suchasdebtguaranteesandequitybygovernment,tolowerconstructionandtechnologyrisksandmakeFOAKprojectsviable.19Thefocusisonminimizingsocietalcost.Afterthisobjectiveisachieved,thepoliciescanbedesignedtoallocatethesocietalcostbetweenthestakeholdersinaneconomy,suchasconsumers,firms,andgovernment,asdesired.Forexample,carbonpricingincreasespriceofproductsforconsumers,decreasingtheirpurchasingpower.Agovernmentcantransferapart,orallrevenuescollectedfrompermitsalesorcarbontaxbacktoconsumerstocovercostsaccruingtoconsumersduetocarbonpricing.20Forexample,inEurope,lowcarbonandrenewablehydrogenprojectsareeligibleforgrantsandloansallocatedthroughtheRecoveryandResilienceFacility,alongsideotherpublicfundinginstruments,suchastheEUInnovationFund.ImportantProjectsofCommonInterest(IPCEI)aregrantedawaiverofStateAidrestrictionswithspecificconditions.21Inallpolicypackages,RABMisusedinmidstreamtransmission,distribution,andstoragetopreventnaturalmonopoliesfrompricegaugingusers,whileprovidingrevenuecertaintywithknowndecisionrulestopromoteinvestment.34PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilFigure5Allpolicypackagesaddressthebarrierstolowcarbonandrenewablehydrogendeployment,buttheydifferinprioritiestheymeetEfficiencyRapiddeployment•Directsupportmechanisms(e.g.,CfDs,CCfDs)•Financialsupportmechanisms,(e.g.,loansandgrants)•ETS/CarbonTax•Returnoninvestmentde-risk(e.g.regulatedreturns)•Financialsupportmechanisms(e.g.,loansandgrants)•Standards,quotas,andemissionsreductionandintensitytargets•Returnoninvestmentde-risk(e.g.regulatedreturns)Policyassessmentresponses:StrongMediumWeakDeliversFOAKprojectsMinimizescostsSpansvaluechainFlexibilityofambitionEaseofimple-mentationEaseofbankability35PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilEnablingpolicies36PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilTheenablingpoliciesarecommoncomponenttoallpolicypackages.Theseinstrumentshavebeenidentifiedasessentialcatalyzerstoincentivizehydrogendeployment,supportthehydrogensectorreachmarketmaturityandenablethedevelopmentofglobal,cross-borderhydrogenmarkets.Thissectiondescribestheenablingpoliciesandhowtheyconstitutethefoundationforthethreepolicypackagesconsideredinthisstudy,providingspecificexamples.1.TargetsandcarbonpricestodriveclimatemarketefficiencySettinganoverarchingpolicytargetfordecarbonizationtousherintransformationalchange.Overarchingdecarbonizationtargetsfacilitateacountry’senergytransitionastheysendastrongpoliticalsignalandguidetheshort-termandlong-termstrategiesofinvestorsinenergyandclimatesolutions.Adoptingacarbonpriceearlyisthekeytocreatingamarketforlowcarbontechnologies,thereforeensuringcompetitivenessinhydrogenapplications,andbringingthem“intothemoney”withconventionaltechnologies.Cap-and-tradesystemsacrossregionshavealreadydemonstratedtheireffectivenessatincentivizingfuelswitchingfromcoaltonaturalgas.Theearliercarbonpricingisintroduced,theeasieritwillbetocalibratethesysteminawaythatwouldallowittodeliverarobustcarbonprice.Carbonpricingcanencourageswitchingincost-competitivemarketsegments,suchasfromgreytolowcarbonandrenewablehydrogeninindustrialapplication,especiallyifthecostofswitchingfromgreyhydrogentorenewablehydrogenbecomesthekeypricingparameterwithinthecostparadigmsofcap-and-tradesystems.Inestablishedmarkets,reinforcingandexpandingcap-and-tradesystemstocoverallend-usesectorscandrivecostcompetitivenessacrossawiderangeofapplications.Insomegeographiesandsectors,suchasheavy-dutytrucks,ammoniasynthesisprocessemissionsandurbanbusesthiscost-competitivenessiswithinreach,beingabletobreak-evenwithconventionaltechnologiesatcarbonpricesof<100USD/t(Figure6)22.However,somehard-to-abatesectors,suchascruiseshipsandmethanolsynthesis,mayrequirespecialrequirements.22Appendix2.4Figure6CarbonpricesrequiredbysectorforbreakevenCarbonpricesrequiredbysectorforbreakevenby20301,USD/tCO2<100USD/tBy2030andwithcarboncosts~100USD/t,noadditionalsupportrequired100-150USD/tNeedtodifferentiatecarbonpricesbysectororoffere.g.,CCfDstodecarbonize>150USD/tHardest-to-abatesectorsthattargetedpoliciestoachievedecarbonizationContainershipIndustrialheatingCompacturbancarCombinecycleturbineMethanolsynthesisLongrangeflightsSimplecycleturbineShortrangeflightsBoilerforbuildingheatingCruiseshipBlendingofH21.Assumptionofaverageproductioncostforlowcarbonandrenewablehydrogenof1.9USD/kgin2030Source:McKinsey&CompanyanalysisHeavydutytrucksForkliftsUrbanbusAmmoniasynthesisprocessemissionsTrainsRegionaltrainsRefiningMid-sizelongrangevehicleRopax,ferries37PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilResolvinginternalmarketdistortionscanhelpensurethecompetitivenessofnewtechnologiessuchashydrogen.Forexample,thephasingoutoffossilfuelsubsidiesforexplorationintheupstreamandpricesubsidiesforcustomersdownstreamcouldovercomehydrogen’scostdisadvantage.Puttinginplacesafeguardsagainstcarbonleakageandcarbondisplacement.Carboncap-and-tradesystemsorcarbontaxescanhelpgeneratedemandforlowcarbonhydrogenandderivedproducts.Therightpolicymeasures,suchasintroducingorstrengtheningcarbonpricing,canpropagatedecarbonizationpolicyelsewhere.However,forthesebenefitstoberealized,policiesneedtobeinplacetoensurethatcarbonisnotdisplacedorevenincreased,puttingdecarbonizingproducersatacompetitivedisadvantageglobally.Thecarbonborderadjustmentmechanism(CBAM),forinstance,seekstopreventcarbonleakagebyensuringhigher-costdecarbonizedproductioncancompetewithlower-cost,carbon-intensiveproductionfromotherjurisdictions.TheprospectofaCBAMsislikelytoincentivizemorejurisdictionstoadoptcarbonregulation,whichwouldhelpgenerateapricesignalfortheuptakeoflowcarbonsolutions,includinghydrogen.232.RoadmapstounderpinnationaldeliveryAdoptinganationalhydrogenstrategyoraroadmaptoprovidedirectionandmarketforesighttotheindustry.Adoptingadedicatedhydrogenstrategyoraroadmapdefineshowacountrywillunlockthepotentialofahydrogeneconomytoreachitsoverarchingdecarbonizationtargets.Itprovidesapolicyvectorandincreasedvisibilitytotheindustryonfuturemarketconditionsandprojectsthatarelikelytobefavored.Importantly,nationalstrategiesandroadmapsallowcountriestodefinethemilestonesforadvancinghydrogendeployment,detailinghowhydrogencanplayasystemicroleinanintegratedenergyecosystem,bywayofenablingcoordinatedplanningandoptimizationoftheenergysystem,acrossinfrastructuresandendusesectors.Manycountriesaroundtheworldhavealreadyannouncedtheirnationalhydrogenstrategiesandroadmaps.FromJapanandAustraliatoChileandtheEU,countriesandregionsaroundtheworldhavebeendrawinguphydrogenstrategiesandroadmapslayingoutambitiousplansforthedevelopmentoftheirrespectivehydrogeneconomies.Japanhasbeenahydrogenfrontrunnerwithitscommitmenttodevelopworld’sfirst‘hydrogensociety’withthecountry’sHydrogenStrategylaunchedin2017,followedbytheStrategicRoadMapforHydrogenandFuelCellspublishedtwoyearslater.Australia’sNationalHydrogenStrategyfromNovember2019aimstopositionthecountry’shydrogenindustryasamajorplayerby2030anddetailsnationalcoordinatedactionswiththeobjectivetobuildahydrogenexportindustryvaluedinthebillions.24InSouthAmerica,Chile’sGreenHydrogenStrategyfromNovember2020setsthegoalsofproducingthecheapestrenewablehydrogenintheworldby2030andbecomingoneofthreelargesthydrogenexportersby2040.23BNPParibasAssetManagement,DeepDecarbonization,GreenHydrogen,NetZero,andtheFutureoftheEU-ETS,(October2020),https://docfinder.bnpparibas-am.com/api/files/FB39FAB1-A279-41CC-9CDD-4D22827359B024Australia’sNationalHydrogenStrategy(2019),https://www.industry.gov.au/data-and-publications/australias-national-hydrogen-strategy38PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil3.InternationalstandardsandhydrogencertificationHarmonizedinternationalregulations,codes,performance,andsafetystandardscreateacommonlanguagefortheindustryacrosstheentirevaluechainandfacilitatecommercializationofhydrogentechnologiesandhydrogen-basedproducts.Creatingharmonizedconsensus-basedinternationalstandardsalsofacilitatessharingofgoodpracticeamongstcountries,which,inturn,enablescostoptimizationandensuressafetyandqualityperformanceforend-users.2.1Hydrogensustainabilitycharacteristics,certificationsystemsanddefinitionsInternationalstandardsconstituteakeyprerequisiteforthedevelopmentofthehydrogenvaluechainandglobalhydrogenmarkets,astheycreateconsumertrustandfacilitatecommercializationofhydrogentechnologiesandhydrogen-basedproducts.Inparticular,standardmethodologiesforlifecycleanalysis(LCA)assessmentofGHGemissionsassociatedwithhydrogenproduction,alongsideothersustainabilityattributesarecrucialtoinform•Thresholdsforqualifyinghydrogenaslowcarbon(intCO2eq/tH2orgCO2/MJ)•Alignedtaxonomiesusedforqualifyingeconomicactivities,includingmanufactureofhydrogen,asenvironmentallysustainable25•Commonstandardstounderpininternationalcertificationsystemsforhydrogen•HarmonizedinternationalhydrogendefinitionsCertificationsystemsforhydrogenarekeytofacilitatingthedeploymentofhydrogenatnationallevel,stimulatingdemand,andenablingcross-bordertradeinhydrogen.Thedevelopmentofinternationalrulesandstandardsthatwouldunderpincountry-levelandregionalcertificationsystemsisnecessarytoenabletheuseofandtradeincertificatesevidencingtherenewable/lowcarbonoriginofhydrogen(basedonitsproductionpathway),itscarbonfootprint(basedontheLCAassessmentofGHGemissionsfootprintoftheproductionpathway)andothersustainabilityattributes(includingtheuseofwater,land,andrareearthmetals).Subjecttocountry-specificpolicyandregulatoryprovisions,certificatesevidencingthesustainabilityattributesofhydrogencouldbeusedforcompliancepurposestocounthydrogentowardsdecarbonizationtargetsand/ortargetsforrenewablesproduction/consumptioninendusesectors.Togetherwithcommonstandardsforcalculatingthecarbonfootprintandothersustainabilityattributesofhydrogen,certificatesystemsforhydrogencanenabletransparencyandconsumertrustatinternationallevel,aswellasinformconsumerchoicestherebystimulatingdemandforrenewableandlowcarbonhydrogeninendusesectors.Ultimately,suchcertificatesystemswouldfosterthedevelopmentofacompetitivecross-border,globalhydrogencommoditymarket.Theeconomicsavingsthatcanberealizedthroughimplementingthesesystemsandestablishingregulatorycoherencyaresignificantforcountriesthatwillbereliantonimports.Forexample,inJapanin2030,assuming<70%ofhydrogenisimportedfromAustralia,savingsofUSD2bncanberealizedthroughtheminimizationofimportcoststhatwouldbeenabledthroughagreedstandardsandcertificationremovingregulatory‘redtape’.(Figure7)2625TheEUTaxonomyRegulationandtheTaxonomyClimateDelegatedAct(DA)provideaclassificationsystemforenvironmentallysustainableeconomicactivities.TheprovisionsundertheDAregardingmanufactureofhydrogenallowforlowcarbonhydrogenmanufacturetoqualifyasaneconomicactivitywithsubstantialcontributiontoclimatechangemitigationaslongtheactivitycomplieswiththelifecycleGHGemissionssavingsrequirementof73.4%forhydrogenresultingin3tCO2eq/tH2and70%forhydrogen-basedsyntheticfuels26Appendix2.639PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilRelevantintergovernmentalandprivatesector-ledinitiativesarewellunderway–thosewillplayanimportantroleininformingthedevelopmentofdedicatedISOstandardsforhydrogen.Theintergovernmentalinitiatives,inparticular,thoseledbytheInternationalPartnershipforHydrogenandFuelCellsintheEconomy(IPHE)onmethodologiesforcalculatingGHGcontentofhydrogenproductionpathwaysaswellasoncertificationplayanimportantroleinbuildinginternationalconsensusonthesematters.Lookingattheexistingindustry-ledprojects,theCertifHyprojectinEuropeconstitutesanemerginggoodpracticeincreatingacomprehensivecertificationsystemforhydrogencoveringbothguaranteesoforiginandsupplycertificates.Goingforward,itwillbecrucialtoensurethattherelevantfindingsoftheseinitiativesfeedintothedevelopmentofdedicatedinternationalstandardsformeasuringandcertifyingthesustainabilityattributesofhydrogen(buildingontheexistingISO14060familyofstandardsandISO14040).Thesestandardscouldinturnbeusedasareferencepointintheemerginglegislativeframeworkforhydrogenacrossjurisdictionsglobally.Figure7DomesticproductioncostsinJapanandthepricefromimportingrenewablehydrogenfromAustraliaincludingtheadditionalcoststhatcouldbeabsorbedina‘worstcase’distributionpricescenario47,000kmJapanimportsTotalcostAdditional5JapandomesticAAuussttrraalliiaattooJJaappaanniimmppoorrttssDomesticproductioncostsinJapan1andpriceofimportinghydrogenfromAustralia2,3aswellastheadditionalcoststhatcouldbeabsorbedUSDbncostofproductionandimports4Japandomesticrenewablehydrogenproductionisunabletomeet2030demand,with>70%anticipatedtobemetthroughimports.Ina‘worstcase’pricescenariowhereinternationalstandardsarenotdeployedtorealizethelowesttechnologicalcostsandremovelegislative‘redtape’,anadditional2bnUSDmaybeabsorbed.+2bnUSD1.Highuncertaintyincostofdehydrogenation(«cracking»)2.Currentlyatpilotscaleandrequiresinfrastructureinvestments,uncertaincostandscaleofLH2shipping3.Assumeslarge-scaleinfrastructureandshipsforallcarriers4.Assuming3MTJapanesedemandin2030with~70%importedfromAustralia5.Assuminga‹worstcase›pricescenarioforimportsSource:HydrogenforNetZero&HydrogenCouncil,CostRoadmapReport40PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil3.2Performanceandsafetystandards:theroleofISOandIECBasedonnationalstakeholderinput,theInternationalOrganizationforStandardization(ISO),theInternationalElectrotechnicalCommission(IEC)andsuchregulatorybodiesastheUnitedNationsGlobalTechnicalRegulations(UNGTR)andtheInternationalOrganizationofLegalmetrology(OIML)developinternationalconsensus-basedstandardsandregulationsrespectively.TheseglobalSDOsplayakeyroleindevelopinginternationalstandardsandguidelinesforhydrogentechnologies(ISO/TC197)andfuelcelltechnologies(IEC/TC105).Asdiscussedabove,International(ISOandIEC)componentstandardsarenecessarytoeliminateglobalbarrierstotradeandinternationalprojects,pavingthewayfortheemergenceofacompetitivehydrogenindustryandwell-functioningcross-borderhydrogenmarkets.Inpractice,thisrequiresmakingsurethatahydrogencomponent(suchasahoseorbreakawaydevice)oranassembly(suchaselectrolyzerorreformerordispenser)meetsthecommonlyaccepteddesignandtestingcriteriaandthuscanbedeployedacrosstheglobewithoutadditionalbureaucraticburden,whichwouldotherwiseleadtoincreasedcosts.Installationrequirementsofthosecomponentsorassemblies(suchas,forexample,separationdistances)candifferacrossjurisdictions,buttheirdesignandtestingrequirementsshouldnot.SinceISOandIECstandardsaredevelopedbythebroadestspectrumofinternationalstakeholders,theybecome“super”standardsandconstituteareferencepointforthecomponentstandardsandotherrelevantlegislativeinitiativesintroducedatnationallevel.Thisconsiderationleadstoatleastthreefollowingimplications:•Nationalcomponentstandardsincludingthosethatservedasseeddocumentsforthedevelopmentofinternationalstandardsshouldbepreparedwithaviewtohavingtheirrespectivedesignandtestingrequirementsharmonizedwiththeinternationalstandards.Essentially,nationalstandardsshouldconstituteharmonizedadoptedinternationalstandards,wheretheonlydeviationsarereferencestospecificrelevantnationalstandardsandregulationsandclimaticconditions,wherejustified.•Nationallegislationandinstallationcodesshouldrecognizeinternationalstandardsortheirnationalharmonizedadoptionsastheonly/preferredlistingorcertificationcomponentsstandards•Nationalinstallationcodesshouldnotcontainanydesignortestingrequirementsrelatedtocomponentsandassembliesandfocussolelyontheinstallationrequirements.Theyshouldalsoexplicitlyreferenceavailableinternationalcomponentstandardsortheirnationalharmonizedadoptionsfordesignandtestingrequirements.ItshouldbenotedthattherearenumerousISOandIECTechnicalCommitteesbesidesISO/TC197andIEC/TC105thatarecriticallyimportantforthebroadmarketpenetrationandcommercializationofhydrogenandfuelcelltechnologies.TheworkoftheISO/TC207EnvironmentalManagementshouldalsobenotedasitdevelopskeyfoundationalguidelinesformeasuringsustainabilityelementsofhydrogentechnologies.41PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil4TrainingandEducationprograms4.1OvercomingskillsbarriersTrainingandeducationalprogramsonthevalueandsafetyofrenewableandlowcarbonhydrogencanhelpovercomeinformationandskillsbarriers.Generaleducationprogramsonhydrogentechnologiescaninformnewgenerationsabouthydrogenanditsroleinanetzeroeconomyandplayanessentialroleinbuildingupfundamentalskillsforhydrogen.Trainingprogramscanupskillexistingworkforcewithappliedskillsneededbythehydrogensectoraseconomiestransitiontonet-zeroandhydrogenandcanplayakeyroleinaddressingjusttransitionconcerns.Forexample,theGreenJobsActof2007intheUnitedStatesprovidesgrantstostatestoadministerrenewableenergyandenergyefficiencyworkforcedevelopmentprograms.InAustralia,theQueenslandGovernmenthassetuparenewableenergytrainingfacilitytoprovidecoursesandapprenticeships.4.2HydrogensafetytrainingHydrogensafetyeducationandtrainingisessentialforsafedeployment,operationandmaintenanceofhydrogenandfuelcellequipment.Hydrogensafetytrainingcanbeclassifiedintwomaincategories:awarenesstrainingandprofessionaltraining.AwarenesstrainingissuitableforthebroadestgroupsofstakeholdersstartingfrominterestedpubliclikefirstadoptersofHFCtechnologiestoalltypesofprofessionalsinvolvedinalldifferentaspectsofhydrogentechnologies.Awarenesstrainingnormallycoversgeneral/basicaspectshydrogenpropertiesandemergencyresponse.Specializedtargetedprofessionaltrainingcanbedifferentiatedforthefollowingcategoriesofprofessionals:•Hydrogentechniciansandgas/pipefitters,includinglabuse•Designengineers•Installers•Operatorsofhydrogenproductionandutilizationequipment•AHJsandengineeringpersonnelinteractingwithAHJstoobtainapprovals•Firstresponders42PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil43HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyCountryarchetypes44PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilCountrieswillparticipatedifferentlyinthehydrogeneconomyandstartwithdifferentnaturalresourceendowments(e.g.,availabilityofrenewablesandnaturalgasresources)andinfrastructureendowments(e.g.,availabilityofwell-developedgasinfrastructurenetworksthatcanberepurposed/retrofittedandsaltcaverns).Thisstudysetsoutanarchetype-basedapproachtoillustratehowcountrieswithcertaincharacteristicscansuccessfullydeployhydrogenpolicy.Therearethreemainarchetypes:1.Self-sufficienthydrogenproducers:acountrywitheithersufficientendowmentofrenewablesourcesforenergygeneration,includingthephysicalspacerequired,haspotentialtoserveitsownrenewablehydrogendemand,and/ornaturalgascombinedwithCCUStoproducelowcarbonhydrogen2.Hydrogenexporters:acountrywithsufficientlyhighendowmentofrenewablesourcesand/orofnaturalgascombinedwithCCUS,canproducelowcarbonorrenewablehydrogen,andexportittoserveinternationaldemand.3.Hydrogenimporters:acountrywithlimitedrenewableandlowcarbontechnologicalendowmentsornaturalgasresourcesmayfinditmorecosteffectivetoimportrenewableand/orlowcarbonhydrogenfromthirdcountries.Acountrythatcurrentlyimportsnaturalgashasanaturalgasinfrastructureinplacethatcanberepurposedtoimport,transport,andstorehydrogen,loweringthecostofswitchingtohydrogen.Asdescribedintheearlierchapter,thereisabroadrangeofotherfactorsthatinfluencepolicypreferences.Forexample,theinstitutionalcontextcanimpactthepolicypreferencesofpolicymakers,forexamplewhetherthereisapreferenceformarketdrivensolutions(toachievemoreefficientoutcomes)orapreferenceformorecontrolanddirection(toachievemoredirectedoutcomes).Thedescriptionsofhowthepoliciesareimplementeddrawouttheimplicationsofdifferentpolicypreferences.45PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilTherecommendedpolicieshavesimilarobjectivesacrossthedifferentphasesofmarketmaturity:•Marketcreation:Recommendedpoliciesprovidefinancingtohelpwithhighupfrontcapitalcosts(suchasgrants,loans,andequity)and/orguaranteearevenuepremium(suchasCfDs,FiTs,FiPsandCCfDs).Complementedwithbalancesheetsupporttools(suchasdebtguaranteesandequity),thesepoliciesmakeearlyinvestmentsbankableandsupportthedevelopmentofaprojectpipeline,bringingdowncostsasaresult.•Marketgrowth:Thepoliciesprovidingsupportwithupfrontcapitalcostandrevenuepremiumevolve,increasingexposuretomarketsignalsbyreducingoptimizingthelevelofsubsidizationthroughauctions.Countriesmaychoosetoholddistinctauctionsforlowcarbonandrenewablehydrogenprojectsbasedontheirpolicychoices.OPEXsupportmayremainnecessaryinthisphase(e.g.,exemptionsfromtaxesandleviestodecreasethecostofelectricityusedforrenewablehydrogenproduction).Policiesneedtoexpandacrossmultiplesectorstogeneratethedemandnecessaryforcostreductionstoberealized.Ascanbeseenthroughreductionsinelectrolyzercapex,thesecostreductionsareonlyachievedthroughthedeploymentofrenewablehydrogeninmultiplesectors,actingtounlockmoredemand(Figure8).Furthertothis,appropriatemarketdesignplaysakeyroleinensuringthevalueofflexibilitytotheenergysystemprovidedbylowcarbonandrenewablehydrogenissignaledcorrectly.Encouragingthecarbonpricesignaltobecomemorerobustandcovermoresectorshelpstocompletethepricingframework.•Maturemarketobjectives:Allpoliciesprovidinginvestmentandrevenuesupportarephasedout.Carbonpricesarerobustenoughtoleveltheplayingfieldforhydrogenandletitcompetewithfossilfuels,aswellaswithotherdecarbonizationsolutions,ensuringefficientallocationofresourcesandminimizingsocietalcost.Figure8Electrolyzercapexanddemandbysector,USD/kW2727Appendix2.3020201,6002520308001,2001,0001,4002,800PEMSOECAlkalineElectrolyzercapex1USD/kW2fullyinstalledsystem3Electrolysisdeployed4,GW+power,maritime&aviation+roadtransport,steel&methanolHydrogendeployedinammoniaandrefiningInstalledcapex1.2020-2030modelled2.USD/kwofhydrogenproduced3.Mediumelectrolysers(4000Nm3/h).Electrolysercapexdefinedassumof;indirectcosts,buildingcapex,transportationtosite,installationandassemblycapex,systemcapex4.EquivalentglobaldemandSource:HydrogenInsightsProjectandInvestmenttracker46PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilSelf-sufficienthydrogenproducersneedtoenabletheentirevaluechain:upstreamsupply,midstreamtransmissionanddistributionanddownstreamdemand(Figure9).Figure9Self-sufficienthydrogenproducerarchetypeArchetype1:Self-sufficienthydrogenproducersCertaintyConsumertrustEconomy-wideuptakeH2investmentUpstreamMidstreamDownstreamEmissionstargetsandhydrogenstrategiesDevelopharmonizedstandardsandcertificationschemesBlendingstandardsandquotasProductlabellingBuildrobustregionalcarbonpricesCAPEX&OPEXsupport(e.g.,CfDs,taxcredits),Financialde-risking(e.g.,grants,loans,andguarantees)CAPEX&OPEXsupport,financialde-risking(e.g.,pricepremiums,CCfDs,freeallocation),Publicprocurement,targets/quotasCAPEX&OPEXsupport,financialde-risking(e.g.,regulatedreturns,priceceilingsandfloorsfortransmissionanddistributionnetworks,subsidiesforstorageinfrastructureandrefuelingstations)Evolvetoincreasecompetition(e.g.,auctions-potentiallyseparateforlowcarbonandrenewablehydrogen-withalargepipelineofbidders)Evolvetoincreasecompetition(e.g.,auctions-potentiallyseparateforlowcarbonandrenewablehydrogen-withalargepipelineofbidders)ShiftincentivestocarbonpricesandmarketstodeliverinvestmentShiftincentivestocarbonpricesandmarketstodeliverinvestmentMarketcretationMarketgrowthMarketmaturityPolicyobjectivePolicyroadmapforlowcarbonandrenewablehydrogen47PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilUpstream:Forupstreamhydrogendeployment,thekeychallengeistounlockinvestmentinrenewableand/orlowcarbonhydrogenproduction.Thekeyelementsofthepolicypackageare:•Incentivizinghydrogensupplycanbeachievedbywayofdeployingfinancialsupportinstrumentssuchasgrants,loans,andguaranteestohelpde-riskinvestment,supportingfirstmovers.Theseinstrumentsalsoplayacriticalroleinthedevelopmentofintegratedhydrogenprojects(hydrogenvalleys)andhydrogenprojectsofstrategicimportancenecessarytopavethewayformarkettakeoff.•Inaddition,asuiteofpolicymeasurescanbeusedtoprovideOPEXsupportforprojectsinthemarketcreationandmarketgrowthstages.Introducingexemptionsfromelectricitytaxesandlevieswouldhelpsubstantiallydecreasethecostofelectricityusedforrenewablehydrogenproductionaslongasmarketdistortionisavoided.•OPEXandCAPEXsupportforlowcarbonhydrogencouldbeintroducedintheformoftaxcreditsforemissionscapturedusingCCS-45QintheUSconstitutesagoodexampleofsuchasystemofcarbontaxcredits.IntheEU,aschemeforcarbonremovalcertificatesthatcouldbetradeablecouldbeadoptedin2023.•RevenuestabilizationmechanismssuchasCfDsandFiTsupstreamcouldbeusedtoincentivizebothrenewableandlowcarbonhydrogen–subjecttopolicychoices–andcanevolvetofeaturecompetitivebiddingprocesses.•Inadditiontodirectsupportmeasures,carbonpricingcanplayakeyrole.Asthemarketdevelopsandreachesmaturity,robustcarbonpricescanplayakeyroleindrivingprivateinvestmentacrosstheeconomymakinghydrogenfullycompetitivewithotherenergysources.Appropriatemarketdesignwillalsobekeytoensurethevalueofflexibilitytotheenergysystemprovidedbylowcarbonandrenewablehydrogenissignaledcorrectly.Midstream:Thekeychallengeistosecureinvestmentinretrofittingandrepurposingoftheexistingnaturalgasinfrastructureandinnewdedicatedhydrogeninfrastructure.Thekeyelementsofthepolicypackageare:•Inthemarketcreationphaseandmarketgrowthphase,blendingcanallowavoidingstrandedassetsandhighcapitalcosts.Forexample,theproposedrevisionoftheTEN-ERegulationinEuropewouldallowthatrepurposednetworkscanbeusedtotransportorstoreapre-definedblendofhydrogenwithnaturalgasorbiomethaneduringatransitionalperiod(until31stDecember2029)duringmarketcreationandgrowth.However,blendingwillbelimitedtoacertainpercentage.Retrofittingofexistingnaturalgasassetsorevennewpipelineswillbenecessary.Selectedprojectswillhavetodemonstratehow,bytheendofthistransitionalperiod,theseassetswillceasetobenaturalgasassetsandbecomededicatedhydrogenassets.Theassessmentofcandidateprojectswillalsoensurethattheassetsaredesignedinviewofcreatingdedicatedhydrogenassetsbytheendofthetransitionalperiod.Thepurposeistograduallydecarbonizethissectorandbyincreasingtheshareofrenewablegasesinthepipelinesand/orbuildingdedicatedH2assets(transmission,storage,distribution).48PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncil•Atthesametime,buildingnewdedicatedinfrastructurewillalsobekeytoconnecttheclustersofdemandwithsupplyandhelphydrogenplayitsroleinenablingenergysystemintegration.Guaranteeingreturnsthrougharegulatedassetbasemodelcan,forinstance,spurprivatesectorinvestmentintolargeinfrastructureprojects.•Whenthemarketreachesmaturity,theregulatedreturnsmodelwouldremaininplacetoensureinfrastructureprovidersareoperatingcompetitivelyandefficiently.Also,atthisstage,ancillaryservicessuchasabufferingandstoragecanenablehydrogenasaflexibleenergyvectorandprovidealternativesourcesofrevenuethatreplacefinancialsupportpolicies.Downstream:Theykeychallengeistoprovidefundingandallocateitefficientlybetweenoff-takerswhilemakinghydrogen-basedproductscompetitiveinthemarket.Keyelementsofthepolicypackageare:•Inthemarketcreationphase,directsupportcanencourageearlyhydrogenmarketadopters.Forexample,offeringapricepremiumtosteelmakersthatarestartingtousehydrogenasaninputwouldcompensateforhigheroperationalcosts.Financialsupportcanhelpreducefinancialrisksoflargeupfrontcapitalinvestmentsrequiredforhydrogenuseprojects.•Publicprocurement,targets,standards,andquotaspolicies,includingincentives,cankick-startmarketsstrategicallyandprovidevisibilitytodownstreamusersonthedirectionoflowcarbontechnologies.Canada’sCleanFuelStandardandtheCaliforniaLowCarbonFuelStandardareexamplesofsupply-sidemechanisms.•Asthemarketentersthegrowthphase,theimportanceofcarbonpricinggrows,anddirectsupportmechanismsmayevolvetoexposehydrogenusersfurthertomarketsignals.Forexample,earlyincentivescanbereplacedbyCCfDsandbeawardedthroughanauctionsystem.Inthematuremarketphase,policymakerscanfullywithdrawsupportandacarbonpriceshouldremaininplacetocontinuetofosterinnovationandinvestmentinlowcarbontechnologies.49PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilExportershavetofocusondevelopingexportinfrastructureandunlockingefficientproductionprojectsthatcancompleteontheinternationalmarket,aswellasstrikingagreementswithofftakers(Figure10).Figure10HydrogenexporterarchetypeArchetype2:HydrogenexportersCertaintyConsumertrustEconomy-wideuptakeH2investmentUpstreamMidstreamDownstreamEmissionstargetsandhydrogenstrategiesDevelopharmonizedstandardsandcertificationschemesBlendingstandardsandquotasOfftakeagreementswithimportingcountriestolockinalong-termhydrogensupplyBuildrobustregionalcarbonpricesCAPEX&OPEXsupport(e.g.,CfDs,taxcredits),Financialde-risking(e.g.,grants,loans,andguarantees)Financialsupport(e.g.,grants,loansandguarantees)CAPEX&OPEXsupport,financialde-risking(e.g.,regulatedreturns,priceceilingsandfloorsfortransmissionanddistributionnetworks,subsidiesforstorageinfrastructureandrefuelingstations)Evolvetoincreasecompetition(e.g.,auctions-potentiallyseparateforlowcarbonandrenewablehydrogen-withalargepipelineofbidders)ShiftincentivestocarbonpricesandmarketstodeliverinvestmentMarketcretationMarketgrowthMarketmaturityPolicyobjectivePolicyroadmapforlowcarbonandrenewablehydrogen50PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilUpstream:Policymakersmaywanttocoordinateprojectlocationstoensureco-locationwithtransportationhubsandinfrastructure.Financialsupportunderbespokecontractsgivesgovernmentscontroloversize,timing,andlocationofinvestments.ForupstreamH2deployment,directsupportonbothCAPEXandOPEX(e.g.,CFDs,taxcredits,grants,….)shouldbeputinplace.Midstream:Policiesarealignedwiththoserecommendedforaself-sufficientarchetype,exceptthatpoliciesforanexportercountryshouldallowpolicymakerstoexerthighercontroloverthecoordinationofmidstreaminfrastructureprojects.Financialsupportfornewinfrastructureandretrofittingandrepurposingoftheexistingassets,aswellasprovisionsforblending,whereappropriate,givepolicymakerstheflexibilitytochannelresourcestowardssectionsoftheinfrastructurenetworktheyconsiderstrategictotransporthydrogenandaccessexportmarkets.Downstream:Ahydrogenexporterwilltypicallystartservingdomesticoff-takerstodevelopitshydrogenproductioncapabilities,andtoachievethisobjective,theStatecouldimplementlegislativemeasuresincentivizinglocaldemand.However,tostartengaginginexportactivities,offtakeagreementsshouldbeinplacewithdestinationcountries.Theseagreementsguaranteesuppliersarevenuestreamandhelpmakeprojectsbankablebyloweringborrowingcosts.ExportersmayalsobenefitfromCfDschemesintroducedbyimportingcountries(suchastheCfDschemeforrenewablehydrogenenvisagedbytheGermangovernmentintheframeworkoftheH2Globalinitiative).51PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilImportershavetofocusondevelopingdownstreammarketsforhydrogenandhydrogen-basedproductsandsecuringhydrogensupplyfromoverseas(seeFigure11).Figure11HydrogenimporterarchetypeArchetype3:ImportersCertaintyConsumertrustEconomy-wideuptakeH2investmentUpstreamMidstreamDownstreamEmissionstargetsandhydrogenstrategiesDevelopharmonizedstandardsandcertificationschemesBlendingstandardsandquotasProductlabellingBuildrobustregionalcarbonpricesOfftakeagreementswithexportingcountriestolock-inalong-termhydrogensupplyCAPEX&OPEXsupport,financialde-risking(e.g.,pricepremiums,CCfDs,freeallocation),Publicprocurement,targets/quotasCAPEX&OPEXsupport,financialde-risking(e.g.,regulatedreturns,priceceilingsandfloorsfortransmissionanddistributionnetworks,subsidiesforstorageinfrastructureandrefuelingstations)Evolvetoincreasecompetition(e.g.,auctions-potentiallyseparateforlowcarbonandrenewablehydrogen-withalargepipelineofbidders)ShiftincentivestocarbonpricesandmarketstodeliverinvestmentMarketcretationMarketgrowthMarketmaturityPolicyobjectivePolicyroadmapforlowcarbonandrenewablehydrogenUpstream:thekeychallengeistosecurehydrogensupplyfrominternationalmarkets.Offtakeagreementswithexportingcountriescanlock-inalong-termhydrogensupplytoreducesupplyrisksandcosts.BilateralagreementsandCfDschemescanhelpsecuringhydrogenimportsatacompetitiveprice.52PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilMidstream:Hydrogenimporterswillrequirefinancialsupportfrompolicymakerstocoordinateinvestmentsandrapidlydevelopstorageandtransportationinfrastructurethatenableshydrogentoreachdomesticmarkets.Ifcountriesalreadyimportnaturalgasfromabroad,allocatingfundingforretrofittingandrepurposingoftheexistinginfrastructureisessential.Inthecaseoflowcarbonhydrogen,introducingblendingstandardsandquotascanbeappliedtorepurposeexistinginfrastructure.Buildingoutthisinfrastructure,suchaspipelines,hasthepotentialtorealizesavingsforimportingcountries.Forexample,inGermany,if50%offorecasted2030demandforlowcarbonandrenewablehydrogenismetthroughpipelineimportsthroughanew,orideallyaretrofitted,pipelinefromSpain,annualhydrogencostsavingsof~USD340mncanberealized28.(Figure12)Downstream:Policymakerscanfollowtheproposedpolicypathwayforself-sufficientarchetypecountriestofostertheuseofhydrogenandhydrogen-basedproductsacrosstheeconomy.Inaddition,importingcountrieswithamoredisperseddemandwillrequirelargerfinancialsupportassmallerendusershavelimitedfinancialresourcetocoverlargeupfrontinvestmentcostswhenswitchingtohydrogen.Intheseinstances,policymakersmightchoosetosupplementfinancialsupportwithpublicprocurement,standards,andquotastodirectspecificsectorswhereitsmorecosteffectivetoswitchtohydrogenanddemonstrateearlyfeasibility.Asthemarketgrowthphaseisentered,thesepoliciescancoverawiderrangeofsectors.28Appendix2.5Figure12CostofmeetingGermany’s2030hydrogendemandPotentialforEuropeanHydrogenBackbone1.302.270.591.89ProductioncostsinSpainOnshoretransmissionpipelineCostatdestinationProductioncostinGermany~340millionsavingswith50%imports2CostsofmeetingGermanyhydrogendemandin2030,USD/kgPipeline1fromSpaintoGermanyDomesticproductioncostGermanyProductioncostSpainTransmissioncostSpain-Germany1.Pipeline70bar,50%utilization,80cmdiameter2.Assuming2030demandof1.8MTwith50%domesticproductionand50%metthroughpipelineimportsfromlowestcostrenewableproductionsiteinSpainSource:HydrogenforNetZero,HydrogenCouncil,EuropeanHydrogenBackboneJuly202053PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilSocietalvalueandvalues54PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilSocietalvalueandvaluesshouldbefactoredintopolicydecisions.Alongsidethetransitiontowardscarbonneutrality,countrieswouldbenefitfromconsideringthefullrangeofsocietalimpactsandthebenefitsthatcanbeunlockedthroughthedevelopmentofthehydrogeneconomy.Well-designedhydrogenpoliciescouldhaveapositivecontributiontoseveralUNSustainabilityDevelopmentGoals,including:•Goodhealthandwell-being:Eliminatingtheburningoffossilfuelsfortransport,coal-plants,andhouseholduseslowersairpollution,whichhasbeenlinkedwithimprovedhealthoutcomes,especiallyinchildren,theelderlyandthoselivinginpoorerandmorevulnerablecommunities.29Iftargetsforlowcarbonandrenewablehydrogendeploymentareachieved,displacementoffossilfuelsbyhydrogenisforecastedtorealizeanannualCO2abatementof0.7GTCO2ein2030,equivalenttoUSD23bninanannualhealthcaresavings.30•Greengrowthandsustainablejobs:Thedevelopmentofthehydrogeneconomycanprovidecriticaljobsforworkersassociatedwithindustriesthataremostlikelytobeimpactedbytheenergytransition(e.g.,fossilfuelextraction).IndustryestimatesthattheUScouldbuild700,000jobsinthehydrogensectorjustby203031.Thiscanalsobenefitregionalcommunities,includingprotectingtherightsofindigenousandofferingthemnewopportunitiesthroughemploymentandnewbusinesscreation.•Diversity,equity,andinclusion:Publicprivatedialogueonthediversity,equity,andinclusion(DEI)dimensionofhydrogeneconomydevelopmentisemerging.32BothgovernmentsandindustryhavetheopportunitytousethelearningsfromthedevelopmentoftheestablishedindustriestoensurethatDEIconstituteintegralelementsofhydrogeneconomydevelopmentfromtheoutset.Continuedpublic-privatecooperationonthismatterandfurtherresearchinthisarearemainessential.•Opportunitiesforindigenouscommunities:Canada’snationalhydrogenstrategyconstitutesabestpracticeexampleofahydrogenstrategythatrecognizesandactivelyseekstounlocktheopportunitiesthatthedevelopmentofthehydrogeneconomycanbringtoindigenouscommunities,offeredthroughemploymentandnewbusinesscreation.Italsorecognizestheneedforthelocalhydrogeneconomytogrowhandinhandwithindustry’sstrategicpartnershipsthatemphasizeenvironmentalprotection,culturalrecognition,communityenergyplanningalignedwithtraditionalvalues,economicdevelopment,andprojectparticipation.•Sustainablecitiesandcommunities:Hydrogeninfrastructurecannotonlyprovidecitieswithaccesstorenewabletransportandheating,italsoprovidesresiliencyincaseswhererenewableelectricityproductionisinsufficientduetopoorconditionsornaturaldisasters.29WorldHealthOrganization.“Healthconsequencesofairpollutiononpopulations”2019.https://www.who.int/news/item/15-11-2019-what-are-health-consequences-of-air-pollution-on-populations30Appendix2.931HydrogenandFuelCellTechnologiesOffice,HydrogenShot,https://www.energy.gov/eere/fuelcells/hydrogen-shot32Atthetimeofwritingofthepresentreport,thistopichasbeenaddressedintheframeworkoftheHydrogenShotSummit55PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilAppendix56PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilDefininglowcarbonandrenewablehydrogenTherearecurrentlynocommonstandardsfordefiningrenewableandlowcarbonhydrogen.Thisisaconsequenceofthelackofinternationalstandardmethodologyforcalculatingthecarbonfootprintofhydrogenproductionpathwaysandthresholdsforqualifyinghydrogenaslowcarbonthatwouldbeapplied,forexample,acrosstaxonomiesforsustainablefinanceandhydrogencertificationsystems.ThisissueisexploredfurtherinsectionDonenablingpoliciesinthereport.Inthepresentstudyweusethetermsrenewable,lowcarbonandgreyhydrogen,whereby•‘Renewablehydrogen’referstohydrogenproducedfromenergysourcesofrenewableorigin.Forexample,i)hydrogenproducedthroughwaterelectrolysiswithelectricityofrenewableoriginusedasfeedstock;and/orii)hydrogenproducedthroughthegasificationofsustainablebiomasswhichisthenreformedorpyrolyzed(iftheCO2issequestratedthehydrogenproducedcanbequalifiedascarbon-negative).Definedthresholdsforqualifyinghydrogenasrenewable(intCO2eq/tH2orgCO2/MJ)needtobeputinplace.•‘Lowcarbonhydrogen’referstohydrogenproducedfromenergysourcesofnon-renewableoriginwithacarbonfootprintbelowadefinedthreshold.Forexample,i)hydrogenproducedusingnaturalgasasafeedstockwithSMRorATRcoupledwithCCS;ii)hydrogenproducedthroughpyrolysisofnaturalgasintohydrogenandsolidcarbon;iii)hydrogenproducedthroughgasificationofcoalwithCCS;iv)hydrogenproducedthroughelectrolysisusingelectricityofnon-renewableoriginasfeedstock.Definedthresholdsforqualifyinghydrogenaslowcarbon(intCO2eq/tH2orgCO2/MJ)needtobeputinplace.•‘Greyhydrogen’referstohydrogenproducedusingfossilfuelsasfeedstock,mainlythroughreformingofnaturalgasorthegasificationofcoal.DetailedpolicyassessmentresultsTwodimensionsdefinethelowcarbonandrenewablehydrogenmarketwithinthepolicyframework:thevaluechainandthestageofmarketmaturity.Figure13detailsthedescriptionanddesiredoutcomeofeachstepofthevaluechainandmarket.1TechnologyReadinessLevel,ARENA,2014andStraub,2015;2CommercialReadinessIndex,ARENA,2014andStraub,2015Source:VividEconomicsFigure13BarrierstohydrogenmarketoutcomesareassessedalongtwodimensionsH2valuechainTime/MaturityA.Coreenablersacrossthevaluechain1.EarlymarketbuildingtechnologyreadinessOverallenablersforanH2valuechainfromproductionthroughtousageH2energyisatTRL19,andthereisasteadystreamoffullscaleprojectstoproveviabilityanddeliverabilitywithgovernmentorprivatefundingandsupportB.Upstreamsupply2.Markettake-offandincreasingpenetrationProduceH2fromnaturalgasreformationorcarbon-freeelectricityelectrolysisGloballyandacrosskeysectors,thereisasteadypipelineofat-scaleprojectsbymaturedevelopersthatarefundedandprogressingtoFEEDorbeyondC.Midstreamdistribution3.MaturemarketwithdiversifiedgrowthCompress,store,liquifyH2andtransportviatrucking,shipping,orgas/H2networktoendusersH2energyisatCRI25andis2-5%ofglobalenergyuse,projectsreachingcompletionwithminimalgovernmentinterventionandcompeteforcapitalasestablishedinvestmentsD.DownstreamdemandUseH2asanenergysource,keysectorsincludetransportation,industryfeedstock,industryenergy,powergeneration,andbuildingheatingandpowerStepinvaluechain/StageDimensionDescriptionofeachstepinvaluechain/Desiredoutcomeofeachstage57PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilThequestionsareansweredbasedonrealexamplesofpolicyimplementation,economictheory,andexpertinsights.AnswersdictatetheRAG(Red,Amber,Green)colorratingassignedtoakeypolicy.Figure14presentsthecolorratingsassignedtothekeypoliciesforsixperformancecriteria.Theassignedcolorratingsareasbelow:•Red:“No”asaresponsetoallquestionslistedunderthecriterion.ThepolicyisratedasWeak.•Amber:“No”asaresponsetoatleastoneofthequestionslistedunderthecriterion,andtherestoftheresponsesare“Yes”.ThepolicyisratedasMedium.•Green:“Yes”asaresponsetoallquestionslistedunderthecriterion.ThepolicyisratedasStrong.Figure14The12keypoliciesareassessedagainstsixperformancecriteriaandassignedanRAGratingPolicyassessmentresponses:StrongMediumWeakPoliciesDeliversFOAKprojectsPerformancecriteriaMinimizessocietalcostsSpansvaluechainFlexibilityofambition1.Alternativerevenuestreams,e.g.,gridfirmingservices2.Carbontax3.Directsupportmechanisms,suchasCfD,CCfD,FiTs,andtaxincentives4.ETS5.Financialsupportmechanisms,suchasloansandgrants6.Guaranteedofftake7.Investmentde-risk,e.g.,balancesheetsupport-debtguarantees,equity8.Phasingoutfossilfuelsubsidies9.Publicprocurementtokickstartmarkets10.Returnoninvestmentde-risk,e.g.,RABM,availabilitypayments,minimumrevenueguarantee,futurepurchasecommitment11.Quotas&targets12.StandardsEaseofimple-mentationEaseofbankability58PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilCriteriaAlternativerevenuestreams,e.g.,gridfirmingservicesDeliveryofFOAKprojectsRed–Doesnotaddressfinancialbarriers;revenuesarenotenoughtoachieveeconomicviability.MinimizescostsRed–Doesnotprovideanyincentivesforcompetitionandinnovation.SpansvaluechainRed–LimitedtoupstreamsupplyFlexibilityofambitionRed–Noflexibilityasthemarketdecidesdemandforandpriceoftheservice.EaseofimplementationGreen–Doesnotneedclosemonitoring.Itdecreasesthetotalcostofoperatingagridsystem,benefitingallmarketparticipants.EaseofbankabilityRed–DoesnotaddressfinancialbarriersfacedbytheprivatesectorCriteriaCarbontaxDeliveryofFOAKprojectsAmber–Levelstheplayingfieldforlowcarbonandrenewablehydrogen.Similarpoliciesexist,buttheyhavenotperformedwellduetolowcarbonpricesandlackofhydrogen-specificinstrument,asETSisapplicabletoarangeoftechnologies.MinimizescostsGreen–Promotescompetitionandinnovation.Themarketfindsthemostefficientsolutionthatminimizesthesocietalcost(assumingallmarketfailuresareaddressed).SpansvaluechainGreen–Createsincentivesupstream,midstream,anddownstream,sothegovernmentdoesnotneedtoputinextraeffortstoapplythepolicyatallstagesofthevaluechain.FlexibilityofambitionGreen–Canbeeasilymodifiedasthemarketmatures,andconditionschange.EaseofimplementationAmber–Thecostofthepolicycanberedistributedacrossmarketparticipants.Itiseasytoimplementandmonitorlikeothertaxes.However,publicacceptanceofenvironmentaltaxescouldbecomeanimplementationbarrierEaseofbankabilityRed–Levelstheplayingfieldforlowcarbonandrenewablehydrogenbutdoesnotprovideanyhydrogen-specificbenefitstotheprivatesector.Otherpoliciesneededtomakeprojectsbankable.1.1.1Alternativerevenuestreams1.1.2Carbontax59PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilCriteriaDirectsupportmechanisms(involvingcompetitiveauctions)DeliveryofFOAKprojectsGreen–Offersrevenuecertaintyandsubsidies,increasingprojects’economicviability.SimilarpolicieshavebeenappliedinGermanyandtheUKamongmanyothers.MinimizessocietalcostsGreen–Promotescompetitionandinnovationandfindsthelowestcostthroughauctions.SpansvaluechainAmber–Needstobeappliedatallstagesofthevaluechaintobeeffectiveacrossthevaluechain.FlexibilityofambitionGreen–Easytoexit,andnewcontractscanbeissuedwheneverthereisanewauctionround.Easeofimplement-ationGreen–Thecostofthepolicycanberedistributedacrossmarketparticipantsthroughlevies.Itdoesnotrequireacomplexsystemtobeinplaceanddoesnotdistortthemarketintermsofcompetitiveness.EaseofbankabilityGreen–Makesprojectsbankablecreatingaconsistentrevenuestreamandprovidingsubsidiestotheprivatesectorwhichencouragestheprivatesectortoinvest.CriteriaEmissionTradingSchemesDeliveryofFOAKprojectsAmber–Levelstheplayingfieldforlowcarbonandrenewablehydrogen.Similarpoliciesexist,buttheyhavenotperformedwellduetolowcarbonpricesandlackofhydrogen-specificinstrument,asETSisapplicabletoarangeoftechnologies.MinimizessocietalcostsGreen–Promotescompetitionandinnovation.Themarketfindsthemostefficientsolutionthatminimizesthesocietalcost(assumingallothermarketfailuresareaddressed).SpansvaluechainGreen–Createsincentivesupstream,midstream,anddownstream,sothegovernmentdoesnotneedtoputinextraeffortstoapplythepolicyatallstagesofthevaluechain.FlexibilityofambitionAmber–AlthoughtherequirementsforETScanbecomestricterovertime,adjustingthecapisoverallalengthyprocess,whichcantakemorethanfiveyears.Easeofimplement-ationAmber–Thecostofthepolicycanberedistributedacrossmarketparticipants,butthesystemistedioustoinstall,watchandmaintain.EaseofbankabilityRed–Levelstheplayingfieldforlowcarbonandrenewablehydrogenbutdoesnotprovideanyhydrogen-specificbenefitstotheprivatesector.Otherpoliciesneededtomakeprojectsbankable.1.1.3Directsupportmechanisms(involvingcompetitiveauctions)1.1.4EmissionTradingSchemes60PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilCriteriaFinancialsupportmechanisms,suchasgrantsandloansDeliveryofFOAKprojectsGreen–Lowerstheupfrontcapitalinvestmentandborrowingcost.Similarpoliciesarealreadysuccessfullyimplementedaroundtheworld,alsoforhydrogendeployment.MinimizescostsAmber–Informationasymmetriesandtechnologyuncertaintiesmaypreventpolicymakersfromachievingmostefficientoutcome.Interventionsmaydistortcompetitionandstallcompetition,creatingopportunitiesforrentcreation.Well-designedauctionsmayaddresssomeoftheseconcerns.SpansvaluechainAmber–Itsimpactislimitedtothevaluechaincomponentitisappliedto,buttheycanbeappliedatallstages.FlexibilityofambitionGreen–Canbeadjustedineveryfinancinground.Italsoiseasytophaseoutwithoutadverseeffectsonthemarket.EaseofimplementationGreen–Canbefinancedthroughtaxesandlevies,whiletheburdencanberedistributedacrossmarketparticipants.Itiseasytosetupandcanbeeffectivewithoutcloselymonitoring.EaseofbankabilityGreen–Loweringupfrontcapitalcosts,itreducesrisksandencouragestheprivatesectortofinancedeploymentCriteriaGuaranteedDeliveryofFOAKprojectsGreen–Providesrevenueguarantee.AnalogouspolicieshavebeensuccessfulinforincreasingrenewablesupdateinChina,andsimilarpoliciesareunderwayforhydrogenintheUSandIndia.MinimizescostsAmber–Informationasymmetriesandtechnologyuncertaintiesmaypreventpolicymakersfromachievingmostefficientoutcome.Interventionsmaydistortcompetitionandstallcompetition,creatingopportunitiesforrentcreation.Well-designedauctionsmayaddresssomeoftheseconcerns.SpansvaluechainAmber–Particularlyappropriateforupstreamsupplyanddownstreamdemand.FlexibilityofambitionGreen–Canbeadjustedineveryfinancinground.EaseofimplementationGreen–Canbefinancedthroughtaxesandlevies,whiletheburdencanberedistributedacrossmarketparticipants.ItiseasytosetupandcanbeeffectivewithoutcloselymonitoringEaseofbankabilityGreen–Providingrevenueguarantee,itreducesrisksandencouragestheprivatesectortofinancedeployment1.1.5Financialsupportmechanisms1.1.6Guaranteedofftake61PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilCriteriaInvestmentde-riskmechanisms,e.g.,balancesheetsupport,debtguarantees,equityDeliveryofFOAKprojectsRed–Addresstechnologyandconstructionriskbutdoesnotlowerinitialcapitalinvestmentorproviderevenueguarantee.MinimizescostsRed–MaynotincentivizethemostefficienttechnologyduetoinformationasymmetriesanduncertaintiesaroundtechnologySpansvaluechainAmber–Needstobeappliedateverystageofthevaluechaintobesuccessful.FlexibilityofambitionGreen–Canbeadjustedineveryfinancinground.EaseofimplementationAmber–Noneedforclosemonitoring.Itmaycreateadversecompetitivenesseffectsaspolicymakersmayfailtoendorserighttechnologyandproject.EaseofbankabilityGreen–Eliminatesconstructionandtechnologyriskfortheprivatesector.CriteriaPhasingoutfossilfuelsubsidiesDeliveryofFOAKprojectsRed–Doesnotprovidesufficientrevenueandrevenuecertaintyanddoesnotlowerupfrontcapitalcost.MinimizescostsRed–Asafossilfuelspecificpolicy,itdoesnotprovidedirectincentivestoinvestorsinhydrogendeployment.SpansvaluechainGreen–Thepolicydoesautomaticallyapplytoallstagesofthevaluechain.FlexibilityofambitionGreen–Policymakerscanmakechangeseasilytoreflectchangingmarketconditions.EaseofimplementationGreen–Solvesamarketdistortionandtherebyincreasethetotalsurplus.Itdoesnotneedclosemonitoring.EaseofbankabilityRed–Riskstotheprivatesectorinfinancingnewhydrogenprojectsremainlargelyunchanged.1.1.7Investmentde-riskmechanisms1.1.8Phasingoutoffossilfuelsubsidies62PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilCriteriaPublicprocurementtokickstartmarketsDeliveryofFOAKprojectsAmber–Providesrevenueguaranteetoallhydrogenproducersbutnottospecificprojects.AnalogouspolicieshavebeenadoptedinFrance,Australia,andNorway.MinimizescostsGreen–Incentivizescompetitionandinnovationtolowercosts,asproducerswillstillcompetetoofferthelowestpricetowinaprocurementround.SpansvaluechainAmber–Thepolicyisparticularlyappropriatefordownstreamdemand,butitcanapplyacrossthevaluechain.FlexibilityofambitionGreen–Canbeadjustedandexitedeasilytoreflectchangesinthemarket.EaseofimplementationAmber–Highercostsarelikelytobepassedthroughtoendusers,decreasinghouseholdspurchasingpower.Itcanbeeffectivewithoutclosemonitoring.EaseofbankabilityRed–Doesnotcoverriskstotheprivatesectorlookingtoinvestinaproject.CriteriaReturnoninvestmentde-risk,suchase.g.,RABMDeliveryofFOAKprojectsGreen–Providesrevenuecertaintyandenoughreturntocoverinvestmentandoperationcosts.Similarpolicieshavebeensuccessfultoincentivizeinvestmentinmidstreamprojects.MinimizescostsGreen–Becausethereturnisfixed,firmsinnovateandincreaseefficiencytolowertheircostsandincreasetheirprofits,butthesepoliciescandistortthemarketandincreasesthesocietalcostsifpolicymakerssetrevenuelevelstoohigh(createsarentforownersofthemidstreaminfrastructure)ortoolow(stallsinvestment).SpansvaluechainAmber–Particularlyappropriateformidstreamdistribution.TheydonotautomaticallyapplytoallthestagesofthevaluechainandFlexibilityofambitionGreen–Policymakerscanadjustreturnsovertime.EaseofimplementationAmber–Easytoimplementwithoutclosemonitoring,butthepoliciescandistortthemarketandincreasesthesocietalcostsifpolicymakerssetrevenuelevelstoohigh(createsarentforownersofthemidstreaminfrastructure)ortoolow(stallsinvestment).EaseofbankabilityGreen–Risksaroundreturnsarereducedtothepointthattheprivatesectorisencouragedtofinancenewprojects.1.1.9Publicprocurement1.1.10Returnoninvestmentde-risk63PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilCriteriaQuotas&targetsDeliveryofFOAKprojectsAmber–Analogouspolicieshavebeensuccessfulinprovidingadditionalcertaintytoprivateinvestors,butthesedonotaddressfinancialrisksassociatedwithaproject.MinimizescostsAmber–Createsincentivestoinnovate,butcommand-and-controlpoliciesmayfailtoreachthemostefficientoutcomeasthetechandtimingendorsedbythesemaynotbethemostefficientones.SpansvaluechainAmber–Policiesdonotautomaticallyapplytoallthevaluechainstages,buttheycanextendtoallvaluechaincomponents.FlexibilityofambitionGreen–Overtime,policymakerscanadjustpolicieseasilytoreflectthechangesinthemarket’scircumstances,forexamplebyintroducingstrictertargets.EaseofimplementationAmber–Itiseasytoimplementandneedsnoclosemonitoring.However,command-and-controlpoliciesmaydistortthemarket,resultinginhighersocietalcoststhatarelikelytobepassedthroughtoconsumers.EaseofbankabilityAmber–quotasprovidecertaintytotheprivatesectorwhichmightencouragethemtofinanceprojects,butfinancialrisksremainhighduetothepotentiallackofrevenue,returnguarantees,etc.CriteriaStandardsDeliveryofFOAKprojectsRed–Standardshavebeensuccessfulatincentivizingdeployment,buttheydonotproviderevenueandrevenuecertaintyanddonotlowerupfrontcapitalcostMinimizescostsAmber–Createincentivestoinnovate,butcommand-and-controlpoliciesmayfailtoreachthemostefficientoutcomeasthetechnologyandtimingendorsedbythesemaynotbethemostefficientones.SpansvaluechainAmber–Policiesdonotautomaticallyapplytoallthevaluechainstages,buttheycanextendtoallvaluechaincomponents.FlexibilityofambitionGreen–Overtime,policymakerscanadjustpolicieseasilytoreflectthechangesinthemarket’scircumstances,forexamplebyintroducingstricterminimumstandardsEaseofimplementationAmber–Command-and-controlpoliciesmaydistortthemarket,resultinginhighersocietalcoststhatarelikelytobepassedthroughtoconsumers.Itiseasytoimplementandneedsnoclosemonitoring.EaseofbankabilityAmber–Standardsprovidecertaintytotheprivatesectorwhichmightencouragethemtofinanceprojects,butfinancialrisksremainhighduetothepotentiallackofrevenue,returnguarantees,etc.1.1.11Quotas&targets1.1.12Standards64PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilCriteriaEfficiencyDeliveryofFOAKprojectsGreen–Directsupportmechanismsandreturnoninvestmentofferrevenuecertaintyandsubsidies.,whiletheauctiondesigncanincreasecompetition.Similarpolicieshavebeenappliedwidely.MinimizescostsGreen–Promotescompetitionandinnovation.Themarketfindsthemostefficientsolutionthatminimizesthesocietalcost(assumingallothermarketfailuresareaddressed).SpansvaluechainGreen–ETSspansthevaluechain,whereasdirectsupportmechanismscanbeusedinupstreamanddownstream.FlexibilityofambitionAmber–DirectsupportmechanismscanbeamendedineveryfinancingroundbutadjustinganETSthecapisoverallalengthyprocess,whichcantakemorethanfiveyears.EaseofimplementationAmber–ETSandreturnoninvestmentde-riskmightbehardertoimplementandmaintain,whereasdistributionalimpactscanbealleviatedwithpolicydesign,suchasallocatingETSrevenuesbacktoconsumersthroughsubsidiesordecreaseinothertaxes.EaseofbankabilityGreen–Directsupportmechanismsandreturnoninvestmentde-riskproviderevenuecertainty,loweringrisksfacedbytheprivatesector.CriteriaRapiddeploymentDeliveryofFOAKprojectsGreen–Financialsupportmechanismslowertheupfrontcapitalinvestmentandborrowingcost.Similarpoliciesarealreadysuccessfullyimplementedaroundtheworld,alsoforhydrogendeployment.MinimizescostsAmber–Standards,quotasandtargetsandfinancialsupportmechanismscreateincentivestoinnovate,butcommand-and-controlpoliciesmayfailtoreachthemostefficientoutcomeasthetechandtimingendorsedbythesemaynotbethemostefficientones.SpansvaluechainAmber–Policiesdonotautomaticallyapplytoallthevaluechainstages,buttheycanextendtoallvaluechaincomponents.FlexibilityofambitionGreen–Overtime,policymakerscanadjustpolicieseasilytoreflectthechangesinthemarket’scircumstances,forexamplebyadjustingthelevelofthefinancialsupportorintroducingstrictertargets.EaseofimplementationGreen–Command-and-controlpoliciesmaydistortthemarket,resultinginhighersocietalcoststhatarelikelytobepassedthroughtoconsumers,whiletheburdencanberedistributedacrossmarketparticipantswithpolicyamendments.Theyareeasytosetupandcanbeeffectivewithoutcloselymonitoring.EaseofbankabilityGreen–Thepackageprovidesupfrontcapitalfinancingandcertaintyaboutthesizeofthemarket.Risksarereducedtothepointthattheprivatesectorwillfinancenewprojects.EfficiencyWealsoperformedtheassessmentonthepolicypackagesforefficientdeliveryversesrapiddeployment.Rapiddeployment65PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilMethodologyandassumptionsforquantificationsQuantificationMethodology&assumptionsSources2.1InvestmentgapDifferencebetweenannouncedinvestmentsbygovernments/companiesandtheforecasteddemandInvestmentdemandincludesHydrogenproduction(soelectrolyzers,CCSretrofitsforblueH2,newSMR/ATRplants),Distributionandtransmission(shipping,pipelines,conversionetc.),storagetanks,andend-applications(soammoniaplants,fuelcellsetc.)basedon•H2demandforNetZero•Investmentcosts•InvestmentmultipliersBreakdownbyvaluechainIEA,‘NetZeroby2050’,2021HydrogenCouncil,‘Hydrogeninsightsupdate’,2021HydrogenCouncil,‘Hydrogen,ScalingUp’report,20172.2ElectrolyzercapexcostdownSectoralenergydemandCalculationofcostreductionbasedon•Externalprojections•Investmentmultipliers•MarketsegmentationIEA,EnergytechPerspective,2017HydrogenCouncilmemberopinionHydrogenCouncil,‘Pathtohydrogencompetitiveness:acostperspective,2020HydrogenCouncil,‘Hydrogen,ScalingUp’,20172.3Carbonpricerequiredbysectorfor2030breakevenApplicationofdifferentcarbonpricesensitivitiestoaH2industryapplicationmatrixAverageoflowcarbonandrenewablehydrogenproductioncostfor2030assumedat1.9USD/kgMcKinseyanalysis2.4Spain-GermanypipelineimportsTotal2030hydrogendemandinGermany;1.8MTPipelineof70bar,50%utilization,standard80cmpipelineEfficientrenewableproductionsiteinSpainwithproductioncosts1.1EUR/kgFOB;0.5EUR/kgTotalimportprice;1.61EUR/kg(incl.compressioncosts)DomesticproductioncostGermany;1.91EUR/kgHydrogenInsightsSupply&Distributionmodel66PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilQuantificationMethodology&assumptionsSources2.5JapanimportcostsfromAustraliaJapandemand2030;3MTAssumption70%importedfromAustraliaRenewableH2productioncostinAustralia1.5USD/kgImportcostsincludingphasechangeandshippingRangeofimportpricesfor2030fromthemodel.Fromthisrangetheassumptionwasmadethatthelowestcostimportscenariowouldbewhereregulationandcertificationhavebeenimplemented.Inthisscenarioimportingshouldrealizelowercostsastherewouldbelessregulatory‘redtape’andcostreductionbenefitsarearesultofthis.Theupperendoftheimportcostrangewasassumedtorepresentascenariowithoutregulationandcertificationtherebyadditionalcostsbeingabsorbedduetologisticalirregularities.CalculatedastheaverageupperimportpricelimitfortheLH2,NH3andLOHC.Lowestpotentialtotalimportcost;1.5USD/kgHighestimportcost;2.57USD/kgHydrogenInsightsSupply&DistributionmodelHydrogenCouncil,Pathtohydrogencompetitiveness:acostperspective,20202.6EnergysystemscostAssumingafullyrenewableenergysystemDifferencebetweenscenariowherefullelectrolyserflexibilityassumedandanotherwheretheloadisfixedandthereisnoresponsetomarketsignalsmodelledProject-specificpowersystemmodelling(fornet-zerocityprojectintheMiddleEast)PowersavingsmodellingfortheEUEU2030generation3920TWh(somecurtailmentandtransmissionlosses)anddemand(loadandelectrolysis)of3860TWhMcKinseyPowerSolutionmodelling2.7JobcreationthroughahydrogeneconomyAssumption54,545jobsperMThydrogen/12jobspermillionrevenueinadvancedindustriesAssuming2050hydrogendemandof675MTMcKinseyGlobalEnergyPerspective,2021HydrogenCouncil,‘ScalingUp’,20172.8EmissionabatementhealthcaresavingsEmissionreductionbenefitofhydrogenEconomicbenefitsthroughthemitigationofairpollutionfromfossilfuels:USD1.9-4.6perGJ&CO2mitigationbenefitsofUSD3-12perGJCalculatethetotaleconomicbenefitofthisgloballythroughtheamountofCO2predictedtobeabatedin2030asaresultoflowcarbonandrenewablehydrogendeployment2030abatement;0.68GTTotaleconomicbenefitcalculatedthroughthevolumeoffossilfuelsanticipatedtobedisplacedandreplacedbyhydrogenIRENA,‘REmap2030’,2014McKinseyGlobalEnergyPerspective67PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilGLOSSARYATRAutothermalreformingCAPEXCapitalexpenditureCBAMCarbonborderadjustmentmechanismCCfDCarboncontracts-for-differenceCCSCarboncaptureandstorageCCUSCarboncapture,useandstorageCfDContracts-for-differenceCO2CarbondioxideCO2eqCarbondioxideequivalentDRIDirectreducedironDSODistributionsystemoperatorECEuropeanCommissionE-fuelsElectrofuels(syntheticfuels)ETSEmissionstradingschemeEUEuropeanUnionFCVFuelcellvehicleFiPFeed-in-premiumFiTFeed-in-tariffFOAKFirst-of-a-kindGGRGreenhousegasremovalGHGGreenhousegasGOGuaranteesoforiginIATAInternationalAirTransportAssociationIMOInternationalMaritimeOrganizationISOInternationalOrganizationforStandardizationLCALifecycleanalysisLNGLiquifiednaturalgasOIMLInternationalOrganizationofLegalMetrologyOPEXOperatingexpenditurePPAPowerpurchaseagreementPPPPublic-privatepartnershipPVPhotovoltaicsRABMRegulatedAssetBaseModelREDRenewableEnergyDirective(EU)RES-EElectricityfromrenewableenergysourcesRFNBORenewablefuelsofnon-biologicaloriginSMRSteammethanereformingTEN-ETrans-EuropeanNetworksforEnergyTSOTransmissionsystemoperatorTW/GW/MW/kWTerawatt,gigawatt,megawatt,kilowatt(unitofpower,1Watt=1Jpers)TWh/MWh/kWhTerawatthour,megawatthour,kilowatthour(unitofenergy,1Watt-hour=3600J)USDUnitedStatesDollarsVATValue-addedtaxWTOWorldTradeOrganization68PolicyToolboxforLowCarbonandRenewableHydrogenHydrogenCouncilNovember2021©HydrogenCouncil

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