The global push toward low-emissions hydrogen is gaining momentum, with significant investment and project development across various regions. However, to accelerate its deployment and realize its full potential, targeted policies are needed to stimulate demand in critical sectors such as heavy industry, refining, and long-distance transport. The International Energy Agency’s (IEA) Global Hydrogen Review 2024 sheds light on the current state of the hydrogen sector and identifies key areas for improvement.
The report highlights that while the hydrogen sector is experiencing a wave of new project announcements, challenges remain. Regulatory uncertainties, cost pressures, and insufficient incentives to drive demand continue to hinder faster progress. However, the number of projects that have made it to final investment choices has doubled in the last year, indicating that low-emission hydrogen is becoming more and more popular.
Unprecedented Growth Potential
By 2030, the number of committed projects might lead to a fivefold increase in the generation of low-emission hydrogen worldwide. When the final investment decision was made, there were 20 gigawatts (GW) of electrolyser capacity worldwide. If all proposed projects are successfully implemented, global production could reach nearly 50 million tonnes annually by the end of this decade. This ambitious goal would require the hydrogen industry to grow at a compound annual growth rate of over 90%, a pace that surpasses even the rapid expansion seen in solar photovoltaics (PV) during its peak growth phases.
However, the current pace of implementation lags behind expectations. Even with the increasing number of announcements, electrolyser installed capacity and production volumes are still modest. Developers are hesitating to move forward due to a lack of clarity on government support, creating a bottleneck for large-scale adoption. Many projects are still in the planning or early development stages, with some facing delays or cancellations due to regulatory and operational barriers.
Importance of Policy Support
The IEA underscores that robust policy support is critical for translating potential into reality. However, for these projects to succeed, the hydrogen sector needs a secure and expanding consumer base.
Governments worldwide have set ambitious production targets, collectively aiming for up to 43 million tonnes of low-emissions hydrogen annually by 2030. Yet, demand targets lag significantly behind, totaling just over 11 million tonnes. This mismatch highlights the need for policies that encourage adoption in key sectors and bridge the gap between supply and demand.
Several governments are already implementing measures to boost demand, such as carbon contracts for difference and sustainable fuel quotas for aviation and shipping. These initiatives have spurred action within the industry, leading to increased agreements between hydrogen producers and consumers. Nevertheless, total development is still not enough to achieve global climate goals.
Addressing Cost and Technology Barriers
Cost remains one of the primary hurdles for low-emissions hydrogen. Electrolysers, a vital component of hydrogen production, have experienced setbacks due to rising prices and strained supply chains. Achieving cost reductions will require advancements in technology, streamlining deployment processes, and transitioning to mass manufacturing to achieve economies of scale.
Cost competitiveness varies by region and production method. For example, if the 520GW global electrolyser pipeline is built, China’s electrolysis-based hydrogen production might surpass that of unabated coal-based hydrogen by 2030. Such developments could dramatically enhance the economic feasibility of low-emissions hydrogen, making it a viable alternative to traditional fossil fuel-based production.
The Role of Industrial Hubs
Industrial hubs play a pivotal role in driving the adoption of low-emissions hydrogen, offering a concentrated demand center for its production and application. These hubs are often home to energy-intensive industries such as steelmaking, refining, and ammonia production, which rely heavily on hydrogen produced from fossil fuels. Transitioning these processes to low-emissions hydrogen offers a dual benefit: significantly reducing carbon emissions while creating a large, stable market for hydrogen producers.
By focusing on these hubs, governments and industry leaders can create clusters of demand that reduce infrastructure costs and enable economies of scale. Co-locating production facilities with industries that require hydrogen minimizes transportation challenges, further improving cost efficiency.
Additionally, industrial hubs serve as testing grounds for innovative technologies and business models, helping refine processes before broader deployment. With targeted policies, such as tax incentives, subsidies, and regulatory frameworks, industrial hubs can accelerate the adoption of low-emissions hydrogen and become a cornerstone in the global clean energy transition.
Bridging the Gap: Production and Demand Alignment
The International Energy Agency (IEA) report stresses the critical need to align production and demand targets for low-emissions hydrogen. While production capabilities are advancing, demand creation lags, leaving projects vulnerable to delays or cancellations. Policymakers must implement mechanisms like subsidies, tax incentives, and mandates to stimulate adoption, especially in industrial applications. Tailored solutions are essential for hard-to-abate sectors such as heavy industry and long-distance transport. Sustainable aviation fuel quotas, for instance, can drive airlines to adopt hydrogen-based fuels, while carbon contracts for difference offer financial stability to industrial users transitioning to hydrogen. These strategies not only create demand but also reduce emissions in challenging sectors. By addressing these gaps, low-emissions hydrogen can become a cornerstone of global decarbonization efforts, ensuring its role in achieving ambitious climate goals. Robust policy support and targeted incentives are pivotal for accelerating its deployment and overcoming existing challenges.
Global Coordination and Future Outlook
Achieving the ambitious goals for low-emissions hydrogen will require unprecedented global coordination. Policymakers, industry leaders, and investors must work together to address regulatory uncertainties, streamline permitting processes, and develop comprehensive strategies to foster demand.
The IEA’s report provides a clear roadmap for overcoming these challenges. By focusing on demand creation, reducing costs, and scaling up production, the hydrogen sector can play a pivotal role in achieving global climate goals. As investment and project development continue to grow, the potential for low-emissions hydrogen to transform energy systems and industrial processes becomes increasingly evident.
In conclusion, the growth trajectory of low-emissions hydrogen is promising, but unlocking its full potential requires decisive action. By aligning production and demand, addressing cost and technology barriers, and leveraging industrial hubs, the sector can overcome current challenges and pave the way for a sustainable energy future.