Hydrogen is regarded as a beacon of hope for the energy transition. Rightly so. It is an efficient, high-quality energy source that is of particular importance in decarbonization, especially in shipping and air traffic and in industry that is difficult to electrify. The European Commission therefore intends to create a market for hydrogen. A good idea, but only if socio-ecological aspects are taken into account, fair competition is promoted and high-quality green jobs are created.
Actually not a bank, but a financing instrument
According to the REPowerEU plan, 10 million tons of renewable hydrogen are to be produced in the European Union by 2030. Just as much should be added by imports. Commission President Ursula von der Leyen has in the State of the Union address 2022 die European Hydrogen Bank announced as part of the Green Deal industrial plan to achieve this goal. However, the European Hydrogen Bank is not to be understood as a bank in the institutional sense, but as a financing instrument to initiate and promote the import and production of “green” hydrogen in the EU. Green hydrogen is created by using excess energy from wind, water or solar energy – i.e. renewable energy sources. A condition for this is a stable electricity price, which reflects the actual production costs and which presupposes a decoupling from the gas price.
The primary goal is to close the cost gap between green hydrogen and fossil fuels. This is to be achieved by means of auctions. These are intended to be used to auction subsidies in the form of a fixed price per kilogram of hydrogen for a maximum of ten years for particularly promising projects – taking into account the more flexible state aid law. This is intended to determine a marketable price for green hydrogen via a competitive bidding mechanism, while at the same time protecting the funded projects against risks.
Big investment needs
By the “InvestEU” program public and private investments in climate-friendly technologies, such as hydrogen drive technologies, should be promoted. Stand for it loud Green Deal Industrial Plan 40 billion euros available in this decade. From this, funds of three billion euros are to be used for the European Hydrogen Bank to develop a hydrogen market, reduce dependence on fossil fuels and reduce greenhouse gas emissions to net zero by 2050. In view of the investment requirements, the promised funds do not appear to be sufficient. According to estimates, the expansion of hydrogen production in the EU Investments of 335 to 471 billion euros required, with most of the funding to be provided by Member States and private sources, although other available EU funds may also be considered, such as through credit lines from the European Investment Bank. It is therefore doubtful that the current funding of the European Hydrogen Bank is even remotely sufficient.
A matter of focus
Hydrogen plays an important role in balancing fluctuations in the supply and storage of renewable energy and in targeting sectors that are difficult or impossible to electrify. These include, in particular, the steel, petrochemical, aluminium, cement and fertilizer industries, where the reduction of CO2 emissions is difficult to achieve because emission reduction solutions are associated with higher costs than current CO2-intensive technologies. Hydrogen can also play a key role in the decarbonization of heavy transport. However, green hydrogen is a rare commodity: currently only one percent of global energy demand be covered with green hydrogen. It would therefore be necessary for the European Hydrogen Bank not only to provide an overview of the hydrogen demand in the EU due to its limited resources, but also to (indirectly) control the demand for hydrogen. Sectors where direct electrification is possible, such as passenger transport, therefore cannot and should not be powered by hydrogen. Instead, we should use this “Champagne of the energy transition“Use carefully and purposefully. The European Economic and Social Committee (EESC) also points this out in its Opinion (TEN/805) down and stressed “Set sector-specific transition periods for industry based on emissions reduction paths and targets, as needed. The steel and cement industry as well as the chemical industry must be supported in converting their energy systems and production processes. This also applies to parts of the transport sector. The EESC stresses that these high carbon emitting industries may otherwise not survive the transition.”
The proposed economic policy instrument of the auction is certainly suitable for efficiently and purposefully promoting a market ramp-up of hydrogen production. However, the granting of subsidies should be linked to socio-ecological conditions. Companies that want to receive citizens’ money in the form of subsidies should also have to offer them good working conditions. These include location and employment guarantees, collectively agreed payment and the promotion of co-determination. In addition, setting a maximum price would also be a key instrument to prevent excessive subsidies being paid to producers, which ultimately have to be paid by consumers.
In order to ensure fair competitive conditions within the Union, it is also essential that companies in all Member States have access to affordable hydrogen. Economical production of green hydrogen will take place where large amounts of cheap renewable electricity can be generated (offshore wind farms and large-scale PV in the south). It will therefore be a key challenge for the EU to ensure that sufficiently affordable green hydrogen also reaches those member states that do not have such a potential or only have it to a limited extent.
Making international trade in hydrogen sustainable
In addition to building a European hydrogen market, the EU is promoting the import of hydrogen from third countries, especially from countries in the Global South. In order to be able to produce green hydrogen for export, large amounts of electricity from renewable energy are required. It is therefore important to work towards achieving strategic autonomy at an early stage “for a social and sovereign Europe” independent development capacities and opportunities are promoted. This also and especially applies to the development of renewable energy systems. Here it must be prevented that the energy supply for the local population suffers from the production of export hydrogen. If projects are implemented with the consent of the local population, compliance with human rights, international core labor standards and the application of the so-called Up-to-date Convention and ensure recommendations. The plants are to be operated with the best available technologies to protect workers, the environment and the climate. Internationally as well as within the EU, high requirements for technical safety must be observed, especially for operating systems.
In addition, European companies and importers must be obliged to comply with social and environmental due diligence along the hydrogen value chain and to assume responsibility for the global protection of human rights. In this sense, the EESC also emphasizes that: “Strategic extractivism from energy resources has a long-term adverse effect on the global energy transition and thus also on the energy transition in Europe. Instead, new approaches are needed to conclude international agreements on cooperation on climate and energy issues.”
Common European and socially just hydrogen policy
The Commission’s initiative to develop a European hydrogen market while reducing dependence on fossil fuels and reducing greenhouse gas emissions to a net-zero target by 2050 is to be viewed positively.
A joint procurement mechanism for hydrogen for specific applications could help to avoid intra-European competition and instead promote the development of a European hydrogen ecosystem.
When designing the allocation guidelines for funding from the European Hydrogen Bank, the focus should not only be on the cost efficiency of projects. Rather, security of energy supply, environmental compatibility, the preservation and promotion of high-quality jobs, forward-looking education and training, especially in the Net-Zero Industry Academies proposed in the Green Deal Industrial Plan, must be taken into account. The promotion and use of hydrogen should also only take place in conjunction with the expansion of renewable energy resources and should only be used where direct electrification is not possible.
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