In 2020, the European Commission published its Hydrogen Strategy with the aim to boost hydrogen use in the industry and transport sectors, while fostering the uptake of renewable hydrogen production. The new study “The potential of hydrogen for decarbonising EU industry” is taking stock of its realization by dedicated policy instruments based on a synthesis of literature reviews and expert interviews. The STOA also released a policy brief based on this study (linked below).

Large investments are needed, yet the uncertainty for investors is high

Hydrogen is an energy carrier with high costs. Therefore its use should be prioritized in areas where a direct electrification with renewable energy is not yet possible. But clear guidelines for hydrogen use cases are still missing, which leads to high uncertainty among investors. In this regard, the study suggests to establish a hierarchy of hydrogen uses.

Neither a European-wide hydrogen market nor a large-scale hydrogen network exist to this day. General rules for a future hydrogen market as well as infrastructure regulations are needed as soon as possible, the report finds. Otherwise potential market participants and operators of hydrogen infrastructure might hesitate to invest in this endeavor. The study finds that acceptance issues also need to be addressed in this context. Future policies need to support the participation of additional stakeholder groups, in particular parts of civil society across all European regions.

Legislation for hydrogen market diffusion is still missing

Another problem are the currently used support schemes, which are mainly tailored to demonstration projects. Additional schemes are needed for a rollout of hydrogen production and use. The trading of hydrogen both in the European markets as well as imports from non-EU-countries lack clear specifications of the traded products. Certification schemes are still under development, which need to establish stringent criteria for both renewable and low-carbon hydrogen, the latter includes also fossil production of hydrogen when combined with carbon capturing.

Policy options to foster investments, boost demand and scale up production

The study provides multiple policy options for each of the mentioned policy gaps in the realization of the EU Hydrogen Strategy. To foster investments in hydrogen markets and infrastructure, the report recommends the implementation of a dedicated target system. This could be implemented in different ways, e.g. with binding targets for Member States or an extension of the gap-filling mechanism for renewable energy targets.

The study identifies Carbon Contracts for Difference (CCfDs), a policy instrument to support the competitiveness of hydrogen technologies within the industry sector, as an important option for closing the financing gap for large-scale renewable hydrogen production. Companies who implement new production methods based on renewable hydrogen, which are more expensive than fossil-fueled alternatives, would be compensated.

Legislation on EU or Member State level?

The study evaluates three options for a supportive framework regarding market rules and infrastructure, aiming to ensure a quick expansion of hydrogen use while allowing a flexible infrastructure. The options range from full regulation at EU level to leaving the details of hydrogen regulation to the Member States. The rules for infrastructure legislation on the EU level could be similar to the existing gas infrastructure legislation, with clear rules for unbundling and third-party access, but might leave room to experiment for a limited period, e.g. with respect to system operators and the remuneration of costs.

Putting Europe ahead in hydrogen technologies

Furthermore, the study underlines the importance of an improved innovation strategy in hydrogen technologies. To speed up the conversion of scientific insight into economic success, a dedicated research and innovation framework beyond Horizon Europe, enhanced support across existing programs or easier ways for the Member States to support the deployment of hydrogen technologies might be needed.

Dr. Jakob Wachsmuth, senior researcher in the Competence Center Energy Policy and Energy Markets at Fraunhofer ISI and lead author of the report concludes: »The upcoming negotiations of the soon to be released Hydrogen and Decarbonized Gas Market Package is expected to address the policy gaps we identified to a certain extent. In the negotiations, policymakers may consider our comparison of policy options to ensure that the European Union is on track for the decarbonization of the industry sector to achieve its climate goals in the years ahead.«

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.