Europe at risk of losing green hydrogen funding to the United States, says industry leader

Europe will struggle to meet its ambitious green hydrogen targets and reduce its dependence on Russian gas unless it can match the lead of the United States with its new climate subsidy program, said Australian billionaire Andrew Forrest’s clean energy executive.

Mark Hutchinson, recently appointed director of Fortescue Future Industries and former director of GE Europe, said funds intended to finance large-scale green hydrogen projects could bypass Europe and flow to the United States to take advantage of the credits. taxes offered in Joe Biden’s flagship product. climate, tax and health care bill, known as the Cut Inflation Act.

In his first interview since early July, Hutchinson said if Brussels was serious about replacing Russian gas, it would need to improve its incentives. “If not, what will happen? All the green capital is going to flow into the United States and you’re just going to miss it,” he said.

Green hydrogen uses renewable energy to separate oxygen and hydrogen atoms from water, using electrolyzers. It is a key part of the EU’s plan to reduce its dependence on Russian gas, but it has not yet been produced on a large scale due to the cost of production and transportation problems.

Fortescue reached a non-binding agreement in March to supply Germany with enough green hydrogen to replace around a third of its gas imports from Russia, or 5 million tonnes per year by 2030. This agreement involving German energy company E.ON is a priority after for the first time the task of manufacturing green hydrogen on a large scale, Hutchinson said.

Under its new energy plan, dubbed RepowerEU, Brussels plans to use 20 million tonnes of clean-burning fuel by 2030. This will be split between 10 million tonnes of domestic production and 10 million tonnes of imports from countries with the potential to produce cheap renewable energy, such as Australia, Democratic Republic of Congo and Brazil.

Although there are many large hydrogen projects planned for Europe, final investment decisions have only been made for a few. This partly reflects a need for more clarity on regulations and subsidies to make the cost of green hydrogen competitive, as well as a lack of engaged customers.

Although the EU has announced plans for a green hydrogen subsidy based on contracts for difference – a mechanism that has been used to support renewable energy production by guaranteeing a minimum price – it has yet to defined all the details.

Unlike Washington’s concession to the oil and gas industry that will produce hydrogen from fossil fuels for hydrolysis, Brussels favors renewable energy.

Under its so-called delegated acts, by 2026 it will only be permitted to use electricity from new wind and solar power plants to produce green hydrogen.

US rules are more flexible, using a scale to determine the level of tax credit for hydrogen projects based on the amount of carbon equivalent emissions for each kilogram produced, from a base rate of 60c per kilo.

This scale means that producers of clean hydrogen can receive tax credits of up to $3 per kilogram. Experts say the measures will revive the nascent green hydrogen industry in the United States, making it one of the cheapest producers in the world. The cost of hydrogen production on the US Gulf Coast was $6.55 per kilogram at the start of the month, according to S&P Global Commodity Insights.

It will also make green hydrogen more competitive with so-called gray hydrogen, the most common form of hydrogen production. This process involves natural gas via steam methane reforming, without capturing emissions. S&P says the cost reduction makes the cheapest clean hydrogen production “immediately competitive”.

Over the past year, Fortescue has entered into green hydrogen supply deals worth billions of dollars, but has yet to begin commercial production of the fuel. “The United States was a game changer,” Hutchinson said. “They created an industry out of nowhere.”

The United States currently produces about 11 million tons per year of hydrogen from natural gas for oil refining and chemical production. “All of that is going to be replaced now,” Hutchinson said. Global hydrogen demand in 2021 was 90 million tonnes, according to the International Energy Agency.

The colors of the hydrogen rainbow

green hydrogen Made using clean electricity from renewable energy technologies to electrolyze water (H2O), splitting the hydrogen atom it contains from its molecular twin, oxygen. Currently expensive.

blue hydrogen Produced from natural gas but with carbon emissions captured and stored or reused. Negligible quantities in production due to a lack of carbon capture projects.

gray hydrogen It is the most common form of hydrogen production. It comes from natural gas via steam methane reforming but without capturing emissions.

brown hydrogen The cheapest way to make hydrogen but also the most environmentally damaging due to the use of thermal coal in the production process.

Pink/Purple Hydrogen Manufactured using nuclear energy to power electrolysis.

turquoise hydrogen Uses a process called methane pyrolysis to produce hydrogen and solid carbon. Not proven on a large scale. Concerns about methane leaks.

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