Energy Outlook 2025: Hydrogen

Green and low-carbon hydrogen are emerging as crucial players in the transition to sustainable energy. As the world seeks to meet rising energy demands while addressing climate change, hydrogen offers a promising alternative to fossil fuels.

Green hydrogen: A promising solution for meeting global energy demand and contributing to climate action goals

Green hydrogen, produced by splitting water molecules into hydrogen and oxygen using renewable electricity, shows significant promise in meeting global energy demand while contributing to climate action goals. Although it is currently more expensive than fossil fuels, the number of low-emissions hydrogen projects reaching FID doubled in 2024, indicating a growing commitment to low-carbon fuels and their derivatives.

In the years to come, low-carbon hydrogen will play a more prominent role in the shift to renewable energy than renewable hydrogen, emitting significantly fewer emissions than fossil fuels. However, whilst low-emission hydrogen will remain costly in the near term, prices are projected to decrease considerably by 2030. This exciting area of development within the energy industry presents opportunities for companies to contribute to a sustainable future.

The EU's draft methodology for low-carbon hydrogen and fuels

The EU's draft methodology for low-carbon hydrogen, leaked in the summer of 2024, is a crucial step in evaluating the emission savings of low-carbon hydrogen and fuels. A call for feedback on the draft methodology was launched in the autumn of 2024, allowing stakeholders to provide input and shape the final regulation. The methodology will be a delegated regulation, required under the revised EU Hydrogen and Gas Market Package that entered into force in the summer of 2024.

The certification framework for low-carbon fuels, according to the draft regulation, aligns fully with the certification framework set out in the EU Renewable Energy Directive. Raw materials used in the production of low-carbon fuels and the fuels themselves will be traced via the EU database, differentiating between individual batches of fuels and raw materials based on the methane performance profile of the supplier. The draft text supplements existing rules for renewable hydrogen and fuels of non-biological origin, aligning with the methodology for life cycle assessment of total GHG emissions.

Feedback from the Commission's consultation will inform their deliberations on the final text, ensuring the regulation reflects the needs and concerns of stakeholders. Once finalised, the text of the delegated regulation will undergo a two-month review period by the European Parliament and the Council of Ministers. If neither object during this time, the delegated regulation will be officially published in the Official Journal of the EU and enter into law. This process highlights the EU's commitment to creating a transparent and effective framework for low-carbon hydrogen and fuels.

The vital role of certification schemes in ensuring sustainability and mitigating risks in the global hydrogen market

Certification schemes are essential in providing assurance to consumers and regulators that internationally traded hydrogen meets sustainability requirements. This assurance is vital in mitigating risks in global markets and ensuring that hydrogen derivatives can be shipped across continents. As such, certification schemes may become increasingly necessary to verify the attributes of these derivatives, particularly as transporting gaseous green hydrogen over long distances poses technical challenges due to its low volumetric energy density.

Regulatory frameworks may evolve to set requirements for acceptable greenhouse gas emission levels associated with the production of "green" or low-emission ammonia or methanol. The EU has been at the forefront of introducing comprehensive sustainability criteria for green hydrogen and its derivatives, requiring producers to demonstrate a 70% emission saving relative to fossil-derived benchmarks. Producers must also demonstrate that the renewable energy used for hydrogen production is newly generated and fulfils requirements of temporal and geographical correlation with the electricity production plant, ensuring that the electricity was specifically generated for hydrogen production. These rules apply to both EU producers and those outside the EU seeking to export hydrogen to the region.

While several other countries and regions have established hydrogen regulations with similar emission accounting methodologies, allowable emission thresholds vary across these regulations. As a result, producers may need to comply with multiple, differing standards when considering exports. This highlights the importance of harmonising regulations to facilitate the growth of the global hydrogen economy.

The future of low-emissions hydrogen: Challenges and opportunities for growth

Based on announced projects, low-emission hydrogen production could reach 49 Mtpa by 2030, with an increasing number of projects reaching FID, indicating a fivefold rise in production by 2030 compared to today. However, the majority of this potential production remains in the planning or earlier stages, requiring an unprecedented compound annual growth rate of over 90% from 2024 until 2030 for the entire pipline to materialize. This growth rate far exceeds that of other sectors, such as solar PV during its peak growth periods.

Governments have announced approximately €90 billion in policy support over the past year to promote low-emission hydrogen, with funding directed toward supply 50% higher than that aimed at stimulating demand. To support investment on the supply side, stronger government action will be needed to drive demand for low-emission hydrogen. Industrial hubs, where low-emission hydrogen could replace current high hydrogen demand met by fossil fuels, remain an important untapped opportunity for governments to stimulate demand.

Where policies such as quotas, mandates, and carbon contracts for difference have been introduced, their implementation remains limited in scale and geographical coverage. To fully realise the potential of low-emission hydrogen, governments must take more ambitious and coordinated action to support the growth of this critical sector. Through a combination of funding, policy support, and demand-side measures, low-emission hydrogen could play a significant role in meeting global energy demand while supporting climate action goals.

The EU's Hydrogen and Gas Market Package: A framework for decarbonisation and sustainable energy transition

The EU‘s Hydrogen and Gas Market Package, comprising a new directive and regulation, was published in the EU Official Journal on 15 July 2024 and entered into force on 5 August 2024. The Commission has 12 months to clarify the definition of low-carbon hydrogen through a delegated regulation, although it aims to implement the rules sooner. EU member states have until 5 August 2026 to transpose the directive’s new rules into national law.

The package builds upon other legislation promoting the decarbonisation of the EU, particularly through the extensive use of renewable (and low-emission) hydrogen, and aims to achieve the ambitious target of a carbon-neutral EU by 2050.

The package does not place sustainability above security of supply and consumer protection, which may lead to some ambiguity regarding the treatment of certain types of energy. For instance, the definition of low-carbon hydrogen does not explicitly allow for the inclusion of hydrogen produced with nuclear electricity.

The new legislation seeks to promote the use of low-carbon and renewables gases by enhancing the efficiency of the hydrogen, low-carbon gas markets and providing incentives for stakeholders to transition away from fossil fuels. The key elements include certification, blending into the natural gas system of up to 2% by volume, modification of natural gas and hydrogen infrastructure to build integrated networks at EU level, infrastructure development, i.e., network development and integrated networks at EU level, phasing out of long-term contracts for fossil gas, horizontal (HTSOs), vertical ownership unbundling, security of supply and consumer protection.

Through this package, the EU is taking significant steps towards a more sustainable and decarbonised future, providing a framework for the growth of low-carbon hydrogen and renewable gases while ensuring security of supply and consumer protection.

Sustainable Aviation Fuel (SAF): A promising solution for reducing CO2 emissions in the aviation sector

SAF is emerging as one of the most promising solutions for reducing CO2 emissions in the aviation sector in the near to mid‑term, while still utilizing the existing global aircraft fleet. Even after alternative clean propulsion technologies are introduced, SAF is anticipated to remain significant in the future. Currently certified SAFs generate approximately 80% less GHG emissions compared to conventional jet fuel, making them a vital component in achieving global emissions reduction targets.

The ReFuelEU Aviation Regulation, promotes the increased use of SAF as the most effective measure to reduce CO2 emissions in the aviation sector in the EU. The measure is part of the EU Commission’s Fit for 55 package aimed at achieving a 55% emissions reduction target by 2030. The regulation establishes requirements for aviation fuel suppliers to progressively increase the propotion of SAF blended into the conventional jet fuel taken on-board aircraft at EU airports. The introduction of SAF in other jurisdicitons, such as the US, is also gaining traction.

The definition includes synthetic aviation fuels from renewable hydrogen and captured carbon, advanced biofuels from waste and residues, biofuels produced from oils and fats and recycled carbon aviation fuels. Aviation fuel suppliers may choose to meet the minimum shares by utilizing renewable hydrogen for aviation or synthetic low-carbon aviation fuels and low-carbon hydrogen produced from non-fossil sources and meeting the lifecycle emissions savings threshold of 70%.

As the aviation industry moves towards a more sustainable future, SAF is emerging as a crucial component in reducing CO2 emissions in the sector. The ReFuelEU Aviation Regulation and similar initiatives in other jurisdictions are laying the foundation for a cleaner and more sustainable aviation industry.

Global initiatives and EU auctions drive hydrogen and ammonia adoption

Korea and Japan are promoting the use of hydrogen and ammonia in the energy sector, with companies moving forward with several major demonstrations. The governments have established the first auctions for hydrogen and ammonia‑based electricity generation. The EU has also accelerated its hydrogen ramp-up with EU-wide renewable hydrogen auctions, with the winners of the first auction signing grant agreements in October 2024. The Innovation Fund will support these projects, with a fixed premium payment per kilogram of certified and verified renewable hydrogen produced. From the date of the grant agreement signature, the projects have up to five years to commence renewable hydrogen production. Drawing from the experience of this pilot auction, the Commission intends to initiate the second renewable hydrogen auction through the Innovation Fund by the end of 2024, with an increased budget of €1.2 billion.

Germany has announced plans for three tenders for hydrogenready or directly hydrogen-fired power plants with a total capacity of 24 GW. However, as part of the country’s power plant strategy, these plans were reduced to 12.5 GW in July 2024. 5 GW of new hydrogen-ready gas-fired capacity and 2 GW of hydrogen-ready retrofits for existing plants will be tendered in a first phase. New plants must switch to hydrogen after the eighth year of operation and existing plants following modernisation to hydrogen firing. Successful tender applicants will receive support with capital cost and operational subsidies to cover the cost difference between natural gas and hydrogen for 800 hours per year. Additionally, there are plans to support 500 MW of capacity that will operate immediately on hydrogen. The first tenders are scheduled for early 2025, with a second phase planned to tender an additional 5 GW of new gas-fired capacity.

These global initiatives and auctions demonstrate a commitment to driving hydrogen and ammonia adoption in the energy sector, laying the foundation for a cleaner and more sustainable future.