The dreams of Europe’s green hydrogen investment are rapidly imploding as it collides with the cold truths of reality. Europe’s largest industry association has now come out with portentous news that promises to transform energy policy on the continent. In spite of having set ambitious targets and investing huge money into it, it now appears that Europe is headed towards a disastrous failure on the front of fulfilling its targets of producing renewable hydrogen.
EU domestic production falls dramatically short of regulatory demands
The statistics tell a very worrying story of Europe’s hydrogen plans against reality. According to Hydrogen Europe, total EU production of renewable hydrogen in 2030 stands at just 1.43 million tonnes per year against the drastically higher levels of hydrogen demanded by EU regulations. The EU’s revised directive on renewable energy, ReFuelEU Aviation, and FuelEU Maritime initiatives may generate demand for 2.8 million tonnes of annual production of renewable fuels of non-biological origin.
The needs of the transport sector by itself account for 1.5 million tonnes of it, whereas industrial uses like the production of ammonia and methanol may consume another 1.3 million tonnes. Although the targets for industry have been termed “very uncertain” by Hydrogen Europe due to member states’ reluctance to bind companies to them, such targets may still be realized.
The industrial sector faces exemptions and plant closures
Certain EU member states are already moving away from a strong industrial hydrogen requirement. The Netherlands has derogated around 60% of its total ammonia production from the proposed requirement, and further potential closure of plants may lower industrial demand for renewable hydrogen.
The import agreements are grossly inadequate to meet the shortages
According to Hydrogen Europe, it appears that the EU is likely to miss the 2030 target of green hydrogen by more than 90% as the target binding import agreements only constitute 25,000 tonnes of annual import of hydrogen in the form of ammonia. The binding agreement only stands at below 1% of the estimated demand.
Five countries alone – Spain, Portugal, Denmark, Sweden, and Finland – are expected to have enough domestic supplies to cover the demand. Huge shortages in the supply of carbon credits threaten the manufacturing capabilities of major industrial nations such as Germany, Belgium, and the Netherlands. The disparity may jeopardize the overall structure of the European Green Deal.
Nations with the largest gap:
- Germany: Huge industrial demand outstrips home capacity
- Belgium: Limited renewable energy resources constrain production
- Poland: Coal-driven energy sector hinders hydrogen transition
- Netherlands: Industrial exemptions lower aggregate demand.
The regulatory framework creates an uncertain investment environment
The complexity of the hydrogen regulatory framework in Europe is discouraging important investments. The member states are reluctant to impose specific duties on industrial actors since they may compromise the position of these sectors against neighboring nations that have lower duties. The result is that it’s difficult for investors to get funds for hydrogen projects.
Hydrogen Europe argues that in order for the EU to have a chance to meet the targets set, it needs to speed up administrative procedures for authorization and improve financing infrastructure, as well as EU-wide interconnections. These changes in structure face a problem of political consensus that seems difficult to achieve.
Critical reform agendas include:
- Accelerated permitting for hydrogen projects
- Improved cross-border infrastructure connectivity
- Better financing models for widespread implementation
- Standardization of regulations by member states
The hydrogen strategy of Europe looks set to fail catastrophically, with an overall level of hydrogen production seen as being more than 90% below that set by regulations by 2030. Europe now confronts a stark choice: either it needs to accelerate hydrogen infrastructure at an almost unbelievable pace, or it simply accepts that it won’t meet climate targets.