Europe risks losing green hydrogen funding to US, industry leader says
Europe will struggle to meet its ambitious targets for green hydrogen and reduce its dependence on Russian gas unless it can match the lead of the US set by its new climate subsidies package, says the executive leading the clean energy business of Australian billionaire Andrew Forrest.
Mark Hutchinson, the recently-appointed head of Fortescue Future Industries and former head of GE Europe, said the funds to finance large-scale green hydrogen projects could bypass Europe and flow to the US to take advantage of the tax credits offered in Joe Biden’s flagship climate, tax and healthcare bill, known as the Inflation Reduction Act.
In his first interview since starting in July, Hutchinson said that if Brussels was serious about replacing Russian gas it would need to improve its incentives. “Otherwise, what’s going to happen? All the green capital is going to be flowing into the US and you’re just going to miss out,” he said.
Green hydrogen uses renewable energy to separate oxygen and hydrogen atoms from water, using electrolysers. It is a key plank of the EU’s plan to reduce its reliance on Russian gas but has yet to be produced anywhere at large scale due to the cost of production and transportation issues.
Fortescue struck a non-binding agreement in March to provide Germany with enough green hydrogen to replace about a third of its gas imports from Russia, or 5mn tonnes a year by 2030. Fulfilling that agreement involving Germany energy company E. ON is a priority after first cracking the task of making green hydrogen at scale, Hutchinson said.
Under its new energy blueprint, dubbed RepowerEU, Brussels plans to use 20mn tonnes of the clean burning fuel by 2030. That will be split between 10mn tonnes of domestic production and 10mn tonnes of imports from countries with the potential to produce cheap renewable power such as Australia, the Democratic Republic of Congo and Brazil.
While there are many large hydrogen projects planned for Europe, final investment decisions have been taken on only a few. In part, that is a reflection of a need for greater clarity on regulation and subsidies to make green hydrogen cost competitive, as well as a lack of committed 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 generation by guaranteeing a minimum price — it has yet to outline all the details.
Unlike Washington’s concession to the oil and gas industry that will allow for hydrogen to be produced using fossil fuel sources of energy for the hydrolysis, Brussels favours renewable energy.
Under its so-called Delegated Acts, by 2026 it will only be permissible to use electricity from new wind and solar plants to generate green hydrogen.
The 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 kilogramme produced, starting at a basic rate of 60c per kilo.
This scale means that clean hydrogen producers can receive tax credits of up to $3 per kilogramme. Experts say the measures will kick-start the US nascent green hydrogen industry by making it one of the lowest cost producers in the world. The cost of producing hydrogen on the US Gulf coast was $6.55 per kilogramme earlier this month, according to S&P Global Commodity Insights.
It will also make green hydrogen more competitive with so-called grey hydrogen, the most common form of hydrogen production. This process involves natural gas via steam methane reformation, without capturing the emissions. S&P says the cost reduction makes the cheapest clean hydrogen production “immediately cost-competitive”.
Over the past year, Fortescue has agreed billions of dollars of green hydrogen supply deals but has yet to start commercial production of the fuel. “The US has changed the game,” said Hutchinson. “They have created an industry out of nowhere.”
The US presently produces around 11mn tonnes a year of hydrogen from natural gas for use in oil refining and the production of chemicals. “That’s all going to get replaced now,” said Hutchinson. Global hydrogen demand in 2021 was 90mn tonnes, according to the International Energy Agency.
The colours of the hydrogen rainbow
Green hydrogen Made by using clean electricity from renewable energy technologies to electrolyse water (H2O), separating the hydrogen atom within it from its molecular twin oxygen. Currently expensive.
Blue hydrogen Produced using natural gas but with carbon emissions being captured and stored, or reused. Negligible amounts in production because of a lack of carbon capture projects.
Grey hydrogen This is the most common form of hydrogen production. It comes from natural gas via steam methane reformation but without emissions capture.
Brown hydrogen The cheapest way to make hydrogen but also the most environmentally damaging because of the use of thermal coal in the production process.
Pink/purple hydrogen Made using nuclear energy to power the electrolysis.
Turquoise hydrogen Uses a process called methane pyrolysis to produce hydrogen and solid carbon. Not proven at scale. Concerns around methane leakage.
Climate Capital
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here