The opportunities and challenges of the hydrogen economy

According to the Intergovernmental Panel on Climate Change (IPCC), in order to limit the global rise of temperatures to below 1.5°C above pre-industrial levels, we should reach carbon neutrality by 2050. In 2016, 70% of greenhouse gas emissions originated from the energy sector, mostly attributable to transportation, buildings and industry. The use of renewable energies complemented with hydrogen as an energy carrier is often presented as the most promising substitute to fossil fuels

The attractiveness of hydrogen relies on its capacity to store energy and its clean combustion, where only water is emitted. Thus the only way hydrogen can contribute to carbon emissions is through the way it is produced. Today, most hydrogen is formed by steam methane reforming (SMR) of natural gas, releasing CO2 and is known as grey hydrogen. A less polluting alternative is blue hydrogen, where most of the generated carbon emissions are captured and stored. However, carbon capturing and storing (CCS) technologies are not yet available at a large scale and are costly. The only long-term option for a carbon-neutral hydrogen economy is green hydrogen, produced through the  electrolysis of water  using renewable energy, where an electrical current is used to split water into hydrogen and oxygen. 

Currently, 90% of the hydrogen demand originates from the industrial sector, 50% is used for ammonia, the backbone of the fertilizer industry1, 25% for petroleum refining, and it is also used in the electronic industry and for metallurgical applications. Hydrogen can further be used to produce numerous petrochemicals, such as methanol, and to recycle plastic via hydrogenation. Therefore, replacing grey hydrogen by green hydrogen represents a good opportunity to decarbonize multiple industries. 

On the other hand, the use of hydrogen could be extended to various other polluting sectors. In the steel industry, responsible for 8% of global greenhouse gas (GHG) emissions, hydrogen could replace liquefied natural gas and in the long-term could be a substitute for coal. It could also make the production process of biofuel from biomass more efficient. Adding hydrogen to the reaction reduces the quantity of biomass required in the process, thus alleviating the environmental impact of biofuel2. Moreover, blending natural gas with hydrogen in the existing grid would reduce the carbon footprint of heating3

One sector in particular has received a lot of attention for its conversion to hydrogen: the transport sector. Fuel cells convert hydrogen back to electricity that can be used to power an electric motor. The automotive sector has already begun its transformation, but hydrogen has had a rough start, mostly due to its lower overall energy efficiency compared to batteries. Volkswagen has estimated that only 30% of the initial energy can be transformed into forward motion by a hydrogen car, compared to 76% for a battery-powered car4. The use of hydrogen for cars also implies huge investments in refueling infrastructure covering road networks. Combined with higher costs of fuel, hydrogen-powered cars are not yet cost-effective. On the other hand, the higher energy density of hydrogen makes it a promising option for other transport sectors such as maritime shipping, aviation and heavy-duty trucks where battery application is not a viable option. It is expected that by 2060, the maritime shipping sector could be powered by up to 60% by ammonia and hydrogen-based fuels5. Fuel cells might also be provided for the heavy-duty transport sector, for above 500 km routes. However, aviation faces important technical challenges when it comes to the implementation of hydrogen. While the gas has a high power density per kg, it also has a low volumetric density. The use of hydrogen would bring substantial benefits considering the limited weight capacity of an aircraft, but it also means that a hydrogen-powered aircraft would need four times more space to store gas than standard kerosene aircrafts. Therefore, improvements in terms of design are needed to include sufficiently large hydrogen tanks. All these evidences suggest that batteries, biofuel and hydrogen should be thought of as complements rather than competitors in the transport sector.  

Currently in Europe, only 0.1% of hydrogen is produced from renewable energy. Clean hydrogen is three times more expensive to produce than blue or grey hydrogen, therefore, it is not yet being employed in hydrogen intensive industries. As we can see in the graph, electrolysis will become more cost-effective, but in the near future the costs will not go down enough to replace polluting hydrogen by natural market penetration. However, it is predicted that in the 2030s blue hydrogen ( SMR with CCS ) could reach cost parity with gray hydrogen (SMR without CCS), especially if carbon cost is considered, penalising the production of the latter. 

Figure : Hydrogen production cost evolution in the US and the European Union6.

An increase in carbon price will also contribute to making blue hydrogen a more cost-effective alternative compared to carbon-emitting fuels, thus allowing the expansion of hydrogen demand in the transport sector as hydrogen fuel. This market penetration will enable the future introduction of green hydrogen and the expansion of the demand due to the development of electrolysis capacity, distribution infrastructure, fuel cell technology, and production capacity. 

Following the publication of “A hydrogen strategy for a climate-neutral Europe” by the European Commission in 20207, several European countries have announced various public policies to foster and accelerate hydrogen use in the economy. As well-trained economists, the first policy that comes to our mind is carbon pricing, in order to bring forward the competitiveness of clean types of hydrogen. Another notorious tool is the implementation of quotas on emissions at the EU level. The European Commission advocates for a minimum threshold for clean hydrogen that would be added to the existing European Trading Scheme (ETS). Targeted demand policies are also being examined at the EU level, such as minimum clean hydrogen utilisation quotas that can be introduced in sectors that already use hydrogen. As mentioned earlier, the existing gas grid can be adapted to hydrogen, especially with the forecasted decline of natural gas demand in the coming years. The Commission has announced the creation of coordination bodies for the implementation and improvement of hydrogen networks, as well as several investment-facilitating entities. Many investments have been announced by various European countries, although it is not very clear how and where these investments will be targeted. Overall, if some agendas seem to arise from the various national strategies, most statements remain declarative: policies are neither quantified nor precisely planned. 

The European Commission has announced that hydrogen will be key in the Green Deal. Consequently, it is expected that by 2050 more than 180 billion euros will be invested from public funds. However, organisations, such as the Corporate Europe Observatory, an NGO, argue that the fossil fuel industry has been spending millions of euros on lobbying to obtain this announcement. Therefore, a part of the green deal could end up stimulating the use of polluting hydrogen produced with natural gas, disguised as a sustainable energy option.

Lastly, considering that the hydrogen economy comes hand in hand with an expansion of renewable energies, it is important to bear in mind the immense challenges that this entails. Clean energy production is still limited and has not yet been able to decarbonize electricity production. Moreover, its environmental impact in the form of habitat destruction and land-use problems should not be ignored.   

By Catalina Posada Borrero, Santiago García Benito and Noémie Martin


1 Ramachandran, R., Menon, R. K. (1998). An overview of industrial uses of hydrogen. International journal of hydrogen energy, 23(7), 593-598.

2 Mansilla, C., Avril, S., Imbach, J., Le Duigou, A. (2012). CO2-free hydrogen as a substitute to fossil fuels: what are the targets? Prospective assessment of the hydrogen market attractiveness. International journal of hydrogen energy, 37(12), 9451-9458

3 Dodds, P. E., McDowall, W. (2013). The future of the UK gas network. Energy Policy, 60, 305-316.

4 Volkswagen. 2020. “The Efficiency of Pure Battery-Electric Vehicles Is Much Higher” (Frank Welsch)’. Volkswagen Newsroom. 2020. 

5 IEA (International Energy Agency) (2020). Energy Technology Perspective.

6 Tlili, O., Mansilla, C., Frimat, D., & Perez, Y. (2019). Hydrogen market penetration feasibility assessment: Mobility and natural gas markets in the US, Europe, China and Japan. International Journal of Hydrogen Energy, 44(31), 16048-16068.

7European Commission (2020), A hydrogen strategy for a climate-neutral Europe.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s