Guy Doyle, chief energy economist
Building a hydrogen-based energy economy requires changes across the sector – from power generation to kitchen appliances. To initiate the transition, drive investment and sustain momentum, governments must co-ordinate policies spanning industry and society, and potentially transcending national borders.
Put the right policies in place and change follows. Policy measures have played a key part in expanding renewable power generation. They include carbon taxes, renewables obligation certificates, contracts for difference and feed-in tariffs (ROC, CFD, FiT). In the transport sector, cash support and tax breaks on new electric vehicles (albeit generally small) are playing a part in stimulating a switch to electric vehicles. The ongoing diesel NOx emissions scandal and bans on internal combustion engines in Norway (2020), Germany (2030) and France/UK (2040) will drive the transition faster.
Similar instruments can be used to advance the hydrogen economy. The most effective option – taxing oil and gas at the point of production and import – has not been considered feasible, because it would disadvantage European producers and worsen trade deficits. Instead, the emphasis has been on large point-source emitters, mainly in power generation and industry. They have in turn passed on costs to consumers.
Confusion at the top
Spring 2019 marked a turning point in social and political recognition of the need for urgent and thorough-going decarbonisation of the UK economy. Acknowledging that the world is in the grips of a ‘climate emergency’, signs are that the UK Government will commit to an accelerated reduction of national greenhouse gas emissions, with the object of cutting net emissions to zero by 2050. Detailed policy measures are urgently needed to enable the development of a zero carbon energy system.
There is also a part to be played by industrial policy, which has recently been used in the UK to help create a major manufacturing and supply chain for the offshore wind sector, underpinned by a hefty order book that stretches out to 2030 and beyond.
A secure future pipeline needs to be similarly created for hydrogen – which is a potentially key enabler of a wholly renewables-based energy economy. Germany and Japan are already leading the way on hydrogen as a result of their conducive industrial policies.
In terms of industrial policy, the EC recommends developing a power-to-gas sector, which should bring down costs, reduce curtailed renewables and link the gas and power markets (sector coupling). Central production of hydrogen from electrolysis and decentralised solutions providing stability to the grid should be incentivised. The EC is keen to get things moving. European network operators must provide an interlinked gas and power model as part of their 10-year network development plan, rather than separately as in the past (Brexit makes it unclear whether this will apply in the UK).
They will also have to assess where existing infrastructure could be used most productively in a possible future joint system, including the storage of hydrogen from ‘surplus’ renewable power, where this exists in the gas pipeline and storage network.
However, despite the ambitious plans of the EC, its powers are limited. It has so far not even been able to change current EU fuel tax rules, which apply tax according to volume, not energy content – which discriminates against hydrogen in transport. The EC tried in 2011 to get national governments to tax fuels based on their energy and carbon content but failed to get the unanimous approval needed.
China recently extended electric vehicle subsidies to hydrogen fuel cell electric vehicles. Similar policies here could play an important role in swaying consumer choices, as well as industry decision-making.