It has now become commonplace for commentators to argue that climate change is an even greater threat to our future wellbeing than the pandemic. This has added to its potency as a factor shaping any forward look at the energy sector. There are now animated discussions in every major capital on the planet about the energy transition as country after country declares its intention to make its energy system carbon neutral by mid-century.

Climate change is now a mainstream political issue. The election of President Biden completed its transfer from the margins to the centre of the global agenda. He will return the US to the Paris Agreement and has already made it clear that it is one of his Administration’s top four priorities. Since the science of climate change is no longer challenged, the energy sector’s future is now the principal focus of that political attention.

Britain will host the G7 meeting this year. It is also hosting the COP26 postponed from 2020. This gives it a distinctive responsibility for accelerating the reduction of carbon emissions, and thus propelling the energy transition. The political price of such prominence is that its own progress on the transition will come under searching scrutiny.

The recent publication of the Prime Minister’s ‘Ten Point Plan for a Green Industrial Revolution’ anticipates that scrutiny. It sets out the main elements of his approach to meeting Britain’s legally binding commitment to achieve net zero greenhouse gas emissions by 2050. Driving the growth of low carbon hydrogen was the second point in the plan. There was little detail in the plan and less money but there was an ‘aim’ to develop 5GW of low carbon hydrogen production by 2030.

Britain, a little behind the beat, is thus joining the EU, Japan, Germany and a host of other countries seeking to be part of the clean and green hydrogen economy of the future. The £500 million announced in the Ten Point Plan will, however, deliver rather less hydrogen than the German commitment of €9 billion. No-one could fault the ambition of the promoters of this beguiling prospect. Were even the currently announced plans to materialise, the world would go from producing a few hundred kilotons of hydrogen a year today to well over ten thousand kilotons within the next decade or so.

Hydrogen is clearly seen by its promoters as the low carbon superfuel of the future. It is storable and flexible and has a relatively high energy density. Its combustion does not damage air quality making it healthier. It could, conceptually, do much of the work currently done by fossil fuels and can reach some of the places it is difficult and expensive to reach with renewables. Furthermore, in a hydrogen economy there could be none of the geopolitical constraints on access that so complicate the fossil fuel economy.

Hydrogen comes in many colours depending on how it is made. Green hydrogen from the electrolysis of water by renewable electricity. Blue hydrogen from the steam reforming of natural gas coupled with carbon capture and storage. Grey if it is made from natural gas without carbon capture. Black or brown if coal or lignite is the source. Or purple, pink or yellow, there is no agreed colour yet, in the unlikely case that nuclear is used. There is now much discussion of the relative merits, costs and availability of green and blue hydrogen.

The increasingly urgent need to accelerate the energy transition this year will subject this colourful kaleidoscope of supply and possible demand options to a more searching examination than hitherto. There are already a number of warning flags flying: hydrogen is bulky and expensive to transport, its use is often costly and inefficient and the value chains and infrastructure to support the widespread use of hydrogen are immature; there are unaddressed safety and public acceptability issues, especially in relation to any domestic uses.

This alone raise the possibility that these operational issue will constrain the real world role of hydrogen in a net zero energy system to specific niches. These might include aviation and shipping for example, or specific industrial uses, or in specific locations. But there are more strategic reasons to wonder if the real world of beyond 2030 will much resemble the one currently visible in the promotional kaleidoscope.

Climate change is unlike any other public policy challenge. It is time constrained. Success means not only getting to a specific point, a net zero energy system, but also getting there by a specific point, 2050 or thereabouts. Getting to net zero after the middle of the century amounts to climate policy failure. Furthermore, the effort to get there is no longer driven only by government policy. Since Mark Carney identified climate change as a risk to macro-economic stability in 2015, the central banks have been rewriting the rules by which it judges the exposures of financial institutions and corporations to climate change.

This creates additional complexity to assessments of the outlook for hydrogen. Those projects from the hydrogen kaleidoscope that will attract sustained investment will be those that can chart a path to delivery between the not always aligned interests of governments and financiers. They will need to be robust to both the political vagaries of governments and the relative inexperience of investors in pricing climate risk. Hydrogen at the scale envisaged by some is a late entrant into the race for a place in the energy transition. A more modest offer may be more successful.

Tom Burke & Lisa Fischer

December 1st 2020.
This article was first published in Petroleum Economist