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Laying the foundations of a low carbon hydrogen market in Europe

How hydrogen can succeed as a cornerstone of the clean energy transition

The 2020s will be the pivotal decade for tackling climate change. If the Paris Agreement goal of limiting warming to 1.5°C and delivering net zero is to be achieved, this will now require a five times increase in the rate of global decarbonization (some 12%) every year until 2030. The creation of a low carbon hydrogen economy can play a critical role in accelerating this transition. Hydrogen is regarded by many as the ‘Swiss army knife’ of the green energy future with the potential to replace hydrocarbons in many applications and sectors where emissions are hard to abate. Hydrogen molecules can help store energy to support intermittent energy flows from renewables. It can act as a fuel in heating where electrification is not possible or not cost effective. And it can serve as a feedstock in power generation and in industrial processes requiring intense heat.

However, how can the significant potential of this green energy fuel be realized? After all, while the technology may be mature, the industry and supply chains are nascent and immature. Establishing a low carbon hydrogen economy will require a number of building blocks. These range from stimulating demand in target sectors to establishing a global trading market in hydrogen akin to the growth of LNG. And all this will need to be underpinned by a strong and enabling regulatory framework implemented by governments in order to seriously pursue the EU goal of a low carbon hydrogen economy.

The current and potential hydrogen market

Low carbon hydrogen is widely acknowledged as an abundant, clean, versatile and convenient energy carrier and as a result, it is now regarded as a key part of the energy transition. Hydrogen’s potential as a fuel source has been considered from time-to-time for decades, but without much progress. The recent commitments by countries and international organizations to curb and achieve net zero carbon emissions paired with the consistent scale up of renewable capacities as well as the ongoing reduction of production cost of renewables have finally delivered the necessary impetus, particularly for low carbon hydrogen to be used as an alternative for natural gas.

Of course hydrogen is not something that has just been discovered. With 70 MtH2 produced a year, it is a market worth some $100bn. Demand largely comes from industrial customers and Asia is the biggest market (48%), followed by the Americas (22%) and Europe (18%). The refining and chemicals industries account for more than 80% of hydrogen demand. In refineries, hydrogen is used to lower the sulphur content of diesel fuel, so demand has been sustained by higher diesel consumption globally and stricter sulphur-content regulations.

Four building blocks to establish a low carbon hydrogen economy

Stimulating demand for low carbon hydrogen
Stimulating demand for low carbon hydrogen

As countries and industries increasingly look to low carbon hydrogen as a fuel source and feedstock, we expect a far more diverse customer base for hydrogen to develop. Different sectors will follow their own decarbonization pathway and timeline, depending on the maturity of low carbon hydrogen production technologies, the complexity of adapting their existing processes and the regulation and economic incentives available.

Stimulating the supply of low carbon hydrogen
Stimulating the supply of low carbon hydrogen

To accelerate the development of low carbon hydrogen and drive the displacement of hydrocarbons in energy-intensive industries, the top priority is to bridge the price gap between mature carbon-emitting technologies and newer, cleaner hydrogen technologies.

Connecting supply and demand - transportation and storage
Connecting supply and demand - transportation and storage

Hydrogen transportation is key to connecting demand and supply, all the more so because its energy density by volume is about one third of the value for natural gas, so more of it will need to be transported, particularly to high-demand industries.

Enabling regulatory frameworks underpinning the market
Enabling regulatory frameworks underpinning the market

While demand, supply and transport / storage are the core pillars of a hydrogen economy, these pillars need to be founded on a robust regulatory framework: Governments have a critical role to play by ensuring there is a hydrogen strategy in place, with clear targets and complemented by strategic investments and fiscal incentives.

It is likely that the fledgling low carbon hydrogen market will ramp up and take off by 2030, becoming cost-competitive in this decade. Governments, cities and corporates will all have a part to play, through partnerships, in making a hydrogen economy a reality in Europe.

Contact us

Laurent Saint Martin

Laurent Saint Martin

Partner, Strategy& France

Dr. Paul Nillesen

Dr. Paul Nillesen

Partner, Strategy& Netherlands

Adrian Del Maestro

Adrian Del Maestro

Director, PwC United Kingdom

Dirk Niemeier

Dirk Niemeier

Director, Strategy& Germany

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