updated on 15 March 2022
QuestionIs the emerging hydrogen sector the key to achieving net zero?
In August 2021 the UK government released its long-awaited UK Hydrogen Strategy. The key message throughout the strategy was clear: hydrogen will play a pivotal role in helping the UK to fulfil its commitment to reach net zero by 2050. Reiterating the Hydrogen Council’s view that “Hydrogen is central to reaching net zero emissions”, it is evident that hydrogen is being increasingly recognised on a global level as having a key role in achieving net zero.
As the hydrogen sector gains momentum, there will be evolving regulatory regimes both nationally and internationally, that energy lawyers must stay abreast of. Awareness of the impact of legislative and regulatory changes on project structures and transactional arrangements will enable firms to navigate clients through uncertainty and support the hydrogen market as it flourishes.
How can hydrogen help to achieve net zero?
Clean hydrogen offers an invaluable opportunity to decarbonise the energy system and reduce CO2 emissions. A lightweight gas that can be found in water and hydrocarbons, clean hydrogen can be produced using low-carbon sources (eg, renewable energy and natural gas reforming alongside carbon capture technology).
On account of its versatility, hydrogen can:
It provides a solution to tackle emissions in ‘hard-to-abate’ industries, such as steelmaking, and its end uses include (but are not limited to) fuelling heavy duty vehicles in transport and as a raw material for power generation.
To reduce the cost implications associated with building new pure hydrogen networks and infrastructure, there is potential for existing natural gas pipelines to be adapted for percentage hydrogen blends with natural gas and studies investigating the ability of pipelines to be repurposed to create a more cost-effective method of hydrogen transportation.
Barriers to success and potential solutions
While hydrogen has the potential to play a key role in reaching net-zero emissions, major barriers must be overcome to support the market and enable the industry to grow. Just as achieving net zero requires firm commitment and global support, the success of the hydrogen market is equally reliant on international backing, significant investment and rapid acceleration. To stimulate deployment, which in turn can enable cost reduction, the UK government is proposing a price support mechanism based on a contract for difference structure or model. Other governments are also investing heavily in anticipation of the massive supply chain and employment opportunities that the hydrogen economy could produce.
Decarbonisation of hydrogen production
It is important to recognise that there is already a thriving hydrogen economy. Hydrogen is used extensively in industry but almost all of the hydrogen used at the moment is produced from reforming of fossil fuels which is carbon intensive. It has been estimated that the global production of grey hydrogen releases 830 million tonnes of CO2 per year.
Hydrogen’s decarbonisation and contribution to net zero relies on a rapid shift to low-carbon production. Low carbon hydrogen can be produced in two main ways:
Although green hydrogen is likely to become dominant in the future as renewable energy generation capacity increases, blue hydrogen with carbon capture, utilisation and storage is being promoted particularly in certain industrial cluster areas of the UK because it can be produced at very large scale. In reality, in the short term we are going to need as much hydrogen as we can get to establish a thriving market and support industry decarbonisation.
The UK Hydrogen and Fuel Cell Association has emphasised the pivotal role hydrogen will play in helping the UK achieve its net-zero targets; in the short term blue hydrogen will be the fastest way to deploy high volumes of low carbon hydrogen across the UK economy and in the long term it will support the acceleration of green hydrogen production.
The UK has already made progress on these clusters. Funding was announced for the HyNet project in the North West and a cluster centred around the Humber in the North East. Both projects intend to produce and distribute hydrogen alongside capturing carbon, transporting and storing it in disused oil and gas fields out at sea. There are many challenges to still overcome but there is no doubt that the clusters present a marvellous opportunity to stimulate industrial decarbonisation.
Lack of infrastructure
The mass production and use of hydrogen is dependent on the strength of its infrastructure. The development of infrastructure can be slow and investment must be scaled up to facilitate the production of hydrogen and stimulate demand. Widespread use of clean hydrogen will require:
To overcome the challenges created by a lack of infrastructure, the industry first needs to find appropriate ways of using existing infrastructure and upskill its workforces as the starting point to scale hydrogen and facilitate mass production.
In its UK Hydrogen Strategy, the government emphasised the pivotal role that blending hydrogen into the gas grid and hydrogen for heating networks will play on the development of hydrogen networks. Blending hydrogen into existing networks would encourage investment and significantly reduce the high capital costs of creating new hydrogen pipeline infrastructure.
Examples of projects in the UK that currently focus on the use of existing infrastructure include:
While the use of existing gas pipelines to facilitate the transportation of hydrogen would minimise disruption and reduce cost implications, blending hydrogen into existing pipelines requires regulatory governance; a framework for which does not currently exist in the UK.
Green hydrogen for example working in tandem with renewables such as offshore wind will also need infrastructure investment. With a support mechanism on the horizon, funders and investors are already sharing an eagerness to get involved.
While the government has reiterated its commitment to the development of the hydrogen sector, its emergence is still shrouded in uncertainty from a legislative and regulatory perspective. The UK does not have a well-defined legislative framework for hydrogen projects and an initial network regulatory framework is not expected to be in place until 2025 at the earliest.
The government must act to ensure the right regulatory framework is in place to support the deployment of clean hydrogen. For example, consideration will need to be given to:
It will be interesting to see whether hydrogen’s long-term potential is realised to its fullest extent or whether the barriers discussed continue to hinder its growth.
While there is little doubt that hydrogen will be a key component in achieving net zero, it would be an oversight to consider its importance in isolation. Clean hydrogen must be developed alongside other decarbonisation technologies (eg, renewables and biofuels) to propel the UK on its trajectory towards a low-carbon economy.
Burges Salmon LLP is extensively involved in net-zero projects, including hydrogen projects, within the UK and worldwide.
Laura Callard is a fourth-seat trainee solicitor in the projects department at Burges Salmon.