Low-carbon hydrogen will play a key role in decarbonising hard-to-abate sectors and transitioning the economy to a net-zero future. Climate Bonds is working to ensure that investors can identify credible projects in the hydrogen industry, and to help mobilise capital towards dramatic climate action. Public consultation is now open on new criteria for hydrogen investments, bringing the credibility of Climate Bonds to the exciting and essential hydrogen industry.
The public consultation period will close on 28th October. More information is available at climatebonds.net/standard/hydrogen.
Transition Finance: The roadmap to net zero
Climate Bonds is working to facilitate the wide-scale transition of the economy in line with net-zero targets. To do this, all sectors of the economy will adjust to operate effectively in a low-carbon economy. For many sectors - especially the high carbon emitting sectors - they may need to fundamentally reshape and transform their strategy in light of the challenges of a changing climate.
Hydrogen technologies will play a key role in reducing emissions in hard-to-abate sectors such as the steel industry. By establishing standards for hydrogen projects, as well as for high-emitting industries like steel, Climate Bonds is providing clarity to investors looking to support credible transitions, as well as demonstrating best practices for producers aiming to decarbonise their industries.
Low-carbon hydrogen: A transition away from fossil gas for hard-to-abate sectors
Even conservative estimates expect hydrogen to grow from 2% to 13-14% of the EU energy mix. This will need rapid scaling of low-carbon hydrogen. Global hydrogen investment 2020-50 could total USD15tn. The scale of hydrogen project announcements and these projects’ predictions of USD1-2/tH2 prices in 2022 show hydrogen poses a greater opportunity than expected.
However, immediate emissions benefits of hydrogen vary significantly from sector to sector. To ensure rapid emissions reductions by 2030, hydrogen use will need to be prioritised for sectors with the highest emissions reduction potential. For example, the use of hydrogen in steel production results in 98% emissions reductions, whereas in cement production, hydrogen could only address 1/3 of emissions. Given the expected scarcity of the resource, hydrogen deployment should be prioritised according to both impact and availability of other decarbonisation technologies.
Incremental change is not aligned with the need for rapid decarbonisation by 2030. The transition is threatened by the inefficient and regressive strategy of gas blending, from which a 5% by volume hydrogen blend only displaces 1.6% of fossil gas. Blending has limited emissions reduction potential and creates stranded asset risk and cost with the incremental retrofits/technology replacements required for increasing blending volumes. This can be addressed by policies incentivising transformational rather than incremental change.
Policy and Progress: A case study
Recently, the Hydrogen Breakthrough Ironmaking Technology pilot project demonstrated the tremendous strides that the industry is making with the opening of its first-of-its-kind green hydrogen storage facility. This project was highlighted in Climate Bonds’ recent policy paper A Green Future for Steel.
Hydrogen Breakthrough Ironmaking Technology (HYBRIT), launched in 2016, is a joint venture between SSAB, LKAB, and Vattenfall with financial support from the Swedish Energy Agency. It aims to use hydrogen instead of coal to eliminate around 90% of emissions in the steel production process. EUR136m have been invested in the pilot phase of the HYBRIT project. In 2021, HYBRIT delivered the first fossil-free steel made from hydrogen-reduced iron, and HYBRIT plans to bring fossil-free steel to volume production in 2026.
This facility has tremendous implications for hard-to-abate sectors, particularly the steel industry. The use of large-scale hydrogen storage means that the steel industry will have a more robust and plannable hydrogen supply from green electricity, even when the electricity system becomes more variable. This will enable the industry to make very efficient use of - in this Northern European case - wind power production and store the hydrogen when there is surplus of supply. This storage element is crucial because it allows the industry to use the stored hydrogen when the electricity system is under strain.
Criteria development process
To develop the hydrogen Criteria, the Climate Bonds assembled a Technical Working Group (TWG) that consisted of international experts from universities, multilateral-development banks and consultancies, led by a Lead Technical Consultant.
The output of the TWG was reviewed by an Industry Working Group with representation from industry stakeholders, investors and issuers.
A complete list of the TWG and IWG members for each sector can be found on the hydrogen page on Climate Bonds’ website.
The Climate Bonds extends its sincere thanks to the dedicated TWG and IWG members for their instrumental role in developing the Hydrogen Criteria.
‘Till next time,
Climate Bonds
