A transition path away from fossil gas — Climate Bonds Standard expands to Low Carbon Hydrogen Production
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 mobilise capital towards rapid decarbonisation of the high-emitting sectors.
Beginning today, Climate Bonds Certification is available for Hydrogen Production Projects and Entities.
More information, including the final criteria, is available at climatebonds.net/standard/hydrogen-production.
The Hydrogen Production Criteria
Climate Bonds Initiative convened a technical working group (TWG) with experts worldwide to offer advice on the criteria development process for low-carbon hydrogen production. Also, an industry working group (IWG) with representatives from the hydrogen industry, and investors, provided feedback on the applicability of the technical standards. A complete list of the TWG and IWG members for each sector can be found here.
The criteria involve two main components: the mitigation and the adaptation criteria.
The mitigation component includes criteria for:
- Decarbonisation measures within facilities producing hydrogen
- Production facilities dedicated to the production of hydrogen
- Entities that have hydrogen production operations
- SLB for hydrogen production projects
The criteria do not use a colour spectrum. They include most of the available technologies and feedstock that can reduce GHG emissions from hydrogen production and are aligned with the goals of the Paris Agreement. Regardless of the production pathway, an emissions intensity benchmark that decreases over time, aiming to reach net zero by 2050, has to be met. Further, additional requirements must be met for each decarbonisation measure or technology. For example, depending on the feedstock and electricity source, and when using CCS, and CCU infrastructure. These requirements aim to avoid potential sustainability issues.
The adaptation and resilience criteria apply the Climate Bonds Adaptation and Resilience Principles to the hydrogen industry. It includes a checklist to ensure that potential climate risks for hydrogen production projects and facilities are identified, that measures and strategies to reduce these potential risks are defined, and that monitoring, and evaluation programmes are in place.
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.
Emre Gencer, Principal Research Scientist, MIT Energy Initiative, and Hydrogen Criteria TWG Lead:
“Low carbon hydrogen will play a key role in decarbonizing hard-to-abate sectors. Current climate and energy policies presents unique opportunities to mobilize investments toward low-carbon hydrogen projects. CBI’s Criteria Document for Hydrogen is developed based on contributions from technical experts. Hydrogen criteria provide an overview of the key considerations and issues followed by strict quantitative thresholds to identify eligible projects.”
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 production 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.
Early next year, Climate Bonds will begin the process of establishing criteria for hydrogen transport projects and entities.
Low Carbon Hydrogen, a transition away from fossil gas
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 predict the price to reduce to USD 1-2 per tonne H2 prices in 2022, posing 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.
Additionally, large-scale installation of grid-connected electrolysers will need to be linked to new renewable energy generation; otherwise, they will increase fossil-powered electricity demand, hindering grid decarbonisation – planned electrolysers in the EU RED II would consume 50% of RED II planned renewable electricity supply growth and so hinder grid decarbonisation, unless accompanied by new dedicated renewables installations.
Joe Powell (PhD), Director, University of Houston Energy Transition Institute Hydrogen Criteria TWG:
“Hydrogen will play an essential role in transporting and storing energy. It can provide the energy and power density to move energy from resource-rich regions to 24/7 markets, and unlike synthetic hydrocarbon or bio-fuels, can be used in zero emission systems to improve air quality as well as reduce CO2 emissions.”
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.
Marta Lovisolo, Policy Advisor Renewable Energy Systems-Bellona and Hydrogen Criteria TWG:
"Additionality is the maker or breaker to ensure that hydrogen can complement the energy transition and not cannibalise it. Applying a standard that embraces it and makes it its cornerstone ensures that sustainable finance is directed only towards those projects that are actually achieving emission reductions and not are not moving them to another part of the energy system."
Thank you and acknowledgments
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,