EU Commission Proposes Subsidizing Green Hydrogen for Energy Transition

Energy transition: EU Commission wants to subsidize green hydrogen

The European Union (EU) Commission has announced a legislative package aimed at subsidizing the production of clean technologies and creating better investment conditions. The Net Zero Industry Act (NZIA) aims to create the conditions needed for industrial sectors to achieve the targeted net-zero emissions by 2050. The EU Commission has also put forward ideas for a European hydrogen bank that would be used to subsidize the production of renewable hydrogen. The bank would help overcome the chicken and egg problem where potential users of renewable hydrogen hold off on investments due to uncertainty around the availability of the gas, and hydrogen producers are reluctant to invest without enough demand.

The EU Commission has already announced the hydrogen bank as part of its industrial plan for the Green Deal. Pilot auctions for the production of climate-neutral hydrogen will begin in autumn 2023, where selected projects will be subsidized with a fixed premium for a maximum of 10 years of operation. Only 10% of hydrogen projects have currently made a final investment decision, posing a challenge to build hydrogen value chains and close the investment gap.

The hydrogen bank aims to mitigate the investment risk and close this gap by supporting renewable hydrogen producers who have the lowest support in euros per kilo of hydrogen produced. Frans Timmermans, Commission Vice President responsible for climate protection said the bank would take over the environmental premium and compensate the difference between the cost of producing green hydrogen and the price that the market is willing to pay. The exact amount of compensation will be determined as part of a tendering process.

The EU Commission wants to create a separate procedure for renewable hydrogen imported from outside the EU. The production of green hydrogen is expensive and requires significant financing, with most produced from electrolysis using renewable energies. The initiative has been welcomed as a positive turning point for the European hydrogen economy by Jorgo Chatzimarkakis, Managing Director of the Hydrogen Europe lobby group. However, Andreas Graf, from the Berlin think tank Agora Energiewende, assessed the initiative as a drop in a leaking bucket due to the higher financing requirement needed for larger quantities of green hydrogen.

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