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Even if European carbon prices treble to €200 ($236), hydrogen generated from renewable energy would still struggle to compete with fossil fuels in the absence of additional government help.

That is the conclusion drawn by Guidehouse consultants and released by the German think tank Agora Energiewende. To make the average renewable hydrogen project competitive with a fossil fuel alternative, they estimated that yearly subsidies of up to 24 billion euros would be required over the next decade.

Increasing the share of Europe’s polluting industry that runs on hydrogen is critical to the bloc’s goal of achieving carbon neutrality by the middle of the century. The analysis demonstrates the magnitude of the move away from polluting energy sources.

While hydrogen could help reduce carbon emissions from industries such as steel production, shipping, and aviation, producing it from renewable sources is far more expensive than producing it from natural gas, which is extensively used in oil refining and fertilizer production.

Even if the EU’s carbon price is increased to 200 euros by 2030, renewable energy would remain the least expensive way to manufacture hydrogen.

Costs are projected to decrease as demand for renewable hydrogen increases and the sector scales up. Several firms, including Denmark’s Haldor Topsoe AS and Norway’s Nel ASA, have calculated that hydrogen produced from wind or solar energy might be cost competitive with fossil fuel-based hydrogen as early as 2025.

While this may be conceivable at the most perfect places, Matthias Deutsch, senior associate at Agora Energiewende, believes it is unclear how much hydrogen might be produced at those locations. After 2030, the reliance on subsidies should begin to decline.

According to the study, how governments deploy funds for renewable hydrogen will be critical. To produce enough hydrogen to meet the many potential sources of demand, a large increase in green energy capacity will be required. It would be more efficient to use electricity directly wherever possible rather than converting it to hydrogen and so losing some energy.

Steel and ammonia production, long-haul aircraft, and long-term storage of renewable energy are among the least contentious applications for renewable hydrogen, according to Agora, because they do not require complete decarbonization. That is in contrast to passenger automobiles, light-duty trucks, and individual building heating, all of which can be decarbonized in means other than hydrogen.

Nedim Husomanovic

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