According to a new report by the International Renewable Energy Agency (IRENA), the rapid expansion of the global hydrogen economy could lead to significant changes in geoeconomics and geopolitics, creating a new wave of interdependencies.
Transforming the Energy Landscape: A Geopolitical Perspective New centers of geopolitical influence may emerge as traditional oil and gas trading declines as hydrogen production and use rises, according to The Hydrogen Factor, a new analysis of global energy markets.
By 2050, IRENA predicts that hydrogen will account for up to 12 percent of the world’s total energy consumption. Growing trade and targeted investments in a market that is currently valued at USD 174 billion is likely to boost economic competitiveness and influence the foreign policy landscape with bilateral deals that diverge significantly from the hydrocarbon relationships of this century..
“Hydrogen could prove to be a missing link to a climate-safe energy future”, Francesco La Camera, Director-General of IRENA said. “Hydrogen is clearly riding on the renewable energy revolution with green hydrogen emerging as a game changer for achieving climate neutrality without compromising industrial growth and social development. But hydrogen is not a new oil. And the transition is not a fuel replacement but a shift to a new system with political, technical, environmental, and economic disruptions.”
“It is green hydrogen that will bring new and diverse participants to the market, diversify routes and supplies and shift power from the few to the many. With international co-operation, the hydrogen market could be more democratic and inclusive, offering opportunities for developed and developing countries alike.”
According to the International Renewable Energy Agency (IRENA), by 2050, hydrogen could be traded across borders at a higher rate than natural gas. Hydrogen is being used as a platform for countries that have never previously traded energy to establish bilateral relations. In contrast to the geopolitical influence of oil and gas, hydrogen trade is unlikely to become weaponized and cartelized as more players and new net importers and exporters emerge.
Over 30 countries and regions are already planning to engage in cross-border hydrogen trade, and this number is expected to rise significantly. Japan and Germany, two countries that are expected to import hydrogen, are already using hydrogen diplomacy to their advantage. For countries that export fossil fuels but are looking to expand their economies through the use of clean hydrogen, such as Australia, Oman, Saudi Arabia, and the United Arab Emirates, this is becoming an increasingly attractive option. Hydrogen alone will not be sufficient to make up for the revenue lost as a result of falling oil and gas prices.
Hydrogen production has a technical potential far in excess of the estimated global demand. In order to produce competitive green hydrogen, countries that can generate cheap renewable electricity will be best placed. Even though countries such as Chile and Morocco import energy, they will soon be exporting green hydrogen. It is possible that the export concentration risk can be reduced by realizing the potential of regions such as the Americas, the Middle East, Africa, and Oceania, but many countries will require large-scale technology transfers as well as infrastructure and investment.
Clean hydrogen’s geopolitical implications will likely unfold in stages. The report predicts a fierce competition for technological supremacy in the 2020s. As a result, the market is expected to take off only in the middle of the century. By then, green hydrogen will be cost-competitive with fossil hydrogen around the world, with countries like China, Brazil, and India poised to happen even earlier. During the natural gas price spike of 2021, green hydrogen was already accessible in Europe. More demand for natural gas and easier trade in hydrogen are expected as a result of pipeline upgrades.
In countries with a lot of renewable energy resources, they could become centers of green industrialization by attracting energy-intensive industries to the region. A stake in the hydrogen value chain can also improve a company’s economic competitiveness. In particular, the manufacturing of electrolysers and fuel cells could be a boon to the economy. China, Japan, and Europe all have a head start on production, but new technologies will continue to reshape the industry.
Import dependence and price volatility can be reduced, while energy system flexibility can be increased through the use of green hydrogen. Material security concerns could arise from the raw materials required for hydrogen and renewable technologies. Hydrogen supply chain shortages and price fluctuations could have a negative impact on costs and revenues.
Geopolitical tensions could arise as a result of new rules, standards, and governance in the hydrogen industry. To prevent a widening of the global decarbonization divide and to promote equity and inclusion, aiding particularly developing countries to deploy green hydrogen technologies and advance hydrogen industries is essential.
