IRA and higher gas prices erode blue hydrogen’s cost advantage

Policy initiatives such as the Inflation Reduction Act (IRA) and higher natural gas prices in Europe and Asia as a result of the Russia-Ukraine war have reduced the cost advantage between blue and green hydrogen in some countries, according to bp’s Energy Outlook 2023 report released today.

This cost differential is further eroded over the outlook as improvements in technology and manufacturing efficiency lower the price of both renewable power and electrolysers, the report states.

The outlook is based on three varying scenarios – Accelerated, Net Zero and New Momentum – and acknowledges low-carbon hydrogen plays a critical role in decarbonising the energy system, especially in hard-to-abate processes and activities in industry and transport.

The use of low-carbon hydrogen is most pronounced in Accelerated and Net Zero, complementing growing electrification of the energy system by acting as a carrier of low-carbon energy for activities that
are difficult to electrify. The lower degree of decarbonisation in New Momentum means low-carbon hydrogen plays a relatively limited role.

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