Setting EU targets will not be enough to harness potential of hydrogen, says report

Setting EU targets will not be enough to harness potential of hydrogen, says report

European policy makers must think beyond EU targets to make the best use of the decarbonisation potential brought by hydrogen.

That’s according to a new study by experts from the Centre on Regulation in Europe (CERRE) that explores the economic outlook for renewable gases and hydrogen and makes proposals for an optimal regulatory framework.

Future markets for renewable gases and hydrogen: What would be the optimal regulatory provisions? confirms the market potential of hydrogen and biomethane in the EU but finds that the current production cost for both ranges from two to five times the current price of natural gas in the wholesale market.

In the absence of support, the report says this cost difference will likely impede their competitiveness.

The authors provide recommendations to help unfold hydrogen and biomethane’s potential in light of Europe’s decarbonisation objectives.

“Despite massive production potential in Europe, it is very unlikely that renewable gases and hydrogen will properly work their way through the market unless adequate support is put in place,” explain José Luis Moraga, Machiel Mulder and Peter Perey – the authors of the study.

“If European policy makers want to make the best use of the decarbonisation potential brought by hydrogen and renewable gases, they must think beyond EU targets and introduce cost-effective support schemes, increase their access to the grid, reinforce the transparency and interoperability of Guarantees of Origin and measure the impact of these policies over time.”

Recommendations

  • Set EU targets for biomethane by 2030 and 2050 and review them by 2028

Policy makers should set European-wide targets to help renewable gases and hydrogen enter the market. The biomethane EU market share should reach 10% by 2030 and between 30% and 50% by 2050, depending on the pace at which EU natural gas demand falls.

In addition, the report considers that natural gas sourced hydrogen based on carbon capture and storage (CCS) technology is the most cost-effective solution to date.

Indeed, renewable electricity-sourced hydrogen may hardly be competitive in the short run, due to the expected scarcity of renewable electricity in the system and the limited time for which electricity prices are sufficiently low.

The authors also recommend that all hydrogen produced by 2050 should be carbon-free. Finally, these targets should also be enshrined in the design of National Energy and Climate Plans to ensure their success.

  • Guarantee the traceability of renewable gases via a certification system

Standards for renewable gases should be set at European level, making certificates for the Guarantee of Origin (GOs) interchangeable between Member States and ensuring compatibility with the ETS.

Furthermore, the report recommends evaluating the transparency and market liquidity of the current mass-balancing approach which is used in the international trade of GOs.

  • Facilitate access to the gas infrastructure for renewable gases producers

Renewable gases facilities could be given a discount on fees for fixed network costs for accessing the gas network. They may also be given priority access in case of congestion.

  • Introduce support schemes to level the playing-field

The authors note that bio-methane and hydrogen would have greater chances to compete in the market with a strong CO2 price signal. They recommend that policy makers create production support schemes to foster the demand for renewable gases and hydrogen. These instruments should be competitive, tender-based, and incorporate mechanisms to adapt to cost developments.


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