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Among scores of new and updated policies, Fit for 55 would
expand the EU Emissions Trading System
(ETS) to include aviation and shipping (and, eventually, the
building sector), and it would create a related ETS Innovation Fund
to promote green projects that include hydrogen, among others. The
draft regulations, announced earlier this month, await approval by
the European Parliament and the EU Council.
"This package mainly deals with renewable hydrogen; the
exemptions are the taxation directive and ETS that deal with all
types of hydrogen. The important framework for non-renewable
hydrogen is to come as part of the gas package at the end of the
year," said Michaela Holl, EU Green Deal project lead at think tank
Agora Energiewende, referring to the Fit for 55 directive that has
yet to be proposed for regulating competitive decarbonized gas
markets.
Holl identified a few key elements under Fit for 55:
Industry: A targeted 50% share for renewable fuels of
non-biological origin (RFNBO) in energy and feedstocks by 2030,
excluding production of oil products. Hydrogen fits in this
category.
Transportation: Amendment of the regulation setting CO2
emission standards for cars and vans, known as the Renewable Energy Directive
(RED). The revised RED stipulates a 2.6% target share of RFNBOs
in transportation by 2030, with a preference for use in the
aviation and maritime sectors.
Aviation: Revision of the EU ETS to include a 2% target share
of sustainable aviation fuel (SAF) by 2025. SAF is often made from
hydrogen, Holl said.
ETS Innovation Fund: Supports projects to produce and use
hydrogen, especially in industrial settings.
"All of the above instruments will naturally create a guaranteed
market for hydrogen in those sectors, and with this allow upscaling
and investments," Holl said.
One missed opportunity noted by Holl is that the Energy Taxation
Directive taxes renewables and low-carbon hydrogen at the same
level through 2033. This part of the proposal "does not echo the
strong priority in EU hydrogen strategy for renewable energy
source-based production. So, it will not help narrow the cost gap
between blue and green hydrogen," she said.
Infrastructure
Building the infrastructure for vehicular use of hydrogen is
another key part of Fit for 55, said International Council on Clean
Transportation (ICCT) Hydrogen Lead Stephanie Searle.
The revised Alternative Fuels Infrastructure Directive calls for
hydrogen refueling stations at least every 150 km on highways for
compressed hydrogen and every 450 km for liquid hydrogen by 2030,
she explained.
"The new requirement for hydrogen refueling stations will
probably be the most impactful part of the Fit for 55 package in
terms of promoting increased use of hydrogen in transportation. The
lack of available refueling stations is currently a major barrier
to the penetration of fuel cell electric vehicles," Searle
said.
From the US, hydrogen refueling entrepreneur Raghu Kilambi, CEO
of PowerTap, looked on the infrastructure support with some envy.
"The EU is laying a framework for a potential trillion-dollar
hydrogen infrastructure to be in place within the next few decades.
If the US does not do something similar, we will fall behind in the
critical energy field," he told Net-Zero Business Daily on 21
July.
PowerTap is seeking to install hydrogen supply points at
hundreds of truck stops across the US in the next five years,
providing "blue hydrogen" made from natural gas that is processed
onsite.
Green hydrogen for industry
In the EU's program, "green hydrogen" made from renewable
natural gas or through an electrolysis process using renewable
power is the favored fuel.
One of the key parts of the plan to fuel green hydrogen's
growth, according to Agora Energiewende Senior Industry Advisor
Oliver Sartor, is the use of Carbon Contracts for Difference
(CCfDs). "The introduction of CCfDs as a new mechanism under the
Innovation Fund is a very positive step by the Commission," he
said. "It recognizes the economic challenge currently faced by
certain breakthrough industrial technologies that they often have
higher overall production costs than their conventional,
high-carbon, counterparts."
However, for the steel-making and cement industries, and for
certain basic chemicals, like ammonia, olefins, and methanol,
Sartor said that hydrogen is more costly than conventional fossil
fuels.
Carbon allowances would have to reach €80-€200/mt for renewable
hydrogen to break even compared with processes using fossil fuels,
he said.
Holl agreed, saying: "It should be clear that not even an ETS
price in the range of €100-€200 ($118-$235) would always fully
close the gap for green hydrogen without additional support."
The current allowance price is about €50-€52, according to the
OPIS price service.
This is the problem the CCfD instrument tries to fix, Sartor
explained. "In effect, the Innovation Fund's CCfD would pay
projects that produce these goods using climate neutral or
ultra-low carbon technologies a premium to cover the cost gap
between the CO2 price in the ETS and the breakeven production
cost," he said.
The payment fluctuates as the carbon allowance price changes,
with the CCfD falling as the carbon price rises to the breakeven
level. "The principle is a lot like how renewable energy feed in
premia have worked—very effectively—in the power sector for
wind and solar, until their costs came down," he said.
For industries that are high emitters of carbon, CCfDs might be
the final piece of the puzzle to encourage a new way of operating,
said Sonke Godeke, energy partner at law firm Pinsent Masons, who
advises on energy projects with a particular focus on renewables
and cleantech.
"Despite rising costs, such as those associated with purchasing
emission certificates, it is currently cheaper for many branches of
industry to continue production by using old, emissions-intensive
processes and to accept additional costs for the resulting
emissions than to invest in a more climate-friendly transformation
of their production processes," Godeke said. "Therefore, CCfDs have
the potential to accelerate the market introduction of and
investment in climate-friendly processes in the raw materials
industries by insulating industry from the operational cost
differences."
It's all about certainty, he said, adding: "Further, CCfDs can
offer adequate security of revenues and, by this, enhanced planning
security."
The green hydrogen principle also could come into play for
vehicles, said ICCT's Searle.
"The Renewable Energy Directive should, hopefully, at least
ensure that any hydrogen used in transport is renewable, rather
than produced from fossil fuels. This is important, as fuel-cell
electric vehicles operating on hydrogen produced from steam methane
reforming only slightly reduce lifecycle greenhouse gas emissions
compared to diesel or gasoline cars, and only the use of renewable
hydrogen delivers deep GHG reductions," she said.
Under the proposed new rules, hydrogen fuel-cell vehicles would
rate as zero-emission vehicles, another boost. But they still have
to compete with battery EVs, which have a significant cost
advantage right now.
Leadership
Despite the uncertainties in the legislation and the challenges
ahead in bringing large volumes of hydrogen to the market, there is
an agreement that the Fit for 55 proposals are moving the EU in the
right direction.
"The EU has come one step closer to becoming a global leader in
hydrogen development. By putting targets on the use of hydrogen in
industry and transport the EU stands a real chance to achieve
climate objectives, create thousands of jobs, and protect its
industry," said Jorgo Chatzimarkakis, secretary general of industry
association Hydrogen Europe.
"Europe has been looking at this longer and harder than North
America," said US entrepreneur Kilambi.
He sees long-distance trucking—a huge industry in both the
EU and US—as the best near-term application for hydrogen. "The
competition there is diesel, which has one of the worst emissions
profiles of any sector," he said.
While battery-powered vehicles are building market share in
light-duty applications, companies such as Europe's BMW see big
opportunities for trucking, where the power needed to move the
vehicles and their freight make batteries prohibitively expensive.
"Until the last year-and-a-half, there has not been prominent
discussion about trucks and hydrogen," said Kilambi.
This has changed on both sides of the Atlantic, he said,
referring to developments such as Hyzon announcing a new design for
hydrogen fuel cell vehicle storage systems with 40% lower weight
and cost. "If you look at vehicle fleet owners, they have their own
incentives to move towards lower emissions, such as government
policies and their own ESG commitments," he said. "That's going to
drive their decisions, and that's why the original equipment
manufacturers are moving to electric trucks and cars."
Article by Cuckoo Susan James, OPIS. Editorial contributions
by Kevin Adler, Net-Zero Business Daily.