What is Hydrogen Energy? And What do Investors Need to Know?

• Hydrogen is a clean fuel that could help decarbonize high-emitting industries like steel and transportation.
• Green hydrogen is produced from water using renewable electricity, resulting in zero emissions. Other methods like steam reforming produce gray or blue hydrogen.
• Challenges preventing adoption include high costs and an unevenly developing value chain. $460B more is needed by 2030 to scale up production, infrastructure, and end uses.
• Hydrogen-rich countries need to scale competitive supply, stimulate local demand, develop transportation technology, and facilitate cooperation.
• Governments can develop roadmaps, regulations, and partnerships to spur the hydrogen economy. Companies across the value chain should focus on talent, partnerships, supply, and demand agreements.

Vast Promise and Challenges of Scaling Hydrogen Energy

As the world races to decarbonize energy systems and reach net zero emissions, hydrogen is emerging as a potentially transformative solution. Hydrogen, the most abundant element in the universe, combusts cleanly and emits only water. When paired with renewable power sources, it could help decarbonize major greenhouse gas emitters like heavy industry and transportation. According to McKinsey, hydrogen could deliver over 20% of needed emissions reductions by 2050. With over $320 billion invested in projects globally, hydrogen is gaining serious momentum. However, challenges remain in scaling up cost-competitive production and infrastructure. Major investments, regulations, and coordination are still needed for hydrogen to reach its vast potential.

Why Hydrogen? The Potential to Decarbonize Key Sectors

Certain high-emitting sectors rely heavily on fossil fuels and have few easy alternatives. Hydrogen could be an elegant solution. The steel industry, producing 8% of emissions, is a prime example. By converting plants to run on green hydrogen, the European steel industry could avoid nearly 20% of its emissions by 2030. Long-haul trucking faces stricter emissions regulations but has limited options beyond combustion engines. Hydrogen engines allow relatively easy switching from diesel while utilizing existing auto industry assets. With the right investments and policies, hydrogen could abate emissions across refining, chemicals, steel, heating, power, and heavy transport.

The Shades of Hydrogen: Green, Gray, and Blue

Not all hydrogen is created equal when it comes to emissions. Green hydrogen is produced by splitting water (H2O) into hydrogen and oxygen using renewable electricity, resulting in no carbon emissions. However, most current hydrogen production uses fossil fuel feedstocks like natural gas, emitting carbon. This gray hydrogen will need carbon capture to reach net zero. With carbon capture and storage, the result is blue hydrogen. As renewable power prices fall, green hydrogen will become more cost competitive, hitting cost parity with gray hydrogen by 2030.

Billions More Needed to Scale the Hydrogen Value Chain

While promise abounds, hydrogen faces key challenges around costs and coordination across the complex value chain. McKinsey estimates over $460 billion more is needed globally by 2030 to scale up production, infrastructure, and end-use applications. Roughly $150 billion would close the production investment gap, $165 billion is needed for transmission, storage and distribution, and $145 billion for transportation, steel, and other end uses. The good news? Costs are falling fast, with green hydrogen projected to fall 50% by 2030. Still, scale-up in the 2020s is critical to tap hydrogen's full abatement potential.

Four Priorities for Hydrogen-Rich Countries

For a thriving hydrogen ecosystem, hydrocarbon-rich countries should focus on four priorities:

(1) Scaling up blue hydrogen now and green hydrogen in the medium term as it becomes cost-competitive,

(2) Stimulating local demand via clean air and decarbonization policies,

(3) Developing cost-effective transportation such as converting hydrogen to ammonia, and

(4) Facilitating cooperation across the value chain and with other nations to ensure consistency.

Realizing the Promise Through Cross-Sector Collaboration

With coordinated efforts, hydrogen could reshape global energy. Governments can implement national roadmaps, incentives for local projects, and partnerships with other nations to spur demand. Companies across power, refining, chemicals and transport should focus on talent development, joint ventures, R&D, and off-take agreements. With vision and follow-through, hydrogen has the potential to deliver deep decarbonization across the global economy.