Renewable and low-carbon hydrogen: State of play and outlook

Hydrogen is a feedstock used in the petrochemical industry and can also serve as an energy carrier. Currently, 96 % of hydrogen in the EU is produced from natural gas, a process that emits considerable amounts of CO2. When the CO2 is captured and stored, it is known as low-carbon hydrogen. Another technology for producing hydrogen is water electrolysis, which breaks water down into hydrogen and oxygen. If electrolysis is powered by renewable electricity, there are no CO2 emissions, and the hydrogen produced is referred to as renewable hydrogen. Both low-carbon and renewable hydrogen can play a crucial role in the energy transition of the EU by replacing fossil fuels in carbon-intensive sectors. They can be used in iron and steel production, the chemical industry, and transport, as well as for generating industrial and residential heat and electricity. In 2023, EU-27 hydrogen consumption stood at 7.3 million tonnes (megatonnes or Mt), equivalent to around 2 % of total EU energy consumption. Refineries, as well as the ammonia and chemical industries, account for the largest share of hydrogen demand. Renewable hydrogen is more expensive than fossil-based hydrogen, hindering its development. However, its cost is expected to go down, especially in regions with abundant renewable electricity. Hydrogen infrastructure is currently in the project development stage. Rising interest rates have increased the cost of new projects in the hydrogen value chain, although there are EU schemes – in particular the European Hydrogen Bank – to assist with financing and establishing a lead market. To complete the policy framework for this emerging market, the EU has adopted a hydrogen and decarbonised gas market package, updating EU gas market rules to prepare for renewable and low-carbon gases and laying the groundwork for dedicated hydrogen infrastructure and market. The latest revision of the Renewable Energy Directive sets targets for the uptake of renewable hydrogen in industry and transport. A European Court of Auditors' report recently confirmed that the EU regulatory framework is mostly complete but that its impact on the market has yet to be seen.