In February 2023, the EU introduced the Green Deal Industrial Plan, wherein it laid out its technique for the inexperienced transition in business and power. Inexperienced hydrogen will likely be an important cornerstone of this transition. The size-up of renewable hydrogen manufacturing and its use in business and transport has the potential to realize decarbonization the place direct electrification will not be an choice. Inexperienced hydrogen additionally gives alternatives to develop technological management and financial views inside a future net-zero financial system.
Towards this background, coverage debates over the previous years have centered on how the EU can compete with bold inexperienced industrial insurance policies in China and, extra not too long ago, the US. With the Inflation Reduction Act, handed in August 2022, the Biden Administration is closely subsidizing hydrogen manufacturing within the US. A key query is, subsequently, how the EU can match these beneficiant monetary incentives and make sure that it attracts essential investments in hydrogen-related worth chains.
Much less consideration has been paid to how the EU’s hydrogen coverage impacts regional imbalances throughout EU Member States. In its Inexperienced Industrial Plan, the Fee argues {that a} “frequent response, anchored in EU insurance policies and devices, will likely be far more practical than the addition of 27 nationwide approaches.” However does the EU ship by itself name for an bold European industrial technique for the hydrogen sector?
Firstly, the EU’s hydrogen coverage depends on a comparatively advanced and fragmented strategy. As a part of the HYPAT venture, RIFS Potsdam is creating a database of hydrogen coverage in main economies that features all coverage devices and targets enacted to this point. Knowledge assortment within the EU reveals a really massive variety of totally different devices, with initiatives inside established packages predominating. As an illustration, the European Fee is offering restricted funding for inexperienced hydrogen manufacturing and use in addition to for hydrogen-related analysis and growth (R&D). For this, it has prolonged the scope of present funds such because the Modernization and Just Transition funds, which help the transition of these areas and Member States which have the bottom monetary capacities. Furthermore, governments are actually additionally capable of embrace inexperienced hydrogen tasks of their Recovery and Resilience Plans, by way of which nations apply for cash from NextGenerationEU, the EU’s disaster restoration bundle. No new sources of funding have been created. As a substitute, the EU has integrated hydrogen-related spending in present mechanisms. The biggest single supply of funding to this point has been the Innovation Fund, which is financed by revenues from the European Emission Buying and selling Scheme and gives grants for tasks investing in inexperienced power and business. Right here, hydrogen is recognized as a key goal.
Along with these EU-level packages, the bloc has relaxed state support guidelines to present Member States the opportunity of subsidizing their nationwide hydrogen business. Often, the EU prohibits this type of state intervention to ensure a stage enjoying subject inside its Frequent Market. Nevertheless, within the face of the pandemic and the struggle in Ukraine, the EU has needed to weaken its stance and now permits Member States to go nationwide restoration packages. As a part of its efforts to foster the power and business transitions, the EU has prolonged exceptions for state support to “sectors that are key for the transition to a net-zero financial system.” The Short-term Disaster Framework, which was launched to allow Member States to help their economies within the context of Russia’s struggle towards Ukraine, has turn out to be the Temporary Crisis and Transition Framework and now permits governments to offer financial support for the inexperienced transition.
In different phrases, the EU has chosen to depend on stress-free its guidelines on state support, whereas offering solely restricted EU-level funding to advertise the uptake of renewable hydrogen. This shifts the duty for making essential investments in inexperienced hydrogen to different actors. Constructing electrolyzer capacities for the manufacturing of renewable hydrogen and reaching decarbonization within the metal or chemical business will demand not solely non-public but additionally public cash, with nationwide governments supplying many of the latter. International locations with massive fiscal capacities corresponding to Germany, the Netherlands, or Sweden will likely be at a substantial benefit right here. Their nationwide governments have important assets to subsidize industries at dwelling, in contrast to the governments of nations corresponding to Romania, Croatia, and Greece. As an illustration, in July the Fee accepted Germany’s request to help ThyssenKrupp’s efforts to speed up the uptake of renewable hydrogen in its metal manufacturing by offering as much as €2 billion in aid, whereas one other €1 billion subsidy scheme for metal producer Salzgitter was accepted in October final 12 months . The Netherlands additionally acquired the inexperienced mild for 2 hydrogen subsidy packages worth €1 billion in total. Most different Member States can not afford such measures and depend on EU funds as an alternative.
Present EU-level funds, nonetheless, are additionally not accessed by all Member States equally. Normally, governments themselves don’t apply for grants. R&D tasks are primarily carried out by public analysis establishments, whereas funding tasks typically depend on the initiative of personal companies. Furthermore, aggressive funding packages just like the Innovation Fund are likely to favor massive established firms over small start-ups. Though Innovation Fund calls embrace a bit for small-scale tasks, these obtain solely a small fraction of funding. The third call for small-scale projects supplied 100 million in grants, whereas large-scale projects received 3.6 billion in total. Additionally, established enterprises have extra assets, bigger administrative capacities, and higher networks. Our knowledge exhibits that tasks in Member States with massive present industrial sectors and an elaborated hydrogen technique have been the biggest beneficiaries of the Innovation Fund. Up to now, most funding for large-scale hydrogen-related tasks has gone to Northern European nations: €320 million went to Sweden, €296 million to the Netherlands, €96 million to Germany, and €88 million to Finland. International locations like Spain, Poland, and Czechia have solely obtained funding for small-scale tasks, starting from €3 to €8 million (see determine under).
Determine 1: Innovation Fund grants for hydrogen-related tasks, 2020 – 2023 (final up to date 23.09.23), by venture location, in million Euros.
That is, after all, solely a fraction of the total image, as it’s troublesome to estimate the whole quantity of funding obtained by every Member State. However, the development is obvious: The biggest sums go to these nations which have massive industries and excessive fiscal capacities. Poorer Member States are left with assets supplied by cohesion packages such because the Modernization or Simply Transition Fund. However these don’t present devoted cash for inexperienced hydrogen.
At present, there’s a sturdy divergence between governments which have set bold targets for inexperienced hydrogen provide and demand and others which can be liable to falling behind. To our data, solely 15 out of 27 states have printed a complete hydrogen technique. In relation to implementation, the disparities are much more apparent. According to data from the International Energy Agency, 48 % of inexperienced hydrogen tasks inside the EU which can be at the moment in operation are primarily based in Germany, one other 11 % in France, and the remaining is unfold throughout different Member States. Nearly half don’t have any hydrogen tasks in operation in any respect.
These developments additionally distinction with the distribution of renewable power potential throughout the EU, a key asset within the manufacturing of low-cost renewable hydrogen. As detailed in a recently published study carried out inside the HYPAT project, lots of the nations in Japanese and Southeastern Europe that exhibit important potential for the manufacturing of surplus renewable electrical energy for inexperienced hydrogen manufacturing will not be taking part within the present market ramp-up. A renewable hydrogen financial system may supply vital incentives for companies within the metal and chemical industries to spend money on Member States that provide the potential for cost-competitive renewable power. International locations like Spain, Greece, or Croatia couldn’t solely promote renewable hydrogen and its derivatives inside the EU but additionally develop downstream capacities for the manufacturing of inexperienced industrial merchandise and construct inexperienced industrial clusters. This might deliver jobs and new views to structurally deprived areas, one of many key goals of European cohesion coverage. With its Low-Revenue Communities Bonus Credit score program, the Inflation Discount Act pursues an identical purpose. This extra tax credit score gives as much as 20 % in further monetary incentives for renewable power investments in low-income communities within the US.
The EU’s present technique will, most certainly, lead to an vital bias in favor of richer nations within the Union. Member States with massive monetary capacities will supply the monetary incentives for his or her industries to remain, eroding alternatives for others to catch up and deepening regional inequalities. A standard European strategy to the inexperienced hydrogen ramp-up is required to keep away from this. Within the first place, this may require extra devoted EU funds to be directed towards inexperienced hydrogen manufacturing and use the place the potential is highest, somewhat than the place governments have the largest budgets. The EU Sovereignty Fund introduced by the Fee on the finish of final 12 months may have been an vital step in the best route. In June, nonetheless, the Fee introduced its plan for a Strategic Technologies for Europe Platform, which is meant to exchange the EU Sovereignty Fund. It could largely reshuffle present funds and supply solely an additional €10 billion. This is able to not serve to scale back regional disparities.
The Fee additionally introduced the institution of a European Hydrogen Bank, which can conduct auctions for the deployment of inexperienced hydrogen manufacturing. It will enable hydrogen producers to bid for subsidies paid within the type of a hard and fast premium per kg of inexperienced hydrogen produced. The Fee has devoted a price range of €800 million from the Innovation Fund for this function. To keep away from a bias in favor of nations with sturdy fiscal capacities, the EU ought to make sure that these auctions will not be mixed with different subsidy schemes. An exception to this may very well be funding from the EU’s Cohesion Coverage, which targets the EU’s structurally deprived areas. The identical additionally applies to the deliberate Carbon Contracts for Difference (CCfDs) to help hydrogen uptake in business. The concept is to cowl the distinction between the standard price of manufacturing, together with the CO2 value, and the price of producing climate-friendly industrial merchandise utilizing hydrogen. The CCfDs could be awarded in a aggressive bidding course of, similar to the manufacturing subsidies within the European Hydrogen Financial institution scheme. Nevertheless, an official proposal by the Fee on the institution of CCfDs remains to be pending. This raises concern that Member States themselves will transfer ahead to implement CCfDs, as is the case in Germany. Then, the help for hydrogen uptake in business would, once more, be restricted to these nations with excessive fiscal capacities. Further proposals, for addressing these challenges will be discovered within the latest HYPAT Working Paper talked about above.
Lastly, cash alone received’t do the job. Decrease-income Member States might lack revolutionary companies with the capability to plan and perform the tasks they might finance. This requires a extra bold cohesion coverage and for sturdy investments in infrastructure, schooling, and regional growth, not solely to counterbalance inequalities inside Europe but additionally to appreciate the renewable hydrogen potential in these areas. The EU ought to acknowledge this as a chance to develop a extra balanced and extra environment friendly industrial coverage for the hydrogen transition.
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