The Making Mission Possible Series Making the Hydrogen Economy Possible: Accelerating Clean Hydrogen in an Electrified Economy April 2021 Version 1.2 Making Clean Electrification Possible Accelerating Clean Hydrogen in an Electrified Economy The Energy Transitions Commission (ETC) is a global coalition of leaders from across the energy landscape committed to achieving net- zero emissions by mid-century, in line with the Paris climate objective of limiting global warming to well below 2°C and ideally to 1.5°C. Our Commissioners come from a range of organisations – This report constitutes a collective view of the Energy energy producers, energy-intensive industries, technology Transitions Commission. Members of the ETC endorse providers, finance players and environmental NGOs – which the general thrust of the arguments made in this report operate across developed and developing countries and but should not be taken as agreeing with every finding play different roles in the energy transition. This diversity or recommendation. The institutions with which the of viewpoints informs our work: our analyses are developed Commissioners are affiliated have not been asked to with a systems perspective through extensive exchanges formally endorse the report. with experts and practitioners. The ETC is chaired by Lord Adair Turner who works with the ETC team, led by Faustine The ETC Commissioners not only agree on the importance Delasalle. Our Commissioners are listed on the next page. of reaching net-zero carbon emissions from the energy and industrial systems by mid-century, but also share a Making Clean Electrification Possible: 30 Years to broad vision of how the transition can be achieved. The Electrify the Global Economy and Making the Hydrogen fact that this agreement is possible between leaders from Economy Possible: Accelerating Clean Hydrogen companies and organisations with different perspectives in an Electrified Economy were developed by the on and interests in the energy system should give decision Commissioners with the support of the ETC Secretariat, makers across the world confidence that it is possible provided by SYSTEMIQ. They bring together and build on simultaneously to grow the global economy and to limit past ETC publications, developed in close consultation global warming to well below 2˚C, and that many of the with hundreds of experts from companies, industry key actions to achieve these goals are clear and can be initiatives, international organisations, non-governmental pursued without delay. organisations and academia. The reports draw upon analyses carried out by ETC knowledge partners SYSTEMIQ and BloombergNEF, alongside analyses developed by Climate Policy Initiative, Material Economics, McKinsey & Company, Rocky Mountain Institute, The Energy and Resources Institute, and Vivid Economics for and in partnership with the ETC in the past. Learn more at: We also reference analyses from the International Energy www.energy-transitions.org Agency and IRENA. We warmly thank our knowledge www.linkedin.com/company/energy-transitionscommission partners and contributors for their inputs. www.twitter.com/ETC_energy 2 Making the Hydrogen Economy Possible – Accelerating Clean Hydrogen in an Electrified Economy Our Commissioners Mr. Marco Alvera, Mr. Mark Laabs, Mr. Andreas Regnell, Chief Executive Officer – SNAM Managing Director – Modern Energy Senior Vice President Strategic Development – Vattenfall Mr. Thomas Thune Anderson, Mr. Richard Lancaster, Chairman of the Board – Ørsted Chief Executive Officer – CLP Mr. Siddharth Sharma, Group Chief Sustainability Officer Mr. Manish Bapna, Mr. Colin Le Duc, – Tata Sons Private Limited Interim CEO & President - WRI Founding Partner – Generation IM Mr. Mahendra Singhi, Mr. Spencer Dale, Mr. Li Zheng, Managing Director and CEO – Dalmia Group Chief Economist – BP Executive Vice President – Institute Cement (Bharat) Limited of Climate Change and Sustainable Mr. Bradley Davey, Development, Tsinghua University Mr. Sumant Sinha, Chief Commercial Officer Chairman and Managing Director – ArcelorMittal Mr. Li Zhenguo, – Renew Power President – LONGi Solar Mr. Pierre-André de Chalendar, Mr. Ian Simm, Chairman and Chief Executive Officer Mr. Martin Lindqvist, Founder and Chief Executive Officer – Saint Gobain Chief Executive Officer and President – Impax – SSAB Dr. Vibha Dhawan, Lord Nicholas Stern, Director-General, The Energy and Mr. Auke Lont, IG Patel Professor of Economics and Resources Institute Chief Executive Officer and President Government - Grantham Institute – Statnett - LSE Mr. Agustin Delgado, Chief Innovation and Sustainability Mr. Johan Lundén, Dr. Günther Thallinger, Officer – Iberdrola SVP Head of Project and Product Member of the Board of Management Strategy Office – Volvo Group – Allianz Ms. Marisa Drew, Chief Sustainability Officer & Global Dr. María Mendiluce, Mr. Simon Thompson, Head Sustainability Strategy, Advisory Chief Executive Officer – We Mean Chairman – Rio Tinto and Finance – Credit Suisse Business Dr. Robert Trezona, Mr. Will Gardiner, Mr. Jon Moore, Head of Cleantech – IP Group Chief Executive Officer – DRAX Chief Executive Officer – BloombergNEF Mr. Jean-Pascal Tricoire, Mr. John Holland-Kaye, Chairman and Chief Executive Officer Chief Executive Officer Mr. Julian Mylchreest, – Schneider Electric - Heathrow Airport Managing Director, Global Co-Head of Natural Resources (Energy, Power & Ms. Laurence Tubiana, Mr. Chad Holliday, Mining) – Bank of America Chief Executive Officer - European Chairman – Royal Dutch Shell Climate Foundation Ms. Damilola Ogunbiyi, Mr. Fred Hu, Chief Executive Officer Lord Adair Turner, Founder and Chairman – Sustainable Energy For All Co-Chair – Energy Transitions – Primavera Capital Commission Mr. Paddy Padmanathan, Dr. Timothy Jarratt, President and CEO – ACWA Power Senator Timothy E. Wirth, Chief of Staff - National Grid President Emeritus – United Nations Mr. Vinayak Pai, Foundation Mr. Hubert Keller, Group President EMEA & APAC Managing Partner – Lombard Odier – Worley Mr. Zhang Lei, Chief Executive Officer Ms. Zoe Knight, Ms. Nandita Parshad, – Envision Group Managing Director and Group Head Managing Director, of the HSBC Centre of Sustainable Sustainable Infrastructure Group Dr. Zhao Changwen, Finance – HSBC – EBRD Director General Industrial Economy – Development Research Center of Mr. Jules Kortenhorst, Mr. Sanjiv Paul, the State Council Chief Executive Officer Vice President Safety Health and – Rocky Mountain Institute Sustainability – Tata Steel Ms. Cathy Zoi, President – EVgo Mr. Alistair Phillips-Davies, CEO – SSE Making the Hydrogen Economy Possible – Accelerating Clean Hydrogen in an Electrified Economy 3 Contents 2 The Energy Transitions Commission 3 Our Commissioners 6 Glossary 10 Introduction Chapter 1 12 A vision for 2050: Hydrogen’s role in a zero-carbon, deeply electrified economy I. Potential demand growth 14 Hydrogen’s advantages and disadvantages 16 Likely applications by sector 17 An illustrative scenario for hydrogen use by mid-century 22 II. Falling production costs and implications for the cost of decarbonisation 23 Options for zero-carbon hydrogen production 20 Potential for cost reductions: very large for green, more limited for blue 23 The long-term balance – green dominates except where gas prices are very low 26 The green cost premium in end use application – large at product level, but small for consumers 28 III. Transport, storage and international trade of hydrogen 36 Hydrogen transport options and costs 33 Alternatives to hydrogen transport 34 Storage options and costs 37 All-in costs, including conversion, transport and storag 44 International trade in 2050 – opportunities and choices: hydrogen, natural gas or electrons 45 4 Making the Hydrogen Economy Possible – Accelerating Clean Hydrogen in an Electrified Economy Chapter 2 48 Scale-up challenges, required actions and investments I . Critical scale and pace of cost declines 50 Electrolyser costs 50 Electricity prices – in part a function of electrolyser costs 54 II. Feasible paths to 2050 – the need to accelerate demand growth 58 Credible scale-up pathways to 2050 targets 58 Driving early demand 59 III. Key actions to enable production ramp-up 59 Green hydrogen production growth 59 Blue hydrogen ramp-up 62 Illustrative scenario for green versus blue hydrogen 63 IV. Developing hydrogen clusters 66 Hydrogen cluster archetypes 66 Factors determining optimal cluster development 69 V. Developing transportation and storage infrastructure 70 VI. Safety, quality and low-carbon standards 71 VII. Total investment needs 72 Chapter 3 74 Critical policy and industry actions in the 2020s I. Critical targets for 2025 and 2030 76 II. Carbon pricing – an essential and powerful lever 77 III. Demand-side support – compensating the green premium sector by sector 77 IV Supply-side support – national targets and investment support for electrolyser capacity growth 80 V. R&D and deployment support for new technologies 80 VI. Hydrogen clusters development 83 VII Standards and Certifications 85 VIII. Summary of critical actions for policymakers, industry, finance, innovators and consumers 87 Concluding remarks 89 Acknowledgements 90 Making the Hydrogen Economy Possible – Accelerating Clean Hydrogen in an Electrified Economy 5 Glossary Abatement cost: The cost of reducing CO2 Carbon emissions / CO2 emissions: We use including storage, distributed generation, emissions, usually expressed in US$ per these terms interchangeably to describe demand response, EVs and their