CMS_LawTax_CMYK_28-100.eps The Promise of Hydrogen: An International Guide October 2020 Contents Contents Introduction 3 Middle East 102 The Netherlands 110 Focus on Hydrogen Peru 117 in the Automotive Sector 14 Poland 121 Portugal 129 Focus on Hydrogen Romania 134 in the Industrial Sector 23 Russia 139 Singapore 145 Austria 30 Slovakia 150 Belgium 37 South Korea 156 Bulgaria 43 Spain 163 Chile 48 Turkey 168 China 55 Ukraine 173 Czech Republic 61 United Kingdom 181 France 66 United States Germany 72 of America 188 Italy 79 Japan 86 Where you Mexico 96 can find CMS 195 Introduction Introduction A consensus is fast emerging that hydrogen As energy lawyers, we are accustomed to the emergence will play a key role as an energy vector and of new technologies. Nevertheless, each emergent a pillar in the ongoing energy transition. It technology’s unique characteristics need to be respected. It would be complacent to think that hydrogen can be promises to accelerate transformative changes treated like natural gas, or other energy sources, for the across many sectors, most notably energy purposes of legal and regulatory frameworks, investment and transport. This guide draws together cases, financing structures, operational requirements, revenue stream arrangements and the panoply of other the insight of some of the most experienced elements that need to be considered to formulate an global energy experts to provide a timely effective commercialisation model. and insightful perspective on how hydrogen The term “hydrogen economy” is not new, but the projects may proceed, and the sector role that hydrogen can, and is expected, to play in the develop, across the globe. economies of many of the jurisdictions covered in this guide demonstrates the revitalised ambitions of this subsector. But this guide also highlights the fact that progress is not equal in all places. What are still an emerging suite of technologies and an immature web of policy and regulatory frameworks in some jurisdictions, are developing quickly into a supportive system ready to welcome private sector investment in other countries. What is clear is that the promise of hydrogen developments and uses is rapidly evolving as governments and market players are waking up to its benefits and potential. With many countries committing to having major low-carbon hydrogen projects underway by 2030 and committing to achieve net zero targets, investors have to take a truly global perspective on the sector. This guide sets out the ease (or otherwise) of developing hydrogen projects across the jurisdictions covered – highlighting the status of hydrogen developments in each country; considering the market prospects and opportunities ahead that are key for our clients who are seeking to enter or expand in this sector; what challenges need to be overcome in order to reach national and international goals and how the national and international specific legislation and regulations in each jurisdiction facilitates this growing sector. 3 Introduction Overarching Context: The Paris Agreement and Net Zero Supranational policies and frameworks helpfully guide still, to pursue efforts to limit the temperature increase the longer term direction and developments at national to 1.5 degrees Celsius above those levels. Since then, levels. In this case the supranational commitment is a number of countries have adopted legally binding made through the Paris Agreement by 189 countries, targets to reach “net-zero” in terms of their greenhouse representing 97% of global emissions1. gas emissions by 2050. Alongside national governments, similar commitments are being made by major All of the countries covered in this guide are signatories businesses and investors, who are also seeking to the Paris Agreement (albeit the US has notified to decarbonise their products and processes. the United Nations of its intention to withdraw from the Paris Agreement). The Paris Agreement is one of The countries covered in this guide have or are in the the most ambitious international agreements within process of creating legal frameworks to support their the United National Framework Convention on vision. For many this vision includes hydrogen playing Climate Change (“UNFCC”). It commits signatories to a key role in achieving their Paris Agreement climate responding to the threat of climate change by keeping change ambitions and net zero targets in a number any global temperature rise this century to well below of sectors, most notably in transportation, heating 2 degrees Celsius above pre-industrial levels, and better and industry. 1 https://cait.wri.org/ 4 | The Promise of Hydrogen: An International Guide Different Legal Regimes Introduction for Different “Types” of Hydrogen Achieving net zero with hydrogen Renewable Electrolysis Residential uses energy CO2 Carbon capture Fuel Cells H2 CH4 Commercial uses Steam methane reforming Energy system management NH3 Industrial Fertilisers Transport processes Key Green hydrogen Blue hydrogen Grey hydrogen Use of hydrogen From the perspective of investors in the sector, it is energy (for example, wind or solar energy). There are important to recognise that while the molecules are a number of other “colours” of hydrogen that are less indistinguishable, hydrogen is classified according to relevant from an investors perspective and are not the way that it is produced, and categorised by colour. covered in this guide. References to the following colours are for hydrogen produced in turn: “grey” from methane gas, “black” It is understood that a move away from grey hydrogen from coal or “brown” from lignite. Currently around will be necessary to meet the decarbonisation targets 95% of the hydrogen produced in the world is grey many countries have set out. However, blue hydrogen’s or brown, 76% from natural gas and 23% from coal2. attraction comes from the scale of production that it “Blue” hydrogen is produced using methane gas with offers and the ability to use carbon capture storage carbon capture and storage technology. This type of technologies to prevent the emission of carbon dioxide hydrogen is seen as carbon neutral but not strictly into the atmosphere. Many of the jurisdictions covered renewable. “Green” hydrogen is produced through in this guide are focusing on the advancement of green electrolysis, which is the process of splitting up water and blue hydrogen. (H2O) into hydrogen and oxygen, using renewable 2 IEA World Energy Outlook, 2019 5 Introduction Green Hydrogen Blue Hydrogen Green hydrogen is typically made through Blue hydrogen is seen by many as an enabler electrolysis – which in its simplest terms in the commercial development of low-carbon requires an electrolyser to break down hydrogen projects. It’s success depends in water (H2O) into hydrogen and water using part on the role of carbon capture usage renewable sources such as wind, solar and and storage (CCUS), which in turn suits some hydro to generate the electricity used for countries (such as the UK, Netherlands, the process. Norway and parts of the US) better than others which do not already have storage An example is the Austrian, Hydrogen infrastructure to exploit. eMoblity AG, which announced green hydrogen produced from gasification of A number of hydrogen plus CCUS projects wood at previously unattainable production and business models are under consideration price and energy efficiency. and covered in the guide. For example, the UK is specifically developing business models While there are a number of demonstration for hydrogen and CCUS projects over the projects being developed, at present the coming years. high cost (of the energy hungry) electrolysis is a significant barrier. As a result, just 2% The UK is not alone at having spotted of global hydrogen production is currently the blue hydrogen opportunity. In the produced by electrolysis. However, green Netherlands, led by a consortium comprising hydrogen perceived as the ultimate goal and state owned companies, the Porthos project there are new national and supranational focuses on the capture of CO2 within the policies emerging that promote the port of Rotterdam from existing hydrogen use of electrolysers. production facilities with a view to producing large-scale blue hydrogen and reduce emissions by 2030. The captured CO2 will be transported and stored in a depleted gas field in the North Sea. Taxonomy may seem a geeky subject, but classification — the level of direct CO2 emissions from manufacturing and legal precision are crucial. In particular, the lack of hydrogen are 5.8 tCO2e / t of harmonisation and classification is a common — electricity use for hydrogen produced by electrolysis complaint whether from financial institutions, is at or lower than 58 MWh / t developers or investors seeking to understand and — average carbon intensity of the electricity produced compare opportunities in the sector. There are some that is used for hydrogen manufacturing is at or developments in this area. For example, the EU below 100 gCO2e / kWh. Taxonomy3 published in March 2020, considers what should be treated as “low carbon” or “renewable”. In practice, investors, developers, financiers and advisors In this case, for the manufacture of hydrogen, seeking to invest in renewable hydrogen projects should hydrogen is considered renewable where: note that this narrows the options to “green” and “blue” hydrogen. 3 https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/200309-sustainable-finance-teg- final-report-taxonomy_en.pdf