158th CoR Plenary Session (29-30 November 2023)

Rapporteur: CENSI Arianna Maria Commission: ENVE
The opinion aims to reinforce the role of LRAs for the future functioning of the European Hydrogen Bank , as LRAs will play an important role in the implementation of projects across EU territories with regard to both energy planning and programming and the authorisation process.

Hydrogen is expected to play a key role in a future climate-neutral economy, enabling emission-free transport, heating and industrial processes as well as inter-seasonal energy storage. Clean hydrogen produced with renewable electricity is a zero-emission energy carrier, but is not yet as cost-competitive as hydrogen produced from natural gas. A number of studies show that an EU energy system having a significant proportion of hydrogen and renewable gases would be more cost-effective than one relying on extensive electrification. Research and industrial innovation in hydrogen applications is an EU priority and receives substantial EU funding through the research framework programmes. Hydrogen projects are managed by the Fuel Cells and Hydrogen Joint Undertaking (FCH JU), a public-private partnership supported by the European Commission. The EU hydrogen strategy, adopted in July 2020, aims to accelerate the development of clean hydrogen.

Today, renewable hydrogen makes up a small fraction of total hydrogen production. Most hydrogen is produced from fossil fuels and, although cheaper, it causes carbon emissions. Demand for renewable hydrogen is expected to grow quickly as the need for climate-friendly solutions increases. While the falling cost of renewable electricity certainly plays a role in boosting this demand, sustaining it still requires support measures aimed at growing the market and bringing down the cost of electrolysers. To avoid a situation where renewable electricity used for hydrogen production is diverted away from other uses, it is important to ensure additionality, i.e. additional renewable electricity capacity for renewable hydrogen production.

On 15 December 2021, the European Commission adopted a legislative proposal to recast the 2009 EU Gas Regulation as part of the hydrogen and decarbonised gas markets package. This reflects the EU's growing climate ambitions, as outlined in the European Green Deal and its 'fit for 55' package. The proposal aims to support the decarbonisation of the energy sector by increasing the production of renewable gases and hydrogen across the EU, and facilitating their integration in existing or new gas networks. It would create an EU legislative framework for hydrogen networks. It would also oblige existing natural gas infrastructure to integrate a higher share of hydrogen and renewable gases through high tariff discounts; provisions to facilitate blending of hydrogen with natural gas and renewable gases; and greater EU cooperation on gas quality and storage.

Green hydrogen, sourced from water and renewable energy, has – by replacing fossil fuels – enormous potential for the reduction of global carbon emissions in hard-to-abate industrial sectors. Yet, like many early stage technologies past and present, a complex interplay of economic, regulatory, industrial and operational challenges still need to be overcome before hydrogen can play a large-scale role in the modern industrial economy. The shift towards hydrogen is expected to require investment in the hundreds of billions of euros over the coming decades and will require substantial amounts of private financing alongside public funding. In this report, the European Investment Bank's advisory services summarise the results of an investor consultation to get to the heart of these challenges, and offer recommendations for an accelerated development of the hydrogen sector.

Hydrogen is indispensable to decarbonise European industry and reach the EU’s 2030 climate targets and 2050 climate neutrality. It is one of the key technologies of Europe’s Net Zero Industry Act. By scaling up its production, we will reduce the use of fossil fuels in European industries and serve the needs of hard-to-electrify sectors.

Given the vast potential for renewable electricity generation, the production of renewable hydrogen is a promising option for the hard-to-decarbonise energy-intensive industry sectors. A growing hydrogen sector will also result in job creation and economic growth while fostering innovation and reducing pollution. The European Commission published its Hydrogen Strategy in 2020 with the aim of boosting hydrogen use in the EU while promoting the uptake of renewable hydrogen production. Recent activities, such as the launch of the European Clean Hydrogen Alliance and the EU Innovation Fund, the formation of Hydrogen Valleys and the promotion of Important Projects of Common European Interest (IPCEIs), provide promising first steps to foster a European hydrogen economy. Nevertheless, important policy gaps still need to be addressed.

Renewable and low-carbon gases, such as hydrogen, will play a central role in achieving climate neutrality. Biogas and biomethane, renewable and low-carbon hydrogen and synthetic fuels (E-gas) have the potential to gradually replace fossil gases, including natural gas, and can be used as a fuel, an energy carrier or a feedstock to reduce emissions in hard-to-abate sectors, particularly in industry and transport. They will represent very significant shares of the gaseous fuels in the energy mix towards 2030 and 2050.

The European Commission currently intends to establish a two-pillar approach to the European Hydrogen Bank. The domestic pillar aims at supporting the scale-up of domestic hydrogen production within the EU and will be implemented under the Innovation Fund. Under this pillar, supply-side hydrogen auctions are being discussed. One possible auction option would allocate premium payments, such as fixed premiums, on top of revenues from bilateral offtake agreements. Other instruments including a double-sided auction for both the demand and the supply side would also be feasible.