Strategic geoeconomics of hydrogen : shaping Europe ́s future energy market

Abstract

Hydrogen has re-emerged as a crucial component in Europe's decarbonization initiatives, detailed in the European Hydrogen Strategy and REPowerEU Plan. Hailed as the "coal of the future," renewable hydrogen is vital for technologies aimed at lowering emissions in hard-to-abate sectors. By 2030, decreasing green electricity costs are predicted to make green hydrogen more affordable, especially in favorable regions. Global hydrogen demand is expected to rise, driven by industry and transportation, leading to significant worldwide trading volume, with Europe aiming to import 10 million tons of renewable hydrogen by 2030, raising transportation concerns. Pipelines are suggested for distances up to 8.000 kilometers, while shipping is advised for longer routes. Transport cost-effectiveness depends on construction costs and infrastructure. The global hydrogen industry, unlike the oil market, is predicted to be more dispersed due to diverse hydrogen production potential, resulting in competitive pricing and more providers. Low production and transportation costs are critical, especially for Europe. The EU faces challenges in retaining competitiveness in hydrogen technologies. China leads in grey hydrogen generation and green hydrogen electrolysis capacity, while the US offers significant incentives under the Inflation Reduction Act. The EU must encourage domestic investment to fund its green transformation and prevent company relocation. Potential trade partners such as Chile, Morocco, and Algeria have similar production potential, but North African countries face water scarcity, whereas Chile offers political and economic stability with low production and delivery costs. Europe's critical iron and steel sector risks shifting to regions with cheaper hydrogen and abundant iron ore, such as Australia. Economic policy measures like Carbon Contracts for Difference and Green Lead Markets could support Europe's hydrogen-based green products without disrupting production or burdening taxpayers.