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2024

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'The EU approach to subsidies will be better than the US for getting green hydrogen projects over the line'

Author:

Polly Martin


The US has been heavily praised for unveiling a single tax credit that pays up to $3 per kilogram of clean hydrogen produced, while the EU has been lambasted for its overregulation of renewable H2.

 

However, a panel of industry executives at the World Hydrogen Summit yesterday countered that not only is the US going down the same road when it comes to regulation, but that Europe’s approach could be better for getting projects over the line for a final investment decision.

 

“If I look at [the] 45V [production tax credit] in the US, it is basically all carrots. If I look at what’s happening in the EU, there’s carrots and there’s a stick,” said David Bow, chief commercial officer for electrolyser start-up Verdagy. He cited the RefuelEU mandate for 1.2% of aviation fuel to be synthetic kerosene made using green hydrogen by 2030 as an example, but there are other mandates for road transport, shipping and existing H2 users too.

 

“I think the carrots alone don’t get you there,” he said. “There needs to be some policy and regulation behind it that drives the motivation on the consumer side.”

 

“We really believe that the carrot-and-stick approach that the European Union is doing is the correct one,” agreed Martijn Coopman, programme manager for international hydrogen supply chains at the Port of Rotterdam. “If you look at the cost gap, and the total amount of subsidy budget that you require, if you only ‘carrotise’ the industry, it’s such a phenomenal amount, it’s just impossible.

 

“The carrot helps to get the first projects off the ground, but ultimately it’s the stick that’s going to create the long-term, larger volume industry.”

 

Coopman argued that the results of the first European Hydrogen Bank auction — which saw extremely low winning bids of less than €0.50 ($0.54) per kg — could suggest that the threat of demand-side penalties for not reducing emissions in the near future is already driving offtake agreements.

 

“Is it the gap to make the hydrogen cheaper, so that the buyers will buy it, or is it actually the fact that there are apparently buyers for the hydrogen in those seven projects that are willing to pay quite a considerable premium because of anticipated ‘stick’ requirements that are going to come in future?” he asked.

 

Similarly, Fortescue’s CEO for energy Mark Hutchinson told the session — entitled “An Outlook for Hydrogen's Future” and moderated by Hydrogen Insight deputy editor Rachel Parkes — that the European Hydrogen Bank’s winners may have bid too low for the costs of their facilities. “I would challenge just how many of these projects are actually going to happen.

 

“At end of day, green hydrogen, you need cheap power, and you’ve got to get the technology costs down, and Europe, you don’t really start with cheap power. That’s where you need the subsidies to bridge that gap and get things going.”

 

However, Coopman conceded that demand-side mandates come at a cost to industry — making them difficult for politicians to push through, particularly in the short term.

 

“In Europe, we are raising the cost of energy for everybody, for everything,” he said. “Yes, we can get this transition happening faster, but our whole export industry is going to be destroyed, so we’re seeing in the last two years enormous pushback politically as well.

 

“Mr Timmermanns was very ambitious, but a lot of these policies are being toned back,” he added, referring to the former European Commission executive vice-president for the European Green Deal.

 

This could be one factor behind the recent Australian government announcement of supply-side support, a clean hydrogen production tax credit, on top of its existing $2bn Hydrogen Headstart programme.

 

“We’re going into an election... it’s always better to carrotise before an election, I think,” quipped Fiona Simon, CEO of trade association the Australian Hydrogen Council.

 

She noted that Australia’s attempts to put mandates in place for sectors to decarbonise, such as zero-emission vehicle requirements for heavy-duty transport, have fallen short due to a lack of infrastructure.

 

Simon also raised that while the hydrogen production tax credit unveiled in Australia’s federal budget this week was not enough on its own for projects to take FID, it could be stacked with not only the Hydrogen Headstart capex subsidy, but also demand-side support in importer countries such as Japan and Singapore. “If you add all the pieces up, in a few years, you do have something that can meaningfully compete.”

 

This strategy of “subsidy stacking” has been explicitly discouraged by the EU, which restricted its European Hydrogen Bank fixed-payments from companies that had already received grants from the Innovation Fund.

 

Hutchinson added that while the Australian tax credit is good news for Fortescue, it will also depend on whether, like the US and Europe, the government puts in place strict conditions for companies to claim it.

 

“The IRA was a great announcement, then we went into a doom loop for a couple of years trying to work out excruciating detail, and you throw out the baby with the bathwater in many ways,” he said.

 

“It’s a real shame both in the US and Europe, what’s happened, and we just need to make sure Australia understands that you’re giving away a tax credit on something that doesn’t exist yet, and in doing that, to stimulate the industry,” he added. “Make it simple, make it quick, don’t overcomplicate it, don’t let the oil & gas lobby have a voice, and let’s get on with it.”

 

Source: Hydrogeninsight

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