The German government has confirmed to Hydrogen Insight that it will not set company-specific obligations nor quotas in order to meet the EU’s target of 42% hydrogen or its derivatives used in industry to be renewable fuels of non-biological origin (RFNBOs) by 2030.

 

“Instead, we are addressing the achievement of targets and the ramp-up of RFNBOs on the demand side with a series of instruments and measures, such as the climate protection agreements, the federal funding for industry and climate protection, the IPCEI steel projects and the H2Global funding program,” a spokesperson for the federal ministry for economic affairs and climate action said.

 

However, while Germany has long positioned itself as a major demand centre for renewable hydrogen, this now raises questions as to how much green H2 will actually be consumed in the country, if the only government incentives are carrots rather than sticks.

 

As outlined by the spokesperson, the country is already spending significant amounts to incentivise industries to use clean hydrogen.

 

In the last round of climate protection contracts, which act as a carbon contract for difference covering the cost to switch from fossil fuels to lower-carbon alternatives, more than €1bn ($1.04bn) had been awarded to five industrial decarbonisation projects using H2.

 

The German government has also already awarded billions of euros in grants for its steel industry to install direct-reduced iron (DRI) plants and electric arc furnaces to replace coal-fired steelmaking.

 

H2Global, meanwhile, has already completed its first auction to purchase green ammonia on a ten-year contract, using cash from the German government, and is scheduled to start an auction for short-term offtake contracts from domestic industries in 2026 — with subsidies covering the difference in price.

 

This approach could also offer greater leeway for companies to reduce emissions, albeit potentially to a lesser extent, outside of the use of hydrogen, at lower costs — during a period when competitiveness of the economy and the cost of living are on German voters’ minds.

 

For example, steel giant Thyssenkrupp has already admitted that it will likely use natural gas to run its DRI plant for longer than initially scheduled. The steelmaker had originally planned to start using an increasing blend of clean H2 from 2028 onwards, reaching 100% hydrogen from 2037 onwards.

 

However, if Thyssenkrupp opts to delay either the introduction of green H2 or the ramp-up towards full use, this will mean a lower volume of hydrogen used overall which would have to meet the 42% mandate in 2030.

 

German industry will also already be incentivised to reduce emissions due to the EU Emissions Trading System, which will phase out free allocations of carbon credits to some industries which already use vast amounts of hydrogen, such as fertilisers.

 

While this could result in a switch to low-carbon H2, this does not necessarily mean they will opt for RFNBOs without a mandate, since these are expected to be much, much more expensive than even blue hydrogen produced using natural gas with carbon capture and storage.

 

Fertiliser companies across Europe, including one of the largest in Germany, SKW Piesteritz, are already shutting down some of their ammonia production capacity due to high energy prices in Europe. SKW Piesteritz had specifically cited a flooding of the European market with low-cost Russian fertilisers.

 

However, less ammonia production within Germany and a greater dependence on imports could mean less RFNBOs needed to meet the 42% target by 2030.

 

'Falling short'

 

Data from research house BloombergNEF (BNEF) suggests that Germany may not be on track to meet its RED III obligations for industrial use, which would require between 300,000 and 400,000 tonnes a year of green hydrogen by 2030.

 

“Just considering projects that are currently at advanced stages domestically, Germany would fall short of meeting these targets,” said Adithya Bhashyam, senior associate for hydrogen at BNEF.

 

The research firm tracks 100,000 tonnes of annual production capacity that is already operational or under construction in Germany, with another 90,000 tonnes a year from projects that have received subsidies but have yet to formally reach a final investment decision.

 

This would meet around half of the minimum targets for RED III in Germany, although imports could make up the difference if there is sufficient demand.

 

Meanwhile, Bhashyam notes that steelmakers in Germany have already launched tenders which would result in a combined supply of 300,000 tonnes of clean H2 — although not all of this will be renewable, rather than other, cheaper types of low-carbon hydrogen.

 

“Other markets like the Netherlands are considering a mix of subsidies and quotas to meet their RFNBO targets,” he adds. “Many member states that are not able subsidise the uptake of RFNBO hydrogen due to more constrained budgets will likely have to rely more heavily on quotas and penalties than Germany.”

 

Upcoming election

 

Germany is set for a federal election on 23 February, and depending on the results, could mean the ministry's current position may change with a new administration.

 

“We cannot speculate about the priorities of a future German government as elections will be next Sunday,” points out Jorgo Chatzimarkakis, CEO of industry association Hydrogen Europe.

 

However, he notes that the global economic context has changed dramatically in past few years, particularly with the election of Donald Trump in the US — which many had previously expected to be a source of low-cost exports of hydrogen and its derivatives to Europe.

 

“This is why a combination of very complex rules for the production of hydrogen with strict obligations might not be the strategy followed by some member states,” he continued.

 

“We therefore welcome the establishment of lead markets that try to accelerate the scale up of hydrogen use based on clearly defined targets for a transitional period. We are looking forward to the publication of the Commission’s strategy [the Clean Industrial Deal] 26th of February.”

 

Source:HydrogenInsight