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Forward thinking | Article - 5 Min

Could green hydrogen be the hero of net zero?

2 Authors - Forward thinking
18/08/2023 · 5 Min

Green hydrogen has been placed at the centre of many net zero initiatives for good reason.

It is commonly known as the ‘Swiss army knife’ of long-term decarbonisation thanks to its versatility. Unlike other renewable energy sources – such as wind and solar – green hydrogen is not dependent on intermittent external factors like the weather. It also offers the potential to provide turnkey solutions for harder-to-abate industries, which will be critical if Paris-aligned goals are to be achieved.

On the back of its across-the-board functionality, the Hydrogen Council forecasts that annual demand could increase sevenfold by 20501. So what is green hydrogen and how can it be used to solve the planet’s decarbonisation dilemmas?

Emissions-free fuel

As the lightest and most abundant element in the universe, hydrogen is nothing new. Yet, the fact that this light, colourless gas doesn’t produce carbon dioxide when burnt has put it at the forefront of hopes of finding a clean replacement for fossil fuels.

Hydrogen is currently produced in a rainbow of forms, including:

  • Brown hydrogen, which is produced using coal
  • Blue hydrogen, where carbon emissions are captured and stored
  • Green hydrogen, which is made using renewable energy sources to electrolyse water and separate the hydrogen from the oxygen.

In 2022, emissions-free green hydrogen made up less than 1% of US hydrogen production2 and has been criticised for being expensive in comparison with fossil fuels and brown hydrogen. Nevertheless, the plummeting cost of renewable energy should help make clean hydrogen more commercially viable over the coming decade.

The industry will also benefit from significant government and private funding to expand production – the Hydrogen Council expects USD 300 billion to be invested globally over the next decade. And it is also a key pillar of 2022’s Inflation Reduction Act in the US, where a new tax credit was created for clean hydrogen.

Cleaning up heavy industry

As a cleaner alternative to fossil fuels, green hydrogen has become the leading candidate for cleaning up hard-to-abate industries.

Sectors such as steel and cement require extreme heat during their production processes and are therefore responsible for vast quantities of carbon emissions – currently, these industries each account for around 8% of global emissions.

As a clean fuel, green hydrogen has the potential to simply replace fossil fuels in order to decarbonise these industrial processes and is therefore seen as a critical component for the future of these industries. Andy Marsh, President and CEO of Plug Power, a global end-to-end green hydrogen provider, predicts that “green hydrogen will take the place of anything which requires high-temperature burning and uses natural gas and oil today.” Several companies are already piloting green steel initiatives, but the higher price of clean hydrogen and the electrification of the steel-making process means, once again, these greener products can only be produced at a greater cost, with some estimates pricing it at 20-30% more per tonne.

Other potential industrial adopters include chemical companies. Hydrogen is often a byproduct of existing manufacturing processes and could be captured and used to power chemical plants.

Reinforcing the energy grid

Although the future of energy generation is undoubtedly via renewable sources, notably wind and solar. The intermittent nature of these power sources means they are not always able to cope with 24/7 demand, especially during peak hours. Moreover, batteries do not yet have the capacity to provide the necessary backup.

Hydrogen, on the other hand, can be used to store clean electricity during times of excess generation that can later be used during periods of peak demand. As a form of stored energy, hydrogen can provide flexibility and stability to power grids, reinforcing their reliability and resilience.

Rather than being a centralised activity, Andy Marsh sees hydrogen storage operating at a local level, through microgrids. Yet, to facilitate this, and other usage, he also believes large quantities of hydrogen will need to be transported via pipelines, forecasting that “in ten years’ time hydrogen pipelines will be just like natural gas pipelines are today.”

In fact, such pipelines are fast becoming a reality. In Austria, Germany and Italy a consortium of gas companies is already planning a 3,300km pipeline that would transport green hydrogen from the sunshine-rich areas of north Africa and southern Italy to regions further north.

Planes, trains and automobiles

Transport’s reliance on fossil fuels means it contributes a staggering 20% of carbon emissions globally. Hydrogen fuel cells are already being used to power zero-emission long-haul, high-payload vehicles where batteries are not a straightforward option due to the significant weight needed to provide the required power.

On the other hand, the car manufacturing industry is mainly throwing its weight behind electric vehicles. While the uptake of EVs is growing at an impressive rate – 10 million electric cars were sold worldwide in 2022 and sales are expected to grow by another 35% this year3 – the sector is also hampered by range anxiety, concerns over the high cost of vehicles and the lagging rollout of charging points.

According to Andy Marsh, the future for zero-emission domestic transport resides in hybrid electric / hydrogen fuel cell vehicles, saying “with hybrid vehicles you can have hydrogen fuelling stations where people can fill up, just as they do with gasoline today, and really leverage the attributes of both batteries and fuel cells. The combination of both can solve many problems.”

Such a solution will also be more convenient for drivers: rather than waiting at least 15 minutes at a high-speed electric charging station, hydrogen refuelling will take a matter of minutes.

On the more experimental front, the world’s first hydrogen train journeyed through Germany in 2018 and is scheduled to be rolled out in France this year. Carbon-free flying has also taken off, with small, short-range flights having proved successful. Hydrogen is seen as a disruptive option for the hard-to-decarbonise airline industry, where many established players favour innovations around bio-based and sustainable aviation fuels, although questions around the commercial viability of both remain unanswered.

Shipping is another area of transportation where the prospect of using hydrogen has generated debate. Again, pilot projects have shown that hydrogen can be successfully used on a small scale, but concerns remain around how liquid hydrogen can be stored at temperatures below -253C without using up too much precious cargo space.

Tomorrow’s hydrogen economy

Given its alignment with government net zero commitments and much-needed clean energy solutions, there is little doubt that green hydrogen will play a big role in a more sustainable economic future.  According to McKinsey, the hydrogen economy could support global revenues of more than $2.5 trillion per year by 2050, with jobs for more than 30 million people and would help avoid 6Gt of CO2 emissions4.

Yes, questions currently remain around the ability to cost-effectively provide large-scale, zero-carbon green hydrogen, but this is where governments, regulators and investors need to step in. As well as broad-scale public and private investment, BloombergNEF has suggested a higher carbon price will also help green carbon become more cost-competitive5.

Despite these challenges, the investment case for green hydrogen is clear even though the pivot towards green hydrogen is still in its infancy. According to Andy Marsh, “as the world becomes more electrified, and as hydrogen becomes a substitute, people are going to think about how to use hydrogen in ways that nobody’s talking about today.”








Companies mentioned herein, are for illustrative purposes only, are not intended as solicitation of the purchase of such securities, and do not constitute any investment advice or recommendation.

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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