The role of hydrogen in a net zero future in five graphs

Hydrogen has great potential as a carbon-free energy vector, according to McKinsey Sustainability.

Hydrogen could play a central role in helping the world reach net-zero emissions by 2050. As a complement to other technologies, including renewables and biofuels, hydrogen has the potential to decarbonise industries such as steel, petrochemical, fertilisers and heavy-duty mobility (on- and off-road), shipping and aviation, as well as to support flexible power generation (among other applications). By 2050, hydrogen could contribute more than 20 percent of annual global emissions reductions.

The potential role of hydrogen in the broader energy transition is explored in a series of industry reports co-authored by McKinsey and the Hydrogen Council, a global initiative led by CEOs with members from more than 140 companies. The reports explore, for example, how demand for hydrogen could reshape current markets for energy, gas, chemicals and fuels; the need to scale up hydrogen production, in particular clean hydrogen (which is done with renewables or emission reduction measures); and what needs to happen in the next decade to reach net-zero targets.

The momentum behind hydrogen has accelerated over the past year, as outlined in Hydrogen Insights 2022, a recently published perspective on the state of the hydrogen industry. Both investment and project development have accelerated. However, there is still a funding gap.

The following five graphs show how hydrogen could play a key role in a low-carbon future.

Part of the net zero equation

By 2050, clean hydrogen could help reduce seven gigatons of_CO2 emissions a year, accounting for about 20 percent of human-made emissions if the world remains on its current global warming trajectory. By complementing other technologies, such as renewables and biofuels, hydrogen has the potential to decarbonise a variety of sectors, for example: industry (steelmaking, ammonia synthesis for fertilizer production); long-range ground mobility (as fuel for heavy trucks); shipping and aviation (to produce synthetic fuels for ships); and building heating. Hydrogen can also be used for flexible long-term storage of power grids. Industry and transport account for most of the reduction potential of hydrogen, which has a cumulative emission reduction of 80 gigatonnes of_CO2 until 2050.

Investment is growing

More than 680 large-scale hydrogen projects have been announced worldwide,1 worth $240 billion in direct investments. Projects include giga-scale production, large-scale industrial use, transportation and infrastructure. In Europe, which accounts for 314 of the projects announced, hydrogen is expected to play an important role in meeting decarbonisation targets, with use in industrial applications, transport and power generation. Within Asia, China accounts for about half of total ads. Among the projects announced in China, most focus on the use of hydrogen in transportation. In North America, hydrogen production should help boost the region’s domestic low-carbon energy supplies in multiple applications.

In addition, hydrogen export hubs have been announced in Africa, Latin America, the Middle East and Oceania. These centers could fuel growing demand in Asia and Europe, for example.

Cleaner future

Today, most hydrogen is produced with fossil fuels, also known as gray hydrogen. Harnessing the potential of hydrogen as a decarbonization tool will require a significant increase in clean hydrogen, which can be produced with renewables (often described as green hydrogen) or with fossil fuels combined with measures to significantly reduce emissions, such as carbon capture, utilization, and storage (often called blue hydrogen). Demand for clean hydrogen could grow to about 660 million metric tons annually by 2050. Total planned production of green and blue hydrogen through 2030 has reached more than 26 million metric tons annually, a figure that has roughly quadrupled since 2020. Clean hydrogen production costs are expected to decline rapidly over the next decade. At a production cost of approximately $2 per kilogram,

Green steel

Steel is one of the industries with the highest_CO2 emissions in the world. Largely due to the use of coking coal in the production process, steel accounts for about 8 percent of global annual emissions. While it will require an upfront investment to make the transition, hydrogen-based steelmaking has the potential to greatly reduce the industry’s footprint: steel is expected to generate around 8 percent of clean hydrogen demand by 2030, but could account for nearly 20 percent of avoided emissions. via hydrogen that year. More than 50 steel projects with green hydrogen ambitions have been announced worldwide, with Europe as the initial growth center.

Funding gap

Despite the momentum of hydrogen, there is still a significant investment gap for it to fully contribute to decarbonisation. Achieving a path to net zero will require additional direct investments of $460 billion by 20301 – closing the gap between the $240 billion of announced projects and the $700 billion of investments required. The investment gap is divided into three categories:

•Production. Clean hydrogen production has the highest number of announced investments; However, it is also the segment with the highest investment requirements. The current investment gap is about $150 billion through 2030.
• Transportation, distribution and storage. Investments in this part of the value chain are critical to enabling access to cost-competitive hydrogen supplies, for example by connecting regions with the lowest production costs to demand centers, developing refueling infrastructure for vehicles, or building pipelines to supply industrial plants. An investment gap of more than $165 billion remains.
• End use applications. Meeting projected demand in hydrogen’s various end-use applications, including steel production and transportation, will require additional investments of $145 billion, with the largest absolute gap in mobility. New industry applications, such as steel, will require significant investments, about $35 billion, for outlays such as new plants. However, steel is also one of the most advanced segments among announced investments, with close to half of the required investments announced.

How Leaders Could Help Maximize Hydrogen’s Potential in the Net-Zero Economy

For hydrogen to become a key player in the energy transition, scaling up over the next decade is critical. Policymakers and business leaders can consider actions in three key areas:

• Creating demand. Companies could play a role in seeking industry-wide transition commitments, while policymakers could create incentives, for example by introducing direct support mechanisms and mandatory quotas or targets.
• Infrastructure development. Initial investments are required to develop large-scale infrastructure that enables distribution, such as pipelines and refueling infrastructure.
• Scaling production. Hydrogen demand will reach mass market adoption only when low-cost clean hydrogen supply becomes available. This will require an expansion of electrolysis capacity and accompanying renewable energy capacity, as well as the construction of carbon capture, utilization and storage infrastructure. The sooner these investments are made in giga-scale production, the sooner hydrogen will become cost-competitive.

Source: The Energy Newspaper