COVID-19 Impact: Uncertainty over the Future of Clean Hydrogen Sector
Energy
5 min readIntroduction
As the world fight COVID-19 pandemic and the global economy is gearing up to face the worst recession since the Great Depression, there are apprehensions about the future of environment and climate change initiatives. Unprecedented Covid-19 and one of the worst oil and gas crisis have made the world think twice about their already planned projects and policies to combat the climate change menace. If climate and environment policy commitments take the back seat in economic recovery plans, the clean hydrogen sector, which is at the pre-commercialization phase, will be the hardest hit.
2019 was a great year for the hydrogen sector with the growth and viability of hydrogen, and supporting technology was demonstrated by several new players in the industry, government agencies, and energy companies. Hydrogen Council and IRENA, both in its renewable energy roadmap reports, estimated an 18% and 6% hydrogen share, respectively, in total final energy consumption by 2050. The above target will never be met if swift, decisive, and coordinated action is not taken to stave off the risks posed by Covid-19 and Oil & Gas crisis.
Oil & Gas Crisis to Worsen the Situation
Oil & Gas industry, though one of the major emitters of carbon emissions, was actively involved in the energy transition before the Covid-19 pandemic, with the likes of Total, Shell, and BP involved in several large-scale green hydrogen demonstration projects in Europe. But recent oil price crash could delay such planned and under-development projects, as the oil majors work to salvage their core business in the short to medium term. Fear of global economic recession will not let the oil prices to recover in the near term from their lowest levels in the last two decades and will further undermine the competitiveness of green investments.
Government to Face a Tough Time Ahead
Clean energy projects, including green hydrogen, require massive initial capital and carry substantial risk. Therefore, around 70% of the world’s clean energy investments are government-driven either through direct government finance or in response to policies such as subsidies or taxes. As the world faces severe economic fallout, the Governments worldwide will face an immediate challenge of kick-starting their national economies.
The good news is that most climate and environment ministers in the 27-nation EU back a call to put the European Green Deal at the heart of a post-coronavirus recovery. Green Deal is an EU blueprint to reach net-zero emissions of greenhouse gases by 2050. But the economic recovery stimulus package is expected to bear the brunt of loss of tax revenues, ultimately leading to a substantial increase in the level of the public deficit, which will reduce funding and investments in climate change mitigation and adaptation. The worst-case will be abandoning the climate objectives all together as already urged by Czech PM to ditch the Green Deal and Polish Deputy Minister of State Assets demanding the EU ETS to be abolished from 2021. Similarly, in a recent development, Britain was found resisting EU moves to incorporate guarantees on respecting international climate change commitments in a future trade deal.
Hydrogen, an Inevitable Fuel to the Energy Transition
Post Covid-19 world will be divided into sides, one which will be favoring the inclusion of energy transition plans in the economic recovery package and the other which will be against it. No matter which way the world moves, but one thing is sure that without clean hydrogen, the world cannot achieve its 2050 goals on greenhouse gas emissions reduction.
Hydrogen is a solution once successfully implemented can lead to sector coupling. It can decarbonize the gas grids and can be a promising decarbonization option for the transport sector. At the same time, it can be used in industry to produce high-grade heat, as seen with the 6 MW green hydrogen electrolysis plant completed last year at Voestalpine steelmaking facility.
Future Actions
It’s clear that as soon as the Covid-19 pandemic subsides, the task in hand for the governments globally will be policies and initiatives which can quickly turn around the economy from recession onto the recovery path. But the policies and instruments should make sure that the recovery is sustainable, failure to address it will only foster temporary recovery of industries which is unsustainable in the long run. The initial step for the government should be to make clear confirmation of their commitment towards climate goals which will bolster investor’s confidence towards energy projects which are clean and sustainable but risky.
Governments worldwide need to integrate climate concerns in the post-COVID-19 stimulus packages, and few actions governments can take to keep the clean hydrogen sector afloat are as follows:
- Strategic investments like loans, financing, guarantees to companies, and projects related to green hydrogen, need to be provided. The companies associated with green hydrogen technology are not established yet and are betting high on future opportunities of a hydrogen economy.
- Discourage the industry of using fossil fuels as an energy source by removing fossil fuel subsidies and tax breaks, thereby narrowing the funding gap of green hydrogen projects.
- Clearing the path for more clean hydrogen projects by removing unnecessary barriers.
