IRENA: Renewable hydrogen sector to potentially reshape global energy trade

The renewable hydrogen sector could play a crucial role in reshaping global energy trade, creating opportunities for new players, including developing countries, a new IRENA report found.

According to the report “Shaping sustainable international hydrogen value chains,” low-carbon hydrogen is key to achieving the goal of reaching net-zero emissions by 2050, but the techno-economic potential to produce low-cost, low-carbon hydrogen is not evenly distributed globally.

“The regions with the potential to produce it may not align with those that will have high future demand. This could lead to the creation of a new global market that not only trades low-carbon hydrogen but also its derivatives. This may reshape global energy trade and create opportunities for new players, including developing countries,” IRENA said.

This new global market could also bring about highly complex international value chains that require a comprehensive sustainability approach that encompasses various dimensions, IRENA added, noting that its report provides an analysis covering economic, governance and environmental aspects, as well as potential socio-economic benefits and possible risks for developing countries.

From an economic standpoint, the report found that the cost-effective production of renewable hydrogen and its derivatives relies on access to cheap renewable energy, as well as access to water and land resources. Future market developments are expected to be “significantly” influenced by regulations and incentive schemes aimed at promoting global hydrogen production.

As per IRENA, renewable-based hydrogen production through electricity is expected to face the least uncertainty in meeting future regulations in importing markets such as the European Union (EU), Japan and South Korea, and it is also most likely to benefit from incentive schemes.

From a governance and strategy-setting perspective, there have been “significant” developments, IRENA stated, noting that the G7 members, as future major hydrogen demand hubs, have been very active in hydrogen policy-making. Additionally, more and more countries, including developing countries, are moving forward with strategy launches and policy developments. However, compared to G7 members, many developing countries have limited budgets and project developers face high financing costs. Consequently, their strategies often focus on creating a business-friendly environment through enabling policies, IRENA pointed out.

It is also worth mentioning that countries in the Global South have acknowledged the predicted import demand noted in the national hydrogen strategies of the Global North and have taken an export-oriented approach to address these markets. For this approach to be successful, however, the projected growth of the global hydrogen market will need to materialize as anticipated, IRENA claimed.

In terms of environmental impact, renewable hydrogen is said to emit, on average or typically, less greenhouse gases (GHG) than blue hydrogen over its lifecycle. At the same time, when considering hydrogen production for export, IRENA noted that it is crucial to address the potential for any environmental burdens being transferred to developing countries, if such an offloading of adverse impacts is to be prevented.

When it comes to long-distance transportation of renewable hydrogen and derived products, different carrier options exist, with varying infrastructure requirements and technical considerations. According to IRENA, most likely, there will be a multi-carrier future.

The report also found that social acceptance and community involvement play crucial roles in the successful implementation of new energy technologies, particularly in the context of large-scale infrastructure development.

“By promoting local industrial development, the co-benefits of renewable hydrogen production can be increased. Developing countries could create more sustainable jobs, add long-term value and improve their international competitiveness. They could also reduce the risks associated with the global hydrogen trade by participating in both the upstream and downstream activities of renewable hydrogen production. Therefore, it will be necessary to adopt a comprehensive industrial development policy to address the complexities of this changing landscape in a fair and equitable manner,” IRENA concluded.