Hydrogen Policy: Enabling a Hydrogen Economy

The transition toward net-zero has propelled the meteoric rise of hydrogen as an energy vector. The development of a hydrogen economy is however no mean endeavour, requiring nimble policies and robust regulatory frameworks to foster a competitive hydrogen industry.

What are the most compelling focal points for regulators to enable hydrogen against the backdrop of the need for clean, reliable and affordable power and the race to achieve Net Zero?

Growing a hydrogen economy requires a paradigm shift from the way energy is traditionally regulated.

A hydrogen economy is one that uses hydrogen as a regular fuel source for electricity production, energy storage and common modes of transportation. The aspiration would be to eliminate emissions whilst also enhancing economic development in a fully sustainable manner. Unlike for instance, in the use of renewables like solar power to supplement grid power, or the import of LNG as a secondary feedstock to piped natural gas, the transition to a hydrogen economy requires significant policy support to spur the development of systems and structures, including production facilities, transportation media, storage, refuelling stations and possibly hydrogen highways. Regulators cannot do it alone. Governments, industry players, R&D institutions, international trade associations, investors and consumers will need to be part of the conversation to carve out an optimal role of hydrogen.

Identifying the best use of hydrogen is key to understanding how hydrogen can viably displace or co-exist with other energy sources.

With the plethora of hydrogen applications being developed, policymakers are still urgently trying to understand where hydrogen may be the most useful in their respective energy systems. An incredible amount of real time industry knowledge and a close watch on the technological breakthroughs in this sector are required to understand the entire value chain, and to identify the means to match demand and supply cost-effectively. Most countries have assigned a role to hydrogen in sectors where emissions are hard to abate and where electrification or other mitigation measures may not be available or would be difficult to implement, namely heavy industry, long-distance transport, shipping and aviation. A useful way to identify the best use of hydrogen includes grant calls to test bed innovations and applications to identify suitable uses cases which will differ between jurisdictions. Regulatory sandboxes or regulation free zones can also be set up to commercialise applications whilst providing useful inputs on how hydrogen laws can be improved or implemented.

Regulatory tools are needed to boost hydrogen demand without a downward spiral into the perennial chicken and egg conundrum of supply and demand.

Just like how progressive policies support have spurred the exponential growth of renewable energy, nimble policies and regulations are essential to give hydrogen a leg up if hydrogen is going mainstream. Renewable energy tax credits and subsidies, feed-in tariffs and competitive tenders for large-scale public projects have all helped to cut costs and speed up deployment for renewables like solar and wind. In the same vein, carbon pricing, emissions control standards or clean energy regulations can likely also drive the demand for hydrogen. A number of countries are well ahead in the hydrogen race, having devised a dedicated hydrogen strategy and followed through with clear timelines for hydrogen deployment in specific sectors. Singapore’s national hydrogen strategy for instance, has stipulated that depending on technological developments and the development of other energy sources, hydrogen could supply up to 50% of Singapore power needs by 2050.

Enabling policies can encourage much needed investment in hydrogen infrastructure which in turn drives down costs and increases uptake.

A reliable and stable policy framework is essential to give investors the confidence to invest in the hydrogen supply chain network (equipment manufacturers, infrastructure providers, and vehicle manufacturers, etc.) and to develop hydrogen infrastructure (refuelling stations, pipelines, hydrogen highways, etc.) Policies and regulations may also help to propel the repurposing of existing infrastructure (e.g., converting natural gas to dedicated hydrogen pipelines) or to secure land availability and public acceptance for the development of infrastructure for hydrogen production, transportation or storage. In some cases, subsidies for green H2 projects may also help to incentivise investments in hydrogen infrastructure or technology. Public-private partnerships (PPP) foster cooperation between governments (public institutions), businesses (private institutions) and the public (users) and is a tested means to accelerate infrastructure development and eliminate the risks in the early stage.

Innovation policies create a stimulating environment for hydrogen innovation to be realized and for the exchange of information and knowledge to grow the industry.

A genuine intention to grow the hydrogen industry requires an in-depth examination of how a country can produce, store, transport and consume hydrogen. Each country differs in its approach to enable hydrogen within its existing energy system and there is also the need to avoid stranded assets in any switch to hydrogen. For instance, the US Inflation Reduction Act seeks to overcome the cost barrier for hydrogen production with lucrative tax credits, including by differentiating hydrogen production based on their carbon intensity and rewarding tax credits of USD0.60/kgH2 if lifecycle emissions are 2.5-0.4 kgCO2e/kgH2 up to USD3.00/kgH2 if lifecycle emissions are 0-0.45kgCO2e/kgH2.  Other useful tools to foster innovation include giving tax incentives for R&D, supporting manpower upskilling and providing direct grants for hydrogen projects. Over time, monitoring the relative success of the different approaches will help to identify the best practices for policy and regulation to enable hydrogen in differing contexts.

This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute legal advice and is intended to provide general information only. Information in this article is accurate as of 14 Aug 2023.

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