If the European Union is to achieve its 2050 climate goals, an increasing amount of the electricity consumed must be produced from renewable and low-carbon energy resources. Therefore, the full energy circle of production, transportation and usage needs to adhere to a decarbonisation policy track. This mission calls for political will to support technological shifts in the energy sector. The production and storage of hydrogen are likely to entail a major push towards a green energy transition in the EU as the technique could resolve a frequently raised limitation of renewable energy; that of ensuring that production equals the demand in a timely manner.
“Hydrogen is an opportunity that does not come around often. Let’s make the most out of it”
-Commissioner Kadri Simons, 2020
(Speech at High level conference on Hydrogen on 5 Oct)
In July 2020, the European Commission adopted the EU Hydrogen Strategy, intended to explore how ‘clean’ hydrogen can make the EU climate-neutral and contribute to a reduction of the EU’s carbon emissions. The Commission should, however, prepare itself for considerably cumbersome negotiations with the Council and the European Parliament as a number of legal and political constraints may stand in the way for a commonly approved strategy.
There is currently no EU wide market on hydrogen, but large-scale projects are nevertheless on the way in several EU Member States which has created a legal loophole on how production, storage and transmission of hydrogen should be regulated. This blog will present in brief the considerations from which European Commission should depart when working towards a new regulatory framework on hydrogen.
A loophole in the legal framework
A clear and consistent regulatory framework should by all means be considered a necessity for stimulating new investments and long-term initiatives, whether they are launched by national governments or by the EU.
However, the Third Energy Package is yet falling short in delivering clarity on how the production, storage and transmission of hydrogen should be regulated. As the Gas Directive (2009/73/EG) does not contain any clear definition of ‘gas production’, it is unclear whether hydrogen should be considered a gas in the same way as natural gas and biogas. It is therefore unclear whether storage of hydrogen should be considered as storage of gas or storage of electricity in the form of gas. Such ambiguity raises the question as to whether the production and storage of hydrogen should be regulated by the Gas directive or the Electricity directive (2009/944). As the Gas Directive prohibits gas producers from running storage facilities, and as there is no equivalent regulation in the Electricity directive, the application of a directive or the other would have certain implications.
An essential feature in the Third Energy Package is the strict separation between energy producing companies and the stakeholders responsible for the transmission. The transmission infrastructure is perceived as an essential facility, which is why it should be accessible to any market player on a transparent and non-discriminatory basis. The idea is to prevent transmission operators from limiting energy producers in order to benefit from pipelines. However, the provisions of ‘unbundling’ cannot be considered appropriate for a market which does not exist. For instance, coordinated management of risk is key in developing hydrogen industrial clusters. Allowing gas producers to also run storage facilities and to integrate more closely with transmission operators should be considered as an important step towards a decarbonised hydrogen market. These ideas have already been raised by some EU Member States, such as Germany and the Netherlands.
A lack of political consensus?
A political issue that concerns the hydrogen-fueled transition is the number of different standards tolerating different levels of hydrogen in the transmission of natural gas. The maximum level of hydrogen in the natural gas system spans from 10% mol in Germany, 6 % mol in France, to only 0.02% mol in the Netherlands. As a direct consequence, the exchange of hydrogen-enriched natural gas between neighboring states in Europe is highly constrained, slowing down the hydrogen-fueled energy transition.
The potential of hydrogen rests largely on finding a cost effective way of producing it without emitting CO2. Although important legal and political ambiguities remain, the EU Hydrogen Strategy provides for some clarity on how the Commission intends to financially support certain categories of hydrogen. The carbon footprint of ‘low-carbon’ hydrogen that benefits from grid electricity in the production process will ultimately depend on the country’s energy mix. The Strategy is nevertheless proposing that producers that derive hydrogen from natural gas supplemented by carbon capture and storage (CCS) techniques will be eligible for state aid. Electrolysis using electricity from nuclear power is not considered as an output of renewable energy and will therefore not be subject to any state aid support, despite zero GHG emissions. On this point, the discussion on commonly agreed frameworks on different hydrogen production techniques is likely to lead to difficult negotiations between EU Member States. While in Germany, the hydrogen is expected to be derived from reformed natural gas with CCS technology, France is expected to produce a substantial share of its hydrogen by electrolysis, using its nuclear power plants.
Conclusion and Policy Recommendations
If the EU intends to spur a green hydrogen-fueled energy transition, the European Commission must come up with comprehensive proposals that can resolve several regulatory ambiguities and reach a political consensus between Member States. The EU Hydrogen Strategy may present a vision for an EU-wide push on renewable and low-carbon hydrogen. But as it stands, it is still far from the regulatory roadmap needed to ensure a robust framework. Without a coherent framework on how hydrogen production, storage, and transmission should be regulated, the private sector will remain reluctant to invest in this transition.
The European Commission is due to present new regulations on hydrogen in June 2021. By working on more comprehensive terminology and more integrated projects of producing hydrogen, the European Commission should enable a closer cooperation between hydrogen producing companies and the transmission operators. Unbundling rules in the Gas Directive should therefore be replaced with a regulatory framework that allows producer-pipeline consortions to empower a hydrogen-fueled energy transition in the EU.
Written by Staffan Akesson, co-authored by Davide Grison and Mathilde Cournut.
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