Hydrogen is touted as a climate solution, but can it be good business?

Hydrogen is commonly seen as a key factor within the world power transition, providing a cleaner different to fossil fuels—specifically for difficult-to-decarbonize sectors resembling heavy-duty transportation and metal and cement manufacturing. However turning hydrogen right into a globally traded commodity requires extra than simply manufacturing.

In accordance with new analysis from UBC Sauder College of Enterprise, hydrogen‘s business success hinges critically on innovation, strategic authorities insurance policies, and long-term contracts to make sure cost-effective manufacturing and scalable commerce.

The work is published within the Journal of Environmental Economics and Administration.

The examine developed a global commerce mannequin to look at elements that may make hydrogen producers aggressive on the worldwide scale, resembling transportation costsauthorities insurance policies and technological advances.

“Hydrogen has tremendous potential to reshape energy markets,” stated Dr. Werner Antweiler, affiliate professor on the UBC Sauder College of Enterprise and co-author of the examine. “But making it profitable requires coordinated efforts across governments, industries and markets to reduce costs and build the infrastructure for trade.”

Reducing manufacturing prices

Hydrogen’s business viability relies upon closely on lowering manufacturing prices, notably for inexperienced hydrogen, which is produced from renewable energy sources like wind and photo voltaic. Whereas inexperienced hydrogen is the cleanest possibility, it is presently the most costly in comparison with blue hydrogen (produced from natural gas with carbon seize) and turquoise hydrogen (produced by splitting methane).

“We’re seeing progress with cheaper solar power, but we also need breakthroughs in electrolyzers to make green hydrogen viable at scale,” stated Dr. Antweiler.

Authorities insurance policies: Innovation and constructing hydrogen infrastructure

Transportation is one other main problem. Hydrogen is dear to maneuver.

“Hydrogen can be transported in two ways: using converted natural gas pipelines or liquefying it, either by cooling it like natural gas or converting it into ammonia for shipment by tanker,” stated Dr. Antweiler.

As an alternative of simply subsidizing manufacturing, governments might want to put money into infrastructure—pipelines, export terminals and storage services—to assist cost-effective hydrogen commerce.

“Hydrogen producers want to focus on production, not building export facilities. There’s a lot of development needed outside the hydrogen industry itself,” famous Dr. Antweiler.

Authorities insurance policies would additionally have to prioritize innovation. Nations investing in analysis and growth for cheaper electrolyzers or methane pyrolysis for turquoise hydrogen will achieve a aggressive edge within the rising market.

“Innovation is the real game-changer. There’s significant potential for hydrogen to transition from locally interesting to globally traded as these technologies develop,” stated Dr. Antweiler.

Lengthy-term contracts: Guaranteeing market stability

A key discovering was the significance of long-term contracts within the hydrogen market, the place capital-intensive manufacturing vegetation require long-term certainty. These contracts stabilize costs and guarantee dependable demand, offering safety for each producers and patrons.

“Hydrogen won’t operate like the spot market for oil and gas,” stated Dr. Antweiler. “Developers need guarantees of customers for years to come, which is why long-term contracts are crucial.”

Nonetheless, these contracts additionally carry dangers. A rustic would possibly decide to blue hydrogen as we speak, solely to search out that inexperienced hydrogen turns into cheaper later. Balancing stability with flexibility shall be key to the hydrogen market’s long-term success.

A two-way commerce future: Exporting and importing hydrogen

The examine discovered that hydrogen commerce is prone to contain each exporting and importing, in contrast to oil markets the place nations sometimes do one or the opposite. Many nations have the potential to supply hydrogen with renewable power, whereas the availability of fossil fuels is concentrated in a handful of enormous producer nations.

“Hydrogen trade could evolve into a system where countries both buy and sell,” defined Dr. Antweiler. “As demand increases, nations will need to secure supply from multiple sources, making hydrogen a flexible, globally traded commodity.”

Dr. Antweiler famous that main power corporations in Europe and the Center East are already investing billions in hydrogen infrastructure as they put together for a future the place hydrogen performs a central function in power markets past fossil fuels.