Policy & Socio-Economics

A feasible path to limit planetary warming to 1.5°C requires certain countries and sectors to go below net zero and to do so well before the middle of the century according to new analysis from the authors of the Energy Transition Outlook. DNV’s pathway to net zero says North America and Europe must be carbon neutral by 2042 whereas Indian Subcontinent is set to be a net emitter by 2050 Net zero report says carbon capture storage and use is required as energy production will not be carbon neutral by 2050 Aim to halve emissions by 2030 is out of reach but massive early action is needed if we are to have any chance of reaching a 1.5°C future DNV’s new report “Pathway to Net Zero Emissions” describes a feasible way to limit global warming to 1.5°C Policy makers are set to meet in Glasgow for the COP 26 summit with an eye on achieving zero emissions by 2050. For this to happen North America and Europe must be carbon neutral by 2042 and then carbon negative thereafter according to DNV’s pathway to net zero. The pathway also finds that Greater China must reduce emissions by 98% from 2019 levels by 2050. There are regions that cannot realistically transition completely away from fossil fuels in the same timeframe such as the Indian Subcontinent which will reduce emissions by 64%. Pathway to Net Zero Emissions also lays out the pace at which different industry sectors need to decarbonize. The so-called hard-to-abate sectors will take longer to decarbonize and even if sectors like maritime (-90% CO2 emissions in 2050) and iron and steel production (-82%) scale up the introduction of greener technologies they will still be net emitters by 2050.

This paper presents two different scenarios for the energy system of the Netherlands that achieve the Dutch government’s national target of near net-zero greenhouse gas emissions in 2050. Using the system optimisation model OPERA the authors have analysed the technology sector and cost implications of the assumptions underlying these scenarios. While the roles of a number of key energy technology and emission mitigation options are strongly dependent on the scenario and cost assumptions the analysis yields several common elements that appear in both scenarios and that consistently appear under differing cost assumptions. For example one of the main options for the decarbonisation of the Dutch energy system is electrification of energy use in end-use sectors and for the production of renewable hydrogen with electrolysers. As a result the level of electricity generation in 2050 will be three to four times higher than present generation levels. Ultimately renewable energy – particularly from wind turbines and solar panels – is projected to account for the vast majority of electricity generation around 99% in 2050. Imbalances between supply and demand resulting from this variable renewable electricity production can be managed via flexibility options including demand response and energy storage. Hydrogen also becomes an important energy carrier notably for transportation and in industry. If import prices are lower than costs of domestic production from natural gas with CCS or through electrolysis from renewable electricity (2.4–2.7 €/kgH2) the use of hydrogen increases especially in the built environment.

The Energy Innovation Needs Assessment (EINA) aims to identify the key innovation needs across the UK’s energy system to inform the prioritisation of public sector investment in low-carbon innovation. Using an analytical methodology developed by the Department for Business Energy & Industrial Strategy (BEIS) the EINA takes a systemlevel approach and values innovations in a technology in terms of the system-level benefits a technology innovation provides.1. This whole system modelling in line with BEIS’s EINA methodology was delivered by the Energy Systems Catapult (ESC) using the Energy System Modelling Environment (ESMETM) as the primary modelling tool.



To support the overall prioritisation of innovation activity the EINA process analyses key technologies in more detail. These technologies are grouped together into sub-themes according to the primary role they fulfil in the energy system. For key technologies within a sub-theme innovations and business opportunities are identified. The main findings at the technology level are summarised in sub-theme reports. An overview report will combine the findings from each sub-theme to provide a broad system-level perspective and prioritisation.



This EINA analysis is based on a combination of desk research by a consortium of economic and engineering consultants and stakeholder engagement. The prioritisation of innovation and business opportunities presented is informed by a workshop organised for each sub-theme assembling key stakeholders from the academic community industry and government.



This report was commissioned prior to advice being received from the CCC on meeting a net zero target and reflects priorities to meet the previous 80% target in 2050. The newly legislated net zero target is not expected to change the set of innovation priorities rather it will make them all more valuable overall. Further work is required to assess detailed implications.

This Insight continues the OIES series considering the future of gas. The clear message from previous papers is that on the (increasingly certain) assumption that governments in major European gas markets remain committed to decarbonisation targets the existing natural gas industry is under threat.   It is therefore important to develop a decarbonisation narrative leading to a low- or zero-carbon gas implementation plan.



Previous papers have considered potential pathways for gas to decarbonise specifically considering biogas and biomethane and power-to-gas (electrolysis) . This paper goes on to consider the potential for production transport and use of hydrogen in the decarbonising energy system. Previous papers predominately focused on Europe which has been leading the way in decarbonisation. Hydrogen is now being considered more widely in various countries around the world so this paper reflects that wider geographical coverage.



Since the term ‘hydrogen economy’ was first used in 1970 there have been a number of ‘false dawns’ with bold claims for the speed of transition to hydrogen.  This Insight argues that this time for some applications at least there are grounds for optimism about a future role for decarbonised hydrogen but the lesson from history is that bold claims need to be examined carefully and treated with some caution. There are no easy or low-cost solutions to decarbonisation of the energy system and this is certainly the case for possible deployment of low-carbon hydrogen. A key challenge is to demonstrate the technical commercial economic and social acceptability of various possibilities at scale. Hydrogen will certainly play a role in decarbonisation of the energy system although the size of the role may be more limited than envisaged in some more optimistic projections.



Open document on OIES website

On 26 June the World Energy Council held a webinar presenting the results of its latest Innovation Insights Brief on hydrogen engaging three key experts on the topic:



Nigel Brandon Dean of the Faculty of Engineering Imperial College London



Craig Knight Director of Industrial Solutions Horizon Fuel Cell Technology



Dan Sadler H21 Project Manager for Equinor



During the webinar the experts answered a series of policy technical and safety questions from the audience. The webinar started with a poll to get a sense of which sectors attendees saw hydrogen playing a key role in 2040 - 77% chose industrial processes 54% mobility and 31% power generation. The questions ranged from the opportunities and limitations of blending hydrogen with natural gas to safety concerns surrounding hydrogen.



KEY HIGHLIGHTS:

How much hydrogen can be blended with natural gas depends on the rules and regulation of each country. The general consensus is that blending 10% by volume of hydrogen presents no safety concerns or specific difficulties. This would provide an opportunity to develop low hydrogen markets. Nevertheless blending should not be the end destination. It is not sufficient to meet carbon abatement targets.



Low carbon ammonia has a role to play in the new hydrogen economy. It is a proven and understood technology which is easier to move around the world and could be used directly as ammonia or cracked back into hydrogen.



One of the main focus today should be to replace grey hydrogen with green hydrogen in existing supply chains as there would be no efficiency losses in the process.



In China the push for hydrogen is transport-related. This is driven by air quality and energy independence concerns. In the next 10 years the full life cost of fuel cell electric vehicles (FCEVs) is expected to be lower than for internal combustion engines. This is due to the fact that FCEVs require less maintenance and that the residual value in the fuel cells is relatively high. At the end of life 95% of the platinum in fuel cells can be repurposed.



FCEVs should not be regarded as competing with battery electric vehicles they sit next to each other on product maps. FCEVs can benefit from the all of the advances in electric drive train systems and electric motors.



To close the webinar attendees were asked whether hydrogen was going through another hype cycle or if it was here to stay. 10% answered hype and 90% here to stay.

This paper looked at 39 hydrogen associations across Europe to understand which economic sectors support the hydrogen transition in Europe and why they do so. Several broad conclusions can be drawn from this paper. It is clear that the support for hydrogen is broad and from a very wide spectrum of economic actors that have clear interests in the success of the hydrogen transition. Motivations for support differ. Sales and market growth are important for companies pursuing professional scientific and technical activities as well as manufacturers of chemicals machinery electronic or electrical equipment and fabricated metals. The increasing cost of CO2 combines with regulatory and societal pressure to decarbonize and concerns from investors about the long-term profitability of sectors with high emissions. This makes hydrogen especially interesting for companies working in the energy transport steel and chemical industries. Another motivation is the ability to keep using existing fixed assets relevant for ports oil and gas companies and natural gas companies. More sector-specific concerns are a technological belief held by some motor vehicle manufacturers in the advantages of FCVs over BEVs for private mobility which is held more widely regarding heavy road transport. Security of supply and diversifying the current business portfolio come up specifically for natural gas companies. Broader concerns about having to shift into other energy technologies as a core business are reasons for interest from the oil and gas sector and ports.

Perhaps the most important lesson is that the hydrogen transition has already begun – but it needs continued policy support and political commitment. Carbon-intensive industries such as steel and chemicals are clearly interested and willing to invest billions but need policy support to avoid carbon leakage to high-carbon competitors before they commit. The gas grid is ready and many operators and utility companies are eager but they need clearance to experiment with blending in hydrogen. Hydrogen road vehicles still face many regulatory hurdles. There are several clusters that can serve as models and nuclei for the future European hydrogen economy in different parts of Europe. However these nuclei will need more public funding and regulatory support for them to grow.

Link to document on Oxford Institute for Energy Studies website 

The European gas industry has argued that gas can be a bridging fuel in the transition to decarbonised energy markets because of the advantages of switching from coal to gas and the role of gas in backing up intermittent renewable power generation. While this remains a logical approach for some countries in others it has proved either not relevant or generally unsuccessful in gaining acceptance with either policymakers or the environmental community. Policy decisions will be taken in the next 5-10 years which will irreversibly impact the future of gas in the period 2030-50. A paradigm shift in commercial time horizons and gas value chain cooperation will be necessary for the industry to embrace decarbonisation technologies (such as carbon capture and storage) which will eventually be necessary if gas is to prolong its future in European energy markets. To ensure a post-2030 future in European energy balances the gas community will be obliged to adopt a new message: `Gas can Decarbonise’ (and remain competitive with other low/zero carbon energy supplies). It will need to back up this message with a strategy which will lead to the decarbonisation of methane starting no later than 2030. Failure to do so will be to accept a future of decline albeit on a scale of decades and to risk that by the time the community engages with decarbonisation non-methane policy options will have been adopted which will make that decline irreversible.

The European Union (EU) has adopted ambitious decarbonization targets for 2050.

Renewable electricity and electrification are the key drivers but are not sufficient on their own to meet the targets. A number of countries expect decarbonized gas (e.g. renewable hydrogen and biomethane) to be part of a future decarbonized energy system.

Within that context this paper examines proposals recently issued by Spain’s energy regulator (CNMC) to define the methodology for remunerating gas distribution and transmission networks and LNG regasification terminals. Their proposals would reduce significantly the remuneration of these activities. Bearing in mind the objective of decarbonization this paper analyzes key features of the proposals and concludes with recommendations. We suggest:

• Adoption of a common methodology for remunerating new investment in gas and electricity infrastructure assets. The Regulatory Asset Base (RAB) approach is a suitable methodology especially for high-risk investment to integrate hydrogen.
• CNMC reconsideration of its proposals for existing assets. The aim should be to ensure that even if remuneration is reduced to some extent investors will still be compensated adequately and that the companies will continue to support the investments needed to digitalize processes deliver natural gas and eventually deliver renewable gas where it is economic to do so. This is an important signal for current and future investors whose investments will be regulated by the CNMC.
• Clarification of the methodology for remunerating renewable gas facilities. If renewable gas (especially hydrogen) requires access to regulated gas networks the CNMC methodology must provide suitable incentives to invest in network expansion and upgrading as required as well as to maintain natural gas operations. Even if no decision is made in the short-term regarding hydrogen it would be prudent to leave the door open by making the regulation compatible with future decisions involving hydrogen development.
• Consideration of potentially stranded assets. The CNMC and the Government should coordinate over the remuneration of infrastructure assets when national policy decisions may lead to the stranding of these assets.
• Decarbonization of the energy system as a whole. The CNMC and the Government should consider how best to promote the decarbonization of the energy system as a whole rather than its individual parts and what role is to be played by regulated networks and by unregulated initiatives in competitive markets especially for the development of hydrogen systems.

​Link to document on OIES website​​​

Algeria richly-endowed with renewable resources is well-positioned to become a vital green hydrogen provider to Europe. Aiming to aid policymakers stakeholders and energy sector participants this study embodies the first effort in literature to investigate the viability and cost-effectiveness of implementing green hydrogen production projects destined for exports to Europe via existing pipelines. A land suitability analysis utilizing multi-criteria decision making (MCDM) coupled with geographical information system (GIS) identified that over 43.55% of Algeria is highly-suitable for hydrogen production. Five optimal locations were investigated utilizing Hybrid Optimization of Multiple Electric Renewables (HOMER) with solar-hydrogen proving the most cost-effective option. Wind-based production offering higher output volumes reaching 968 kg/h requires turbine cost reductions of 17.50% (Ain Salah) to 54.50% (Djanet) to achieve a competitive levelized cost of hydrogen (LCOH) of $3.85/kg with PV systems. A techno-economic sensitivity analysis was conducted identifying Djanet as the most promising location for a 100 MW solar-hydrogen plant with a competitive LCOH ranging from $1.96/kg to $4.85/kg.

To inform our Sixth Carbon Budget advice the Climate Change Committee (CCC) asked the University of Leeds to undertake independent research to evaluate which policies (and combinations of policies) would enable industrial decarbonisation in line with the UK’s net zero target without inducing carbon leakage. The research focused on policies applicable to the manufacturing sector but with some consideration also given to the policies required to decarbonise the Fossil Fuel Production and Supply and Non-Road Mobile Machinery sectors. This report:

Sets out a comprehensive review of existing policies;

• Identifies future policy mechanisms that address key challenges in decarbonising industry;
• Explores how combinations of policies might work together strategically in the form of ‘policy packages’ and how these packages might evolve over the period to 2050;
• Evaluates a series of illustrative policy packages and considers any complementary policies required to minimise carbon leakage and deliver ‘just’ industrial decarbonisation.
• The findings were developed through a combination of literature review and extensive stakeholder engagement with industry government and academic experts. 

This supported the Sixth Carbon budget.

The paper can be downloaded from the CCC website