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Green Hydrogen Race Has Begun, It Can Redefine Geopolitical Alliances between Countries

Image: News18

Image: News18

India and the US have launched the Hydrogen Taskforce under the aegis of their Strategic Clean Energy Partnership (SCEP).

Action to mitigate climate change is set up to be a major global theme politically and economically for the coming decades. This is no longer merely about environmental conservatism; it is also about long-term industrial and economic sustainability. In the competition between countries, access to technology, natural resources, and human capital needed to deliver this will be a key geopolitical lever. Each region has its own set of strengths and strategic priorities. In a decarbonising world, countries and businesses with technologies to enable this shift at pace and scale may have a relative competitive edge like how access to resources such as coal and oil shaped the industrialised twentieth century.

Hydrogen, a critical energy vector on the path to decarbonisation and to reduce energy dependency on fossil fuels, is at the forefront of the global energy landscape. While hydrogen has been touted as the “fuel of the future” since the 1970s, green hydrogen (produced using renewable energy and electrolysis to split water into hydrogen and water) is now enjoying an increased political and business momentum. Rising net-zero targets, advances in R&D and technology, significant reductions in the cost of producing renewable energy, with several countries developing hydrogen national strategies, and private companies investing in the development of hydrogen-related projects are driving the current surge in interest.

The current level of interest in hydrogen is unprecedented, partly because of the large number of possible uses being explored including transportation (particularly for heavy-duty vehicles in the short-term and marine and aviation in the long-term), power generation, energy storage, industrial use (manufacturing, iron and steel production, chemical sector, oil refining), buildings (heating and cooling) sector, and energy export. Considering a wide range of applications of this fuel, green hydrogen is set to increasingly dominate energy supply systems.

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The Hydrogen Council estimated that hydrogen can unlock 15 per cent of global energy demand by 2030 if priced at ~ US $1.80 per kilogram (kg). According to Bloomberg, hydrogen could meet 24 per cent of global energy demand by 2050 if a strong and comprehensive policy is in force, thus, highly influencing the geopolitical landscape.

The hydrogen economy has the potential to improve energy security, diversify the economy, and impact the geopolitical landscape. In the long run, this transition is likely to disrupt not just the energy business, but also geopolitical dynamics. Cross border trade in hydrogen can substantially redraw the landscape of global energy trade, develop a new class of energy exporters and importers and redefine geopolitical ties and alliances between countries.

The global hydrogen economy will most likely be shaped by trade in green hydrogen, based on comparative advantages. As a result, even if a country has the ability to manufacture hydrogen from local sources, it will opt to gain from international trade. Because of these reasons, this future economy will probably create a brand-new class of importer and exporter countries. Countries will most likely assume specific roles based on their levels of resource endowment, infrastructure potential, and technological leadership.

The hydrogen economy will also encourage new international agreements on hydrogen trade. Countries will be prompted to form new alliances, develop partnerships on hydrogen trade, and build regional and transregional networks. Various countries have already engaged in the so-called hydrogen diplomacy, exploring the prospect of large-scale hydrogen trade. A case in point being the Hydrogen Taskforce launched by India and the US under the aegis of their Strategic Clean Energy Partnership (SCEP).

Hydrogen also provides the possibility to equalise energy between countries by establishing a more dispersed and, therefore, democratic global energy system. This energy transition has the potential to reduce energy dependence on fossil-fuel rich countries, altering traditional alliances. However, eventually, the future energy mix will dictate a redefinition of energy, trade, and geopolitical relations. Two fundamental factors will comprehend the influence of hydrogen on the future energy system—How much hydrogen will mankind need in the coming decades? What proportion of it will be traded between countries?

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The size and scope of that market are still unknown, but the green hydrogen race is clearly on. Even though investments in green hydrogen technologies and projects have increased over the last decade, the cost challenge persists. To compete with fossil fuels, green hydrogen must traverse an even longer and more twisted route. It is not yet cost-competitive with fossil-fuel based production. It costs between about US $3/kg and US $6.55/kg. Fossil-based hydrogen costs about US $1.80/kg, blue hydrogen, which pairs carbon capture with steam methane reformation of natural gas, costs about US $2.40/kg.

Competitiveness of production costs and deployment of enabling infrastructure at scale will be the key determinants of hydrogen’s rate of global growth. Technology, the availability of enabling infrastructure, and future market structures will determine whether green hydrogen markets are as geographically concentrated as today’s oil markets or as decentralised as renewables. All of these variables, when combined, will determine the geopolitical implications of the evolving green hydrogen economy.

This article was first published on ORF.

Disclaimer:The author is a public policy professional working at Chase India. Views expressed are personal.

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first published:July 04, 2021, 12:17 IST