Why clearer terminology for hydrogen could unlock investment and scale up production

Hydrogen could play a crucial role in decarbonising sectors such as heavy industry and long-distance transport, in which emissions are otherwise hard to abate, but it remains far from fulfilling its potential. Demand for hydrogen remains largely confined to a few traditional applications, and most of today’s hydrogen production is based on unabated fossil fuels, with production of low-emission hydrogen at a very early stage.

One major obstacle is that the existing terminology used to describe low-emission hydrogen varies among stakeholders and countries, which complicates trade and investment. An internationally agreed methodology for calculating the emissions intensity of hydrogen production could cut financing costs, bring greater visibility for investors, and enable greater economies of scale.

Policy momentum behind hydrogen is certainly building. At the end of 2022, a total of 28 governments had a hydrogen strategy in place, around one-third of which had been developed in the previous two years. Some countries envisage importing large volumes of hydrogen, whereas others are positioning themselves as future exporters in the nascent hydrogen market.

Yet despite these developments, hydrogen demand in 2022 rose around 3% to 95 Mt, with demand concentrated in the refining and industrial sectors, with very limited use in new applications such as industry and transport.  

There is an urgent need to create demand for low-emission hydrogen and to mobilise investment in production and supporting infrastructure. To further this aim, the IEA in collaboration with the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE) released a report for the G7 Climate, Energy and Environmental Ministerial meeting in April 2023, titled Towards hydrogen definitions based on their emissions intensity.

More than 1 200 new projects to produce low-emission hydrogen have been announced to date, yet only 5% have received firm investment decisions, according to IEA analysis. Progress is lagging due to uncertainty about future demand, insufficient infrastructure to transport and deliver hydrogen to customers, and a lack of clarity on regulation and certification.

There are, of course, many reasons behind these obstacles, but the absence of unified terminology is a major impediment to investment and potential trade.

At present, several different terminologies are used to categorise hydrogen based on how it is produced, including “sustainable” or “clean”. Even more common is the use of colours, such as “grey”, “blue”, “pink”, or “green” hydrogen. However, there are no agreed definitions for these terms, and they can obscure many different levels of potential emissions. For example, many electrolysers are powered by grid electricity, for which emissions intensity can vary greatly depending on how it is generated, but no colour has been assigned. For so-called “blue” hydrogen produced using natural gas with carbon capture, utilisation and storage (CCUS), our analysis shows that emissions per kg of hydrogen produced can vary substantially depending on the technology used and the capture rate.

The lack of universal standards or international agreement hinders compliance with regulatory and market requirements. Multiple low-emission production routes exist, and their currently high costs are set to come down significantly with technology innovation and scale-up, just as we have seen with solar PV and batteries in the last 15 years. But if potential investors and consumers are not sure whether a certain production route will comply with emissions requirements across different countries or sectors, they may hesitate to commit.

The International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE) has developed a standard methodology for calculating the GHG emissions intensity of different hydrogen production routes, which could improve transparency and facilitate market development.

An internationally agreed methodology for calculating the emissions intensity of hydrogen production would have two major benefits. Firstly, numerical values that can be calculated directly for a specific production route provide transparency for potential investors and customers. Secondly, the use of a common methodology to calculate emissions intensities directly enables a degree of interoperability of different regulations, providing clarity on how different products comply with requirements for different countries.

The IPHE methodology will serve as the basis for the first international standard to calculate the GHG emissions of hydrogen supply, which is currently under development by the International Organization for Standardization (ISO), who aim to publish the standard by the end of 2024.

This methodology was used in the report prepared by the IEA in collaboration with the IPHE for the G7 Ministerial meeting this April, with the aim of providing a clearer picture for policy makers on calculating the emissions intensity of different hydrogen production routes and implementing a common international emissions accounting framework to define hydrogen. The next steps of designing a common methodology for calculating the emissions intensity for converting hydrogen in carriers and transporting hydrogen are already under way as well. 

With an international standard for defining emissions intensity still being developed, many countries and regulatory bodies already have or are developing different certification systems or regulatory frameworks. 

While there are some commonalities, they diverge in ways that can limit interoperability. They may differ on what supply chain steps are covered, or the emissions considered within their scope. They may limit the eligible technology and fuel options for production. Such differences can create a barrier for project developers, who need to undertake ad-hoc, time-consuming certification processes for each country where they want to access the domestic market.

A common, robust methodology for determining the emissions intensity of hydrogen would enable comparability between different certification systems and regulatory frameworks. Moreover, a common system for presenting the emissions intensity of hydrogen could help demystify hydrogen production and allow the public to evaluate claims and counterclaims made about its sustainability.

Implementing a common framework for determining emissions intensity could underpin existing and future systems for regulation and certification, and would allow for flexibility to accommodate different reporting criteria and potential additions in the future.

Many governments around the world are setting targets for the deployment of low-emission hydrogen production technologies, with the last Hydrogen Energy Ministerial Meeting in September 2022 committing to a joint target of 90 Mt by 2030, which is broadly consistent with the IEA’s Net Zero Emissions by 2050 Scenario. But the IEA’s latest data show that we are not on track for achieving this target, and stronger and faster policy action is required. To facilitate interoperability in a growing international market, these targets and national frameworks should use a common methodology to calculate the emissions intensity of hydrogen production. This is a critical enabler of a scale-up in production and trade in low-emission hydrogen. The successful development of a global hydrogen market must involve dialogue with many different stakeholders, but will only reach its potential if informed by a common language.