We live in amazing times. The unprecedented rapidity of technological change in the world breaks the lifestyle that is usual to entire generations. New business ideas, companies, industries emerge and mature in a few years. Mankind is so confidently transforming reality that it boldly challenges problems on a planetary scale. This creates incredible opportunities for everyone, from individuals to countries to the world at large.
One of the biggest problems of our time is global warming. Until recently, there has been limited success in coping with it. The Kyoto Protocol lacked global leadership: the USA has not been able to ratify it. The Paris Climate Agreement, from which United States were signed out by President Trump in November 2019, could have followed the same path. However, whether the world's natural disasters (large-scale fires, droughts, floods, tornadoes, etc.) or the Covid-19 pandemic, the scale of which many associate with climate change, have forced the world community to take global warming very seriously. Therefore, the clauses of the Paris Climate Agreement have become a key guide in the development of the world for the next 30 years. Today this is a well-established fact. It changes everything: politics, economy, society, human life. Ukraine needs to realize this and to take advantage of these changes.
The largest metamorphosis took place in the United States. The country, which always used to choose the former between the economy and the environment, voted for Joe Biden. One of the nine items on his agenda was to achieve net-zero carbon emissions in energy by 2035 and in the economy as a whole by 2050 . Biden intends to build climate-resilient infrastructure, provide clean zero-emission public transport to cities of more than 100,000 citizens, and, most importantly, stimulate the cost-cutting of clean energy technologies, including renewable hydrogen. This is an unexpected result of the election. To achieve this, both the level of environmental responsibility of American elites and the environmental consciousness of the society that voted for such ideas had to increase.
Therefore, the story of climate-neutral reform of the American economy will continue. The US Department of Energy has launched a series of initiatives "Energy Earthshots". Their goal is to accelerate the emergence of breakthrough solutions in obtaining abundant, affordable, and reliable clean energy . The first in July 2021 was the "Hydrogen Step", which is aimed at reducing the cost of clean hydrogen by 80% to $ 1 per 1 kg within 1 decade ("1 1 1"). The scale of the initiative is self-explanatory, it will suffice to see the list of participants in the Summit organized within its framework: heads of the United States Department of Energy, several senators, Bill Gates and John Kerry (now the US President's Special Representative on Climate Change). With this high-level approach, America's clean energy problems will now be resolved fairly quickly.
But in environmental matters the European Union has always been more progressive than the United States. Therefore, the EU's political achievements in the development of a climate-neutral economy are much higher: Europe has already formed a network of initiatives, documents, institutions aimed at implementing the Paris Climate Agreement. Here are some examples. On December 11, 2019, the European Commission published the European Green Deal - a set of policy initiatives aimed at achieving net-zero emissions in the EU by 2050. On July 8, 2020, the EC published two strategies to achieve this goal: "An EU Strategy for Energy System Integration" and "A Hydrogen Strategy for a Climate-Neutral Europe". To implement the "Hydrogen Strategy", the European Clean Hydrogen Alliance was established, which currently includes more than fifteen hundred companies, financial, research, and non-government organizations. The number, quality of members and activities of the alliance show that the EU takes the problem of transitioning the economy to clean hydrogen as seriously as possible.
The EU's policy of decarbonization will also receive strong political support from the leadership of Germany, the largest EU economy. The office of newly appointed Chancellor Olaf Scholz includes the "Alliance 90/The Greens" party, which in this context took key posts of Vice Chancellor-Federal Minister for Economic Affairs and Climate Action, and Federal Minister for the Environment, Nature Conservation, Nuclear Safety, and Consumer Protection. A key point of the new government's program is the fight against climate change, in which the Germans plan to abandon coal-fired power plants by 2030, increase the share of renewables in the country's energy balance to 80% and make climate-neutral 50% of heating.
China declares its intention to achieve net zero carbon emissions by 2060. This is an extremely ambitious goal, because China, like many developing countries, has not yet reached its peak emissions (this is expected by 2030). However, China's political system is often the most effective in achieving its goals. By 2060, China plans to produce 80% of its energy from renewable sources, the country is investing in the development of nuclear energy, spending on developing new technologies for batteries and hydrogen, stimulating the development of electric vehicles and more.
Economics and facts
Thus, the three most powerful economic regions of the world, through their declarations and systematic actions, demonstrate serious intentions to perform climate neutrality transformation. This creates a still unrealized but virtually guaranteed global market, which in 5-10 years will be a trillions dollars market. And, taking into consideration the relevant strategies, the hydrogen economy will play a key role in it. So companies and countries are starting to look for a place at this market, building up strategies, making regulatory changes, conducting research, and investing in necessary products and services.
According to the Hydrogen Council, more than 75 countries have announced their intention to achieve carbon neutrality, with a share of more than 80% in global GDP. More than 30 countries already have strategies and roadmaps for the hydrogen economy development . As of February 2021, there were 228 investment projects announced worldwide along the hydrogen economy value added chain worth $ 350 billion by 2030 (of which $ 83 billion at the planning and implementation stage). As of November 2021, the number of announced projects was already 520 totaling more than $ 500 billion by 2030, most of which will be implemented in Europe. As part of the announced investments, electrolyzers for hydrogen production of at least 90 GW will be constructed. The pace of the hydrogen economy development and the amount of investment indicates that every country that cares about its future should join this race as soon as possible.
The potential of the hydrogen economy results from a lack of suitable alternatives on the pass to climate neutrality. The Fuel Cells and Hydrogen Joint Undertaking estimates that of the EU's 3.54 billion tons of carbon emissions in 2015, only 0.77 billion tons should remain in 2050 in order to limit global warming to 2.0 ° C (baseline scenario of Paris agreement), or 0.25 billion tons to limit global warming to 1.5°C (ambitious scenario) . Of this difference, 1.70 billion tons can be reduced by improving existing technologies and 0.56 billion tons - through the use of hydrogen. To reach the baseline scenario, we still need to get rid of emissions of 0.51 billion tons…
Today, the global hydrogen market totals 90 million tons or $ 150 billion . It is mostly "gray" hydrogen, produced from fossil fuels with abundant CO2 as a by-product. Goldman Sachs estimates that by 2050 the market will grow more than fivefold to more than 500 million tons. The lion's share will go to clean "green" (produced by electrolysis of water using renewable energy sources), "blue" (made of natural gas using CO2 capture and storage technologies) and "pink" (produced by electrolysis using nuclear energy) types of hydrogen. However, this market has yet to be created from both supply (production, transportation, storage) and demand (consumption) sides.
The main problem on the supply side is the high cost of blue and green hydrogen. The former depends mainly on the price of natural gas and is 1-3 $ / kg, the latter depends on the cost of renewable energy and averages 4-6 $ / kg. The basic estimated cost of gray hydrogen is $ 1 / kg. Green hydrogen is expected to become cheaper due, firstly, to the sharp decline in the cost of renewable energy (this trend has long been formed) and, secondly, the scale effect in the installation of gigawatt electrolyzers (currently global electrolytic capacity amounts to 3 GW, although their cost has decreased by 60% for the last 10 years ). Therefore, green hydrogen is expected to catch up with gray in cost between 2025 and 2034. The most conservative studies believe that this requires taxing carbon emissions of up to $ 50 / ton of CO2 and more. Blue hydrogen has a balancing role until green hydrogen becomes cheap enough. This creates space for research that will reduce the cost of clean hydrogen, and for government regulation that would stimulate the development of the hydrogen economy.
The main problem on the demand side is that the use of hydrogen is quite limited today. In the context of decarbonization, some industries will simply not be able to do without hydrogen, others will have to combine it with conventional electricity, and some will be quite difficult to switch to hydrogen. The nearest prospects in switching to hydrogen has the processing industry (oil refining, metallurgy, production of mineral fertilizers and methanol), transportation (freight, rail, water, special and public transportation, including taxis) and energy sector (with an increase in the renewable energy share to 80% in some countries hydrogen application will be needed to balance energy generation). Other industries may switch to hydrogen longer and harder. There is also a huge space for finding optimal solutions.
Hydrogen EU strategy
The hydrogen economy is the most advanced in the EU: it has strong public and political support at the state and Brussels levels; mechanisms for finding the necessary research, regulatory, financial and investment solutions have been launched; Europe accounts for more than half of the announced investment projects in the industry. This makes the European Union the largest hydrogen market by 2030, as well as neighboring to Ukraine. That is why the EU's Hydrogen Strategy creates great opportunities for Ukrainian development.
According to the strategy, by 2050 the share of hydrogen in the EU energy balance is expected to increase from the current 2% to 13-14% (more optimistic estimate - 24% ). Total investment in green hydrogen could be 180-470 billion euros and in blue hydrogen - 3-18 billion euros by 2050. This will create about a million new jobs. As a result, the EU will have a market with an annual turnover of 630 billion euros.
In the first stage, by 2024, the EU will install electrolyzers with a capacity of at least 6 GW and produce 1 million tons of green hydrogen per year. At the same time, the expansion of the production of electrolyzers will be stimulated, which will initially be installed in a decentralized way near the main consumers (refineries, metallurgical plants, chemical plants, etc.) to replace the consumption of grey hydrogen.
In the second stage, during 2025-2030, the installed capacity of electrolyzers in the European Union is expected to increase to at least 40 GW, and the production of green hydrogen - up to 10 million tons per year. The same level of electrolyzer installed capacity is expected in the EU from the Eastern Partnership and Southern Partnership countries, without trade and cooperation with which Europe does not see achieving the strategy goals. Particular emphasis was placed on Ukraine, which was mentioned three times in the strategy as no other country. At this stage, green hydrogen will begin to perform the energy system balancing function (on a daily, seasonal, regional basis), there will be an emphasis on the development of hydrogen pipelines. All this will be done together with the introduction of the necessary regulations and the attraction of funding to stimulate hydrogen consumption in various areas described in the strategy. For the European Union, the development of green hydrogen will be a priority, although at first the production of blue hydrogen will also be welcomed, but with the aim not to lead to stranded assets when green hydrogen becomes quite cheap (by 2030).
Opportunities for Ukraine
The progress of the hydrogen economy in the world and the European Union creates vast opportunities for Ukraine. They can be grouped in the following areas:
1. Geopolitics. The EU's hydrogen strategy states that "the EU is strategically interested in putting hydrogen on its foreign policy agenda, continuing to invest in international cooperation on climate, trade and research, but also expanding it in new directions." Significant volumes of green hydrogen supply to the EU are planned to be achieved through energy cooperation and diplomacy. In parallel, the EU will actively promote opportunities for clean hydrogen cooperation with neighboring countries and regions to help their transition to clean energy and stimulate sustainable growth. This is not just another opportunity to deepen Ukraine's European integration. Since the EU sees our country as a priority partner, which is directly mentioned in the hydrogen strategy, we can expect that no matter how ambitious Ukraine's hydrogen development plan is, it will always find the necessary support from the European Union. The main thing for us is to have it. If Ukraine manages to build green hydrogen production capacity in the medium term, which will be considerable from the viewpoint of the European market, our energy system will certainly become a critical part of the European one. This will allow us to count on EU support, even if there is a threat of conflict between Ukraine and Russia due to the European economy's gradual abandonment of fossil fuels, including Russian natural gas, in favor of green hydrogen, especially of Ukrainian origin.
2. Energy sector. To date, the Ukrainian energy sector has accumulated many significant problems that regularly undermine our economic security. Ukraine imports electricity, although it has excess capacity for its production, it is heavily dependent on the supply of coal and natural gas and the management of respective reserves, it has financial problems with subsidizing producers of renewable electricity, and so on. The development of the hydrogen economy is a great way not only to solve all these problems, but also to enter the European market with a critical product that Ukraine can produce in large quantities due to its resources, attracting significant technical and financial support from the EU. This is a unique opportunity. It can be implemented fairly quickly by combining solar, wind, and nuclear electricity with the consumption of hydrogen by processing plants and natural gas consumers (up to 20% of hydrogen can be mixed with natural gas almost without reservation).
3. Gas transmission system. Today, the GTS of Ukraine is already operating at no more than one-fifth of its capacity. Even if Nord Stream 2 does not work, the EU's strategic abandonment of fossil fuels over 30 years will at some point raise the question of alternative ways to use Ukraine's pipelines. The EU's hydrogen strategy explicitly calls for the reconstruction of part of the European GTS to convert it to hydrogen transportation. True, this issue will not become relevant until 2025, but Ukraine must work now to ensure that our gas transportation capacity is not left behind by the relevant plans and investment programs.
4. Manufacturing industry. Ukraine has a lot of production assets in industries that should be the first in line for hydrogen decarbonization. Among them are metallurgy, chemical industry, to a lesser extent oil refining, etc. There is a risk that at some point the climate neutrality of certain products will be a necessary condition for its admission to developed markets, especially the EU and the US. If our country starts preparing in advance to fulfill this condition, it will create preconditions for deepening Ukraine's European integration. Otherwise, we will lose opportunities and obtain increased cost of our industry transformation, which will still need to be done.
5. Transport. On the one hand, today Ukraine has an extremely high depreciation rate of all types of vehicles (sea, river, railway, municipal). On the other hand, the EU's Hydrogen Strategy identifies transport as one of the three sectors in which the transition to hydrogen should provide the greatest effect for decarbonization. In addition, for several years now we have had a positive experience of receiving financing from the EIB and the EBRD for the modernization of municipal and railway transport. All these factors can be combined with the transition to hydrogen. Given the EU's plans to quickly convert diesel locomotive traction to hydrogen and successful tests in several countries (Austria, the Netherlands, etc.), Ukraine can easily join this trend. At the same time, Maersk's successful testing of container vessels running on green methanol sets the direction for the development of water transport. This also may be interesting for Ukraine given our powerful shipbuilding industry, the potential of which cannot yet find a proper place in the world market.
6. Research and innovation. The EU's hydrogen strategy stipulates that, given the current state of the hydrogen economy, the EU is ready to fully support the research and innovation needed to reduce the cost of renewable energy and electrolyzers, optimize infrastructure for transporting, storing and distributing hydrogen, and spheres of end-use of hydrogen. This is a huge opportunity for research organizations in Ukraine that have significant engineering potential. Here we can give an example of National Technical University of Ukraine "Igor Sikorsky KPI." It has many technological developments, such as an eco-generator that converts garbage into low cost blue hydrogen. The University has already joined the European Alliance for Clean Hydrogen and intends to implement fundamental, applied, engineering and industrial projects to achieve the objectives of the EU Hydrogen Strategy, using the resources and intellectual potential of the University, Science Park "Kyivska Polytechnika", "Sikorsky Challenge" holding and business incubator. This is one of the first examples of realizing the opportunities that the EU's Hydrogen Strategy creates for Ukraine. To fully realize these possibilities, such examples must increase exponentially.
To conclude, the hydrogen economy is in a phase of explosive development. This is a strong global trend that has a very strong political foundation, and in the short term will gain a strong economic foundation. There are no countries that would question its scale, but several dozen countries have already done preparatory work to make the most of this trend by developing national strategies, implementing certain mechanisms to regulate, stimulate and finance the hydrogen economy. Ukraine is still quite inert in this direction. However, the development of the hydrogen economy can change everything. It is capable to help us jump from the past to the future, along the way solving a dozen long-standing chronic problems, insurmountable on the current existential level of our country. This is a chance that is given once a century, and perhaps less often. We must use it.