Europe Maps Out Its Hydrogen Energy Strategy

Hydrogen energy is a key part of Europe’s plan to zero out carbon emissions by mid-century. But can the bloc build hydrogen capacity, and demand, in time to reach its goal?

In August the European Commission introduced its strategy to aggressively expand the market for hydrogen energy as part of its plan to go carbon neutral by the year 2050. The plan envisions using green hydrogen, produced mainly with wind and solar power, as an energy resource in a broad array of industries. In particular, the EU hopes that hydrogen will help it reduce carbon emissions in industries that are deeply dependent on fossil fuels, such as steel production and air travel, and for which there are few other decarbonization options.

Kirsten Westphal, a member of Germany’s National Hydrogen Council, discusses the challenge of growing clean hydrogen supply and demand quickly enough to create a carbon-neutral economy in just 30 years. Westphal also talks about Germany’s plans, as Europe’s largest economy, to finance and build hydrogen infrastructure, as well as the prospects for a truly international hydrogen market.

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. In August of last year, the European Union introduced a strategy to aggressively expand the market for hydrogen energy as part of its plan to go carbon neutral by the year 2050. The plan envisions using green hydrogen produced mainly with wind and solar power as an energy resource in a broad array of industries. In particular, the EU hopes that hydrogen will help it lower carbon emissions in industries that are deeply dependent on fossil fuels, such as steel production and shipping, and for which there are few other de-carbonization options.

Today’s podcast will look at the challenge of growing clean hydrogen supply and demand quickly enough to create a carbon neutral European economy in just 30 years. My guest is Kirsten Westphal, a senior associate at the German Institute for International and Security Affairs, and a member of Germany’s National Hydrogen Council. She’ll talk about Germany’s plans as Europe’s largest economy to build its hydrogen energy system, and how European nations may collaborate broadly to reach the zero carbon goal. She’ll also discuss how green hydrogen might be financed, and the prospects for a truly international hydrogen market. Kirsten, welcome to the podcast.

Kirsten Westphal: Thank you, Andy. Happy to be here.

Stone: So I thought that we might start by asking you to tell us about your work with, and the goals of Germany’s National Hydrogen Council.

Westphal: Yeah, well the National Hydrogen Council has been established in summer last year. I’m a member, have 25 other members coming from, well, industries, academia, and civil society. And the National Hydrogen Council is a government instrument established by the German government to advise actually the government itself in starting this hydrogen economy.

And more precisely, the German government has dedicated nine billion euros, which is really something, it’s not peanuts, for kicking off this hydrogen market. So nine billion of public money earmarked for the hydrogen economy. And we in the council actually are there to advise the government how to spend these billions.

Stone: What is the specific problem that switching to hydrogen would help Germany to address?

Westphal: Yeah, that’s a very important and valid point to ask. As I see it, hydrogen is just one piece of the energy transformation, the Energiewende, as we say in Germany. Because we have always to have in mind that the first step is really energy efficiency and energy savings.

The next step is, of course, expanding renewable energy and electrification. And then hydrogen is just the final piece in the mosaic to achieve the decarbonized energy system. And here that’s really the point. We have to ask what are the problems hydrogen has to help to solve us in the sustainable energy system. And then it’s of course, yeah, decarbonizing energy intensive industries, difficult to abate sectors, and these kind of things.

Stone: So the national hydrogen strategy as you mentioned was introduced in Germany in I think it was June of last year.

Westphal: Right, yeah.

Stone: Why is it specifically happening now? Obviously, climate has been something that Europe, Germany has been focusing on for quite some time. Why in the midst of a pandemic with so much else going on did Germany elect to introduce this strategy last year?

Westphal: The process about thinking through this missing piece of the Energiewende started before the pandemic. We had a process of political discussions around the guess strategy of 2030. And the deep understanding that the Energiewende will need some decarbonized molecules. And that not everything can be solved by using electrons.

So the whole hydrogen strategy developed from the discussions around decarbonizing the gas value chain, and also of course decarbonizing oil and other fossil fuels. So this is how it started. You are very right in highlighting the pandemic, because hydrogen is now not only a major piece in the recovery program in Germany but also in the European Union. And I think this is a very, very important point because there you can see that hydrogen is seen not only as a point to combine climate and energy policies, but also kick off technology and innovation.

Stone: So it’s really looked at as an economic growth strategy it sounds like.

Westphal: Right, exactly. As the whole energy transition is looked at.

Stone: So let me ask you this. So hydrogen can be used in a number of different ways. It can be burned directly as a fuel. It can be used as a form of energy storage. How will hydrogen be used, or what is the mix of uses that Germany envisions under its hydrogen strategy?

Westphal: Germany has a strong focus on energy intensive industries, and difficult to abate sectors. This is, as you mentioned already, the steel sector, this is aluminum, cement and so on, which simply cannot — processes that cannot be realized on the basis of electricity. And then of course there is the whole issue of transportation and mobility, and here the focus is very much on long haul transport of goods.

But also of course on aviation and maritime transport. And then if you look beyond let’s say to personal car fleets, if you look to the heating sector, then the discussion is becoming already more tricky. Because there you have really the primacy of, well, energy efficiency of course as I mentioned, but also using electricity first and not hydrogen.

Stone: So hydrogen would be a back up resource for residential electricity production for example?

Westphal: Well, this is part of the discussion. There is the strong — well, in Germany — maybe this is interesting to mention. In Germany, there is this narrative of green hydrogen being the champagne of energy sources. Because of course it’s not — if you think through the whole production chain, you are of course losing efficiency if you first generate electricity, and then to electrolyze this. This is why this idea of champagne is out there. And champagne only — you use only champagne for festivities or where you can’t drink other drinks, so to say. So this is why —

Stone: The idea being it’s too high cost just to use freely.

Westphal: Exactly, exactly. The idea that it’s high cost, and that it’s also resource intensive in a sense. And this is why you really first look into sectors where you can’t use electricity. And beyond these sectors there is really this discussion going on also in the National Hydrogen Council whether we should think — whether we should move away from this narrative of champagne, which is too cost intensive, and whether we should look, for example, into simply red wine from the countryside, and compare it with that, and use it more often. And then of course if you have this discussion, you’re really looking into also systemic functions that hydrogen could fulfill. So indeed, making it possible to transport and store large volumes of energy.

Stone: So you’re talking about hydrogen as champagne, right? I want to dig a little bit deeper on what that’s all about. So the hydrogen strategy in Germany, and also more broadly in the EU, really is looking to develop what’s called green or renewable hydrogen. It’s not the standard type of hydrogen that’s used in industries such as refining today. That green hydrogen is very expensive. Why is the green hydrogen in particular — first off, what is green hydrogen, number one, and two, why is that kind of really the key here that we’re talking about?

Westphal: Exactly, we should explain I think to the audience what green hydrogen is. Green hydrogen is hydrogen that is produced from renewable energy sources like solar and wind. Basically by water electrolyzes. So this is green hydrogen, and indeed it’s — today it’s still very costly compared to the hydrogen that is used, the gray hydrogen produced from basically coal mostly, natural gas. And well of course there is a certain cost range, but it’s — very simplified, it’s more or less two times more expensive, or even three times depending where you produce the hydrogen from renewable energy sources. So that’s green hydrogen.

The other point is, of course there is this hope from the past that we will see cost digression as we’ve seen in photovoltaics. And I think this is a valid point. We have not yet achieved — this is still a manufacturing process, electrolyzes. But if you really have a market ramp up, this will become more industrialized, and of course costs will come down. So this is the hope. This is not in a linear trend, that this cost gap will stay. And then there is of course, the major argument is if you look into carbon neutrality by 2050, then at the end of the day it has to be green hydrogen. And not hydrogen that is produced from natural gas with CCS for example.

Stone: Well, I want to get a little more detail on actually the timeline Germany has set forth. So as I understand it, between now and 2024, Germany I believe is going to focus on replacing gray hydrogen, which is hydrogen from natural gas or potentially from coal, with green hydrogen in industries where hydrogen is already used, such as refining and chemicals.

The next stage as I understand it, stage two, will go out to 2030. That’s the point at which this broader, maybe the more champagne or the red wine use of hydrogen would start to happen. And hopefully the cost by 2030 will come down too. And after that point, really it can be broadly used in the economy. Is that kind of the plan at this point?

Westphal: Exactly. Very well described, Andy. That’s exactly the point. And the national hydrogen strategy talks about establishing five gigawatt of generation capacity until 2030. And another, yeah, until 2030. Then you have this next phase until 2035, 2040 in the strategy, right? But this is let’s say the point five gigawatt to 2030, which is already something. Because this corresponds to 92, 100 terawatt hours of hydrogen that will be needed.

Stone: So I think there’s another interesting point here, and I think that the timing is kind of indicative of what’s going on. So Germany introduced its hydrogen strategy two or three months before the EU came out with its strategy as well, or announced I think in September, August or September of last year. So Germany in a sense, from what I understand, is really potentially putting itself at some — I don’t know if financial risk is the correct word. But it’s taking it upon itself to take on the cost of green hydrogen and push it forward.

What is the — I guess the cost benefit analysis that the German government is making this push under, and what has the response of industry been to this plan particularly given what would seem to be some competitiveness issues for German industry if it’s going to increasingly rely upon a high cost resource such as green hydrogen.

Westphal: A lot of questions in a row. I think Germany deliberately puts itself in a frontrunner position inside the EU. But there is a correspondence between Germany’s plans and the EU’s plans, because for example they are very detailed plans by the EU to establish 40 gigawatts until 2030 inside the EU, and another 40 gigawatts outside the EU in neighboring regions. So this is where the Germany’s five gigawatts fit into the European plan.

So — and then the interesting thing is more differences in detail. And the differences are indeed around the colors of hydrogen. Germany has a stronger emphasis, as you rightly said, on green hydrogen. And the other point is indeed what does Germany have in mind. I think Germany’s drivers are of course the wish to achieve climate neutrality by 2050, to achieve its goals. But there’s also a strong idea as we talked already, it’s a growth strategy. It’s seen as a way to innovate and redefine its industrial basis.

And therefore, there is a strong understanding in the government, but also in the industry, that the whole hydrogen value chain as I would call it, so not only production but also consumption, fuel cells and so on, can be really a push for — well, growth within the national economy, but also keeping Germany’s position as a technology leader. And the final point would be, and this view is shared by industry and government, and there is the sense of urgency. Because especially with a view to China, and Chinese moves to move ahead with the strategy of made in China 2025, standards, 2035, that China wants to define for the world. This really is promoting Germany’s sense of urgency. 

Stone: So it sounds like it’s really — it’s about competitiveness in the positive sense, right?

Westphal: Indeed. Yes, indeed, indeed.

Stone: Promoting the growth of these industries, because — yes, okay.

Westphal: And indeed — I mean, why is there really a view to China — don’t forget that there is this idea, and I think it’s true, that Germany paid the learning curve for photovoltaics worldwide with its supports game. But then it lost part of this industry to China. And this is something that Germany doesn’t want to see repeated with hydrogen.

Stone: That brings me to another interesting point here, and you’ve really already started the discussion on this. But as a practical matter, Germany will need to import large amounts of hydrogen to meet its carbon reduction goals. My understanding is that it cannot produce enough hydrogen domestically to reach the net zero goal by the year 2050. And as you said, Germany is not going to be operating or acting in a vacuum, because the EU more broadly has its own strategy.

How does Germany’s push to develop its technology fit within the larger context of the EU? Is Germany going to really position to be a technology leader on this, or is this more of a pan-European effort to develop these technologies and leadership in green hydrogen?

Westphal: First of all, yes, you are right. This is also not only my personal understanding but widely shared within the National Hydrogen Council, the German government, the industries, that Germany, yes, will indeed have to import lots of hydrogen. I mean, we are at the moment the net importer of energy, 80% of our energy almost come from abroad. And I think this won’t change. And there — I mean, I’m working at an institute that is looking into foreign and security policy issues, and there is a deep understanding in Germany that there is a wish to work together on energy issues, and to maintain energy trade for many reasons.

So yes, indeed, there is the strong wish to build up value chains across border. And the other point that you mentioned, is it viewed and shared by the EU. Yes, I think we have to think the development of the hydrogen economy from outside Berlin, and in concentric circles, what we are discussing right now is the idea of hydrogen valleys where you have clusters of refineries, chemical industries that you mentioned, where we have already existing hydrogen grids, being enlarged into a backbone of a hydrogen transport system, which for example connects now the major clusters that we have already. Like big, big harbors off Belgium, off the Netherlands.

And from that point of, that starting that hydrogen economy, you have then more building up of wider hydrogen use inside the EU, but also then in neighboring countries. And this is why I talk about the concentric circles, because if we look firstly into the neighboring regions, then we can build upon infrastructure that already exists, such as gas pipelines. And then of course you have this other point of global bilateral partnerships with countries like Australia or Chile, Germany is looking into. Which are frontrunners in producing green hydrogen, or gray hydrogen, blue hydrogen in the case of Australia.

But also there is a deep understanding that we have to exchange with the big other consumers of hydrogen such as Japan and South Korea, but also the US. And I think this is a very important point, because for Germany it is very important to have the governance structures, right, not only inside Germany and inside the EU, but also globally. Because we will need a certification scheme that is transparent, and accepted widely in order to establish a competitive global hydrogen market, which should be somehow the goal for the next, well, 30 years.

Stone: Is this competitive hydrogen market, the global market that you’re talking about, is this something that would be modeled on a current international gas or oil market where I guess low cost countries — I’m just assuming, for example, with access to ample renewable energy, maybe ought to cost effectively produce this hydrogen and then convert it into a form that can actually be transported by shipping overseas? How exactly might that work in a little bit more detail?

Westphal: Yes, indeed. I think this is — I always have, indeed, the gas market in mind when I think about the sequencing and different phases of developing a regional and a global hydrogen market. Because there you have also the point of pipelines plus transport with ships. And we have also seen that in the history for the kicking off of this gas value chains, we needed kind of long term price index contracts. And this could be models, but if we talk about these more bilateral models, we should have in mind that the real goal should be competitive markets trading hubs. And in order to get there, I think lessons learned from the gas market indeed can help, yes.

Stone: So I wanted to go back to the issue of technology. A few minutes ago you spoke about Germany’s desire and the EU’s desire to really establish itself as a leader in green hydrogen technology. And I think the technology specifically that we’re talking about there is the electrolyzer technology that uses electricity to produce hydrogen. And that’s really where the cost reduction needs to be, and that’s where the innovation is, is that correct?

Westphal: Yes, this is correct, indeed.

Stone: Okay, so one of the parts of this is electrolyzers will use clean energy to produce clean hydrogen. And it’s interesting that I believe the EU has forecast that about 25% of the renewable energy that’s generated within the EU by the middle of the century, when we’ll be at carbon neutrality, about 25% clean electricity will actually be directed towards consumption — consumed by these electrolyzers.

Which brings me to this next question, and it’s kind of a fundamental question I think about this whole plan, is that when you have such a push to decarbonize electricity systems to begin with for general consumption, and then you have this part of the transition that’s going to require a lot of electricity, specifically to be geared towards the production of green hydrogen. Is there a risk that this hydrogen part of the overall net zero strategy may be at odds, or may stress the overall effort to decarbonize the electricity system to begin with, just because it itself will consume so much of this coming clean electricity?

Westphal: Yeah, this is such an important question, and Andy, yes, I think so. Yes, this is indeed putting a lot of stress on the whole energy system, and we are realizing that already in Germany because I mean we’re phasing out nuclear power plants by next year, or by the end of the year. And then coal will follow quite soon. And we already are seeing that we are needing much more imports of electricity than we did in the past.

And this means that already this phasing out of nuclear and coal requires to expand renewable electricity production. And on top of that now comes the whole hydrogen story. So yeah, indeed. I mean, this also makes it very clear inside Germany but also in the EU, that we basically even lack the land to build photovoltaic facilities and wind generators. We lack the space actually. And this is why there is this big understanding that we will need imports.

But if you look into imports, you have the same story. For example, in North Africa where we’re looking at — I mean, of course it could be at odds producing clean hydrogen for exports with basically even satisfying the domestic energy demand in those countries plus decarbonizing the electricity generation in these countries. Yes indeed, this is a very difficult and tricky issue. And this is why the whole point about certificates of origin, certification of hydrogen, is so important. And why we have to talk internationally, what should be the standards, be it only, quote unquotes, environmental standards, or be it social standards as well over these kind of issues. It’s so important for the governance question.

Stone: It does sound like in essence it’s going back to the discussion of a few minutes ago about the global hydrogen market. This is going to be a global market. It sounds like it’s going to need to be a global market to meet needs in various parts of the world.

Westphal: Yes exactly, indeed. And I mean, normally we think a lot on the 2050 targets, and on target derived scenarios, but we also have to think from where we stand, and how to get from the status quo to the target. And this is really why we have to discuss globally, or at least internationally with the frontrunners, how to define the specific steps. Because I think in order to have the critical mass of clean climate friendly hydrogen, in the beginning we also have to look into different colors.

Germany is very focused on green hydrogen, but this is let’s say really also a matter of debate what role, for example, for blue hydrogen in the transition phase. Blue hydrogen being produced from gas with CCS. Also called turquoise hydrogen produced by pyrolysis. So these could be also ways and technologies to help us to kick off really the market, and to think about really decarbonizing, and phasing out. And ending with a really climate friendly hydrogen market.

And then finally, there is the whole debate around yellow or purple hydrogen produced from nuclear. This is let’s say a no go to talk about this in Germany, but I mean I’m looking, I’m analyzing the international situation, and I’m very clearly seeing that many countries are looking into that for a number of reasons. And this is also something, what we have to talk about, and we have to deal with also in the process of certification.

Stone: Well, here in the United States there’s been a lot of discussion over the last year about development of the hydrogen market as well. And I think the focus here has been a little bit different. It’s really been focused on, or at least part of the focus has been blending hydrogen potentially into the gas supply to reduce the carbon intensity of natural gas, which has become a very important power generation resource here, as it has become in Europe as well. Is there a plan to use hydrogen to mix in with the gas supply for power generation in Europe as well?

Westphal: I wouldn’t call it a plan, but I would say, yes, this is part of the overall debate. It has only started on the European level. I’m more closer now of course to the German debate, and here it is really a matter of let’s say ideology even. Because there are really two different camps. The one camp coming from civil society, and environmental NGOs saying, “No, we have to immediately jump into this clean green hydrogen system.”

And then this is the whole narrative I mentioned of the champagne, which should not be blended because you’re not pouring water into champagne. This is always the picture that is communicated. And then you have the other saying where we could have immediate gains, or let’s say reductions in emissions if we blend into the system. And this is a debate that is still going on and not yet solved.

Stone: You already started talking about this, but I wanted to go a little bit more deep and ask about this. What global efforts or partnerships might be developed to drive the development of green hydrogen energy?

Westphal: From the view of Germany this is a very important question that we are also discussing in the National Hydrogen Council. Because 90 billion — well, nine billion euros earmarked as I said for kicking off the national hydrogen economy, and the national economy in a sense. And out of the nine billion, two billion really are earmarked for international partnerships. So this is really an issue that we are vividly discussing inside of Germany now. And the question is around the criteria, what criteria should guide these partnerships.

And the national strategy says, well the goals are mitigating climate change, helping developing countries to have sustainable growth, plus also technology leadership and competitiveness for Germany, and for German and European industries. And as you see, I mean these three goals are nicely formulated, but you really have competing political goals here. It’s not the simply foregone synergy.

And this is why we really have to discuss which criteria are important. And if you look into the partnerships that are discussed, what is important for Germany is of course the current level of deployment of hydrogen technologies in the partner countries. And this is why Germany focuses on Japan and Australia for example, but also Chile, with Chile moving ahead quite aggressively. Then of course Germany looks into existing partnerships and infrastructure, and here we are back to this point of the gas value chain. So Russia, Ukraine come into focus.

And then very much, and I think this is a major issue we should look at if you ask me, is whether these countries are members of a common market, and regulatory space given the importance that standard certifications will have. And this is why I think you will have major offshore wind projects with electrolyzers for example moving forward in the North Sea, but also the Baltic Sea in cooperation with UK, for example, and Norway, but also maybe in the Mediterranean, in the eastern Mediterranean with Greece and Cyprus.

And then the next point of course is, and then we look more into, well the more far away concentric circles, is the potential for renewable energies and their deployment. And this is where Germany and the EU of course look into North Africa and Africa, but also the Gulf countries. And last but not least of course existing trade and company relations play a certain role, and we do see in Germany that especially Gulf countries like Saudi Arabia but also the United Arab Emirates are quite aggressively moving ahead with this project.

So these are all kind of criteria, but also criteria that shedding a focus, and making a spot on certain partner countries. The other part of the story is really the global governance or regional governance issues, and this is where we have to think through globally and with partners, and in particular within the transatlantic partnership, what are the organizations and institutions that we should push and promote in order to help us to build up a competitive global hydrogen market.

Stone: Let me ask you a final question here. This is obviously extremely complex. We have to build the supply of hydrogen, the demand for hydrogen, and actually that’s a question I wanted to ask that I have not asked yet. What is being done specifically on the demand side in Germany to make sure that industry is — not only that the hydrogen is supplied, but that industry is in position to actually begin to utilize this hydrogen and draw the demand even higher?

Westphal: Oh yes, this is a very important point because we definitely have the chicken and egg problem. You can’t simply kick off neither demand nor production, but you really have to address the whole value chain. Production, transmission, transport, and consumption. And here the idea is, and of course the big challenge is to bring the costs down for hydrogen, for clean hydrogen. To bridge the existing gap, so to say, between gray hydrogen and green hydrogen by contracts for difference.

But also of course to bring costs down by increasing the price for CO2 emissions. This is a big — it is really a challenge to change the regulatory framework that exists in order to address and give the right incentives for the sustainable energy transformation including hydrogen. This is really a challenging task for the states.

Stone: So carbon pricing may be a way to do that?

Westphal: Not only. Yes, as I said, carbon pricing is certainly a major element, but you also have to bridge price gaps. Because I mean, as we said, gray hydrogen is already used in refineries and chemical industry. But in other sectors, you even have to bridge larger gaps between today’s fuels and green hydrogen. So to say between kerosene and e-kerosense, synthetic clean kerosene. And there the price gap could be even higher.

Stone: And that would be through government supports for example?

Westphal: Yes, I don’t see another way. Yes, we have to certainly have a phase of supports. Support schemes by at best many governments addressing the issue, and one element has to be of course CO2 pricing. So it’s parallel tracks. And then of course on the consumption side, you have the point that of course still the products, the clean products, will be more expensive. And this is why ED Luna very strongly talks about carbon border adjustment mechanisms. And this will be a story that will stay with us for quite some time.

Stone: There is obviously so much work to be done on so many fronts. I just want to get a sense, when you go into the office, what of this whole universe of things that needs to be done, really is to focus and — yeah, what are you working on specifically? What is top of the plate for you?

Westphal: On top of my plate is the focus on the international and foreign relations, because I’m working at the think tank that deals with international and security affairs. So my point is how to address the geopolitical hiccups, which we might have to face with the transition period, and which we might have to face, or which we certainly have to face to put it in better words. Which we certainly have to face when we phase out oil and gas imports and replace them by hydrogen and its derivatives.

Stone: Kirsten, thank you very much for talking.

Westphal: Thank you very much, Andy.


Kirsten Westphal

Senior Associate, German Institute for International and Security Affairs
Kirsten Westphal is a senior associate at the German Institute for International and Security Affairs, and a member of Germany’s National Hydrogen Council.

Andy Stone

Energy Policy Now Host and Producer
Andy Stone is producer and host of Energy Policy Now, the Kleinman Center’s podcast series. He previously worked in business planning with PJM Interconnection and was a senior energy reporter at Forbes Magazine.