Traffic lights green for hydrogen?

Last week, representatives of SPD, FDP and Bündnis90/Die Grünen presented a coalition agreement for the so-called traffic light coalition. In Germany political contracts between parties involved forming a new government are called coalition agreements. These contracts usually set out essential and prestigious projects and goals that the coalition parties want to pursue within the legislature.

The German and European hydrogen policy is an essential part of the new coalition agreement. The coalition parties advocate a rapid ramp-up of the market for renewable hydrogen. They commit themselves to the goal of a ‘European Hydrogen Union’. Moreover, the parties aim to establish a "lead market for hydrogen technologies" in Germany. These very general aims are supplemented by the more specific intentions summarised below.

Doubling capacity targets 

The new government aims to increase electrolysis capacity to at least 10 GW by 2030. Currently, the outgoing government’s hydrogen strategy aims for minimum electrolysis capacity of 5 GW by 2030. Actual capacities are still far from both numbers: in 2020 they amounted to only 67 MW (just 0.67 per cent and 1.34 per cent of the goals, respectively).

Public procurement quotas 

The coalition parties intend to introduce quotas for renewable hydrogen as regards public procurement. The coalition agreement leaves open what exactly is meant by this. Possibly, they refer to sustainability requirements for basic materials that are direct or indirect components of public procurement items. For example, this could refer to steel used in public roadworks or construction.

The quotas would have the consequence that some of this steel would have to be produced using renewable hydrogen, thereby incentivising the emergence of a market for such renewable hydrogen. However, it is unclear why the federal government would utilise hydrogen quotas instead of renewable energy quotas or emission avoidance quotas. The government-elect’s adherence to the principle of technology-neutrality makes this a little surprising.

Certification of renewable hydrogen 

The coalition parties are also striving for a uniform European certification of renewable hydrogen. The certification standard will be of considerable importance for industrial companies based in Germany because stricter criteria will result in higher market prices for hydrogen. The European Commission might set the direction for such a uniform hydrogen definition when adopting the delegated act pursuant to Article 27 (3) RED II.

Hydrogen imports 

The coalition parties want to foster international climate and energy partnerships for carbon-neutral hydrogen. The proposal corresponds to measure 34 of the national hydrogen strategy already presented in June 2020.

The coalition parties want to ensure that sustainability criteria are taken into account when importing renewable hydrogen from other countries. It remains open what is meant by this. Possibly, the parties refer to ecological requirements for the use of seawater desalination plants or the impact of hydrogen projects on the renewable electricity quota of the importing countries. 

The import of renewable hydrogen will also serve a foreign policy purpose. The coalition parties consider hydrogen policy as a means to intensify political cooperation with Ukraine.

Contracts for difference

The coalition parties would like to use carbon contracts-for-difference in the future to enable companies to promote the production of zero-emission products in the future. This could enable industrial companies that require hydrogen to decarbonise their manufacturing processes (such as manufacturers of steel, glass, fertiliser, chemicals and refinery products) to offer green products at competitive prices. 

Moreover, the new coalition wants to extend the "H2Global" programme on a European level. H2Global aims to establish planning and investment security for industrial companies using hydrogen produced in third countries.

Part of the H2Global concept is a non-governmental intermediary, the so-called Hydrogen Intermediary Network Company, which determines the most favourable offer for a defined quantity of renewable hydrogen through competitive procedures and concludes long-term supply contracts with hydrogen suppliers. The intermediary then concludes shorter-term sales contracts with buyers from Germany. Auctions will begin soon.

The Europeanisation of this mechanism seems logical in view of the goal of establishing a European Hydrogen Union. However, conflicts of interest are likely: efficiency considerations could argue for a mechanism that benefits buyers that can import hydrogen into the European Union at low costs. This could benefit production in southern member states that are located closed to Northern Africa or the Middle East. As a consequence, this could encourage the relocation of basic material production from Germany into such member states (so-called renewable pulls), thus contradicting the industrial policy goals of the new government.

IPCEI projects and planning and approval provisions

The new government also wants to quickly implement the ‘important projects of common European interest’ (IPCEI), which aims for an integrated value chain from renewable and low-carbon hydrogen production to hydrogen storage, transmission and distribution, and hydrogen application, notably in industrial sectors.

In addition, the new government aims to simplify planning and approval procedures for the construction of hydrogen pipelines.