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Freshfields Sustainability

| 4 minute read

Hydrogen horizons: new developments for a global hydrogen market at COP28

Two goals of the recent COP28 discussions in Dubai in December 2023 were the development of international hydrogen value chains and the facilitation of a global hydrogen market. To achieve these goals, participating states launched flagship hydrogen initiatives which ‘will foster the technological and infrastructural solutions necessary to supply the world with sustainable, safe, stable and affordable hydrogen energy’, as stated by Yoshinori Kanehana, Co-Chair of the Hydrogen Council. One of these is the Intergovernmental Declaration of Intent on Mutual Recognition of Certification Schemes for Renewable and Low-carbon Hydrogen and Hydrogen Derivatives (the Declaration).

The Declaration

Backed by 38 states, the Declaration aims to build a global market of renewable and low-carbon hydrogen and hydrogen derivatives. To achieve their objective, the states aim to, firstly, accelerate development of technical solutions to enable mutual recognition of the certification schemes. This includes cooperation of the participants with and under the framework of the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE), an intergovernmental partnership, and the Hydrogen Technology Cooperation Programme (Hydrogen TCP), a technology collaboration program by the International Energy Agency. 

Secondly, the participants in the Declaration seek to, where possible, nominate government experts to the IPHE and Hydrogen TCP, with a view to facilitating the development of solutions for the mutual recognition of certification schemes for renewable and low-carbon hydrogen and hydrogen derivatives.

Thirdly, the participants may consider further steps in future to support the process of mutual recognition of certification schemes. These may include the adoption of or consistency with globally recognised standards.

Finally, the participants intend to monitor progress on cooperation towards these aims on an annual basis. 

New ISO methodology to determine emissions

The Declaration expressly recognises the new Draft Technical Specification for the methodology to determine the greenhouse gas (GHG) emissions associated with the production and transportation of hydrogen (ISO/DTS 19870), launched at COP 28, as a potential international standard for determining GHG emissions of hydrogen. 

Challenges with current standards

National and regional standards for what constitutes ‘renewable’ hydrogen are already emerging. In the EU, the classification of hydrogen as renewable or a “renewable fuel of non-biological origin” (RFNBO) is currently governed by the so-called Renewable Energy Directive II or RED II[1] and its amendment RED III.[2] According to their definition, both domestically produced hydrogen and imported hydrogen are only classified as RFNBOs if their energy content is derived from renewable sources other than biomass. The rules for counting electricity as renewable are defined in the accompanying Commission Delegated Regulation (EU) 2023/1184 of 10 February 2023. For grid electricity, this usually includes an additionality requirement as well as criteria on temporal and geographical correlation. Energy generated from RFNBOs counts towards Member States’ shares of renewable energy and the respective EU targets if the RFNBOs offer GHG emissions savings of at least 70% compared with fossil fuels. The EU currently determines the GHG emissions savings of hydrogen using the methodology set out in Annex 1 to Commission Delegated Regulation (EU) 2023/1185 of 10 February 2023

Meanwhile, in the United States, the Treasury Department published its proposal for what should be considered “clean hydrogen” eligible for tax credits under the Inflation Reduction Act on 22 December 2023. According to the proposal, the amount of the applicable tax credit is determined by the GHG emissions per kg of produced hydrogen. In this way, the tax credit may apply not only to hydrogen produced from renewable sources but also to technologies using fossil energy sources, e.g. natural gas, in combination with carbon capture and storage. If using electricity, such electricity is classified as renewable only if it meets an additionality requirement as well as certain criteria on temporal and geographical correlation – which are defined differently than the similar criteria used in the EU. In particular, the requirements of temporal correlation set by the proposal are more stringent than in the EU, demanding that the generation of electricity must occur within the same hour as the electrolysis from 2028 onwards. 

While there are similarities between the EU and US models, the impact of hydrogen being classified as ‘renewable’ or ‘clean’, the fundamental approach of the determination, and the details of the criteria differ. These two examples show that regional or national development of standards will lead to a differentiated regulatory landscape that may prove challenging to navigate for hydrogen producers and traders. 

Impact of the new initiatives

The impact of COP28’s hydrogen initiatives, in particular of the Declaration, remains to be seen. Since it only voices an intent, it does not commit the participants to specific courses of action. Mutual recognition may be achieved in a number of ways, for example through a common global standard or through bilateral or regional recognition agreements.  

As the EU has already developed a comprehensive set of standards for its internal definition of renewable hydrogen, its integration into a system of mutual recognition will pose challenges. Other national or regional certifications for which hydrogen counts as renewable may differ substantially from the prerequisites defined by the EU. A system of mutual recognition may place those countries and regions with comparably lower prerequisites at a competitive advantage. Countering these effects and creating a relatively level playing field for economic actors from all countries will be a major task and challenge for regulators. 

A further question is the scope of mutual recognition. The certification of hydrogen as renewable can be become relevant in multiple ways, for example in meeting emissions reduction goals, emissions trading schemes, carbon tariffs like the EU’s Carbon Border Adjustment Mechanism (CBAM), and the eligibility of projects for public funding. Mutual recognition may not be granted to the same extent for these different applications. In particular, regulators such as the EU will have a strong interest in reserving their public funding for projects meeting their own strict requirements to ensure an energy transition in line with their own policy aims. 

On balance, the Declaration voices a strong international intention to work towards the development of a global hydrogen market. However, due to its high-level nature, it remains to be seen what impact, if any, it will have. At the very least, its translation into concrete measures will require a great deal of negotiation and regulatory development, and hence time.


 

[1] Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (recast).

[2] Directive (EU) 2023/2413 of the European Parliament and of the Council of 18 October 2023 amending Directive (EU) 2018/2001, Regulation (EU) 2018/1999 and Directive 98/70/EC as regards the promotion of energy from renewable sources, and repealing Council Directive (EU) 2015/652.

Tags

energy and natural resources, energy transition, europe, green energy, low-carbon, regulatory