‘Green’ hydrogen – made from renewable energy sources – is seen more and more as the holy grail in the transition to a carbon-neutral economy. The global market for hydrogen production is expected to reach USD 201 billion in 2025, compared to USD 130 billion in 2020[1]. This growth is being driven by its potential use in the transition to a carbon neutral economy. Sustainable mobility, decarbonising industrial processes, optimising renewable energy production… the applications for hydrogen are multiplying. While the industrial uses of hydrogen such as ammonia production and the refining of petroleum products still account for the vast majority of its consumption today, a number of other applications are emerging. Mobility is an example of such application. Vehicles equipped with fuel cells (FCVs) emit only water vapour, which considerably reduces their carbon footprint when the hydrogen is produced in a green way. From individual cars to road freight, the market for fuel cell vehicles is expected to reach USD 6 billion by 2028, compared to USD 0.57 billion in 2021[2]. But hydrogen can also help with decarbonising electricity production. When combined upstream with renewable energy sources, it can be stored in isolated locations and used later to produce electricity on demand (Power-to-Power), or converted to methane (Power-to-Gas) to supplement natural gas. Hydrogen can contribute to the move to a net-zero economy Hydrogen has a key role to play in meeting the environmental challenges created by global warming. It explains why most of the countries that signed the Paris Agreement are using hydrogen-friendly policies to help them meet the target of limiting the increase in the average global temperature to 1.5°C compared to pre-industrial levels. In 2021, some 30 countries delivered a roadmap for 2030 that involved public and private investments totalling more than USD 300 billion in 224 hydrogen-related industrial projects. Europe is proposing 126 projects, far ahead of Asia (46), Oceania (24) and North America (19). Governments alone are planning to invest USD 70 billion in these projects worldwide by 2030[3]. The challenges of hydrogen deployment However, hydrogen still faces a number of challenges: Production costs. According to BloombergNEF, the cost of green hydrogen (produced from renewable energy) fell by 40% between 2015 and 2020[4]. It is expected to fall further – by up to 85% – by 2050. If these forecasts prove accurate, it will be competitive with ‘grey’ hydrogen produced from natural gas[5]. Investment. The growth of hydrogen-based transport will require the necessary infrastructure, such as fuelling stations on roads, which so far remains limited. The same goes for storage. Nevertheless, several projects have emerged in recent years to address this issue. Lastly, the hydrogen sector must review its production methods. Whether by the electrolysis of water, the steam reforming of natural gas, or the gasification of coal, 95% of all hydrogen is produced with the use of fossil fuels. Known as ‘grey’ hydrogen, it therefore has an unfavourable carbon footprint. Although the situation is better for ‘blue’ hydrogen, where CO2 emissions are captured for re-use or storage – as they are with grey hydrogen – its footprint still prevents it from playing any real role in the energy transition. To do so, hydrogen needs to be produced by the electrolysis of water using energy from renewable sources, a process that delivers so-called ‘green’ hydrogen. Investing in sustainable hydrogen means supporting the rise of sustainable energy The European Union plans to invest EUR 500 billion over 10 years in green hydrogen[6] and aims to reach an electrolysis capacity of 40 gigawatts (GW) by 2030, compared to less than 0.1GW today[7]. In the US, the Hydrogen Program Plan announced in November 2020 also includes significant efforts to decarbonise hydrogen. Finally, China announced a similar megaproject in Inner Mongolia in 2021, with the start-up planned for mid-2023[8]. According to BloombergNEF, green hydrogen could reduce at a reasonable cost[9] global greenhouse gas emissions by one-third in the coming decades. The future of hydrogen is therefore sustainable. But it requires funding for projects to expand the uses of hydrogen, both in terms of infrastructure and innovation. This is why BNP Paribas Asset Management has extended its range of ESG[10] themed exchange-traded funds (ETFs)[11] by launching a listed index fund designed to address this specific funding need. The fund replicates the ECPI Global ESG Hydrogen Economy Index. Composed of 40 international stocks selected using ESG criteria and equally weighted, the index is designed to provide investors with exposure to the most active companies in the sustainable hydrogen economy. The following sectors are targeted: Sustainable hydrogen, with 30 companies specialising in its production, supply or storage. Clean energy, including 10 companies with a major involvement in generating renewable electricity for green hydrogen production. In the years ahead, hydrogen’s advantages could certainly help the industry to grow and take its rightful place within a responsible energy mix that seeks to meet the pressing environmental challenges. References 1 https://www.marketsandmarkets.com/Market-Reports/hydrogen-generation-market-494.html 2 https://www.theinsightpartners.com/reports/fuel-cell-vehicle-market 3 https://hydrogencouncil.com/wp-content/uploads/2021/02/Hydrogen-Insights-2021-Report.pdf 4 ‘Hydrogen Economy’ Offers Promising Path to Decarbonization | BloombergNEF (bnef.com) 5 https://data.bloomberglp.com/professional/sites/24/BNEF-Hydrogen-Economy-Outlook-Key-Messages-30-Mar-2020.pdf 6 https://energy.ec.europa.eu/topics/energy-system-integration/hydrogen_fr 7 https://hydrogencouncil.com/wp-content/uploads/2021/02/Hydrogen-Insights-2021-Report.pdf