Great expectations are placed on hydrogen as an energy carrier. In the future, the climate-neutral molecule will replace fossil fuels in applications where direct electrification is impossible or too expensive. This enables effective climate protection in energy-intensive industries, heavy transport, aviation and shipping. At the same time, industrial policy and geopolitical opportunities arise.
German companies are in an excellent position to produce key components for a future hydrogen economy such as electrolyzers, logistics solutions and vehicles. Moreover, switching energy imports to climate-neutral energy sources will make Germany less dependent on individual suppliers. Renewable energy sources are available worldwide, whereas oil and gas reserves are concentrated in just a few countries.
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In Germany, the debate is currently focused on green hydrogen. In fact, if Germany wants to be climate neutral by 2050, green hydrogen provides an adequate solution given that it is produced directly from renewables. But it will take time before the gas is available in large quantities. Currently, Germany plans to expand its water electrolysis capacity up to 5 GW by the end of the decade, but this does not even correspond to 15% of the demand in 2030. Therefore, partnerships with potential producer countries of cheap green hydrogen, including Morocco, Chile and Australia, are being initiated.
Exporting Blue Hydrogen
The use of low-carbon hydrogen could be accelerated by greater openness to other sources of hydrogen. Blue hydrogen, for example, is produced from natural gas, but the resulting CO2 is captured and stored. This technology is viewed critically by many in Germany. However, in the medium term, it will be cheaper than its green counterpart. In addition, many current fossil energy partnerships can switch from exporting gas to blue hydrogen. This would pay multiple dividends. In terms of climate policy, it enables emissions to be saved quickly and on a large scale. Such a step would also open up opportunities in terms of foreign and industrial policy.
Today, Germany imports around 70% of our primary energy needs in the form of fossil fuels: gas, oil and coal. The energy transition will not make Germany self-sufficient. This is due to limited land resources and also a lack of social acceptance for the expansion of renewable energy production and the scaling up of the electricity grid it necessitates. In the long term, Germany will have to import renewable energy sources such as climate-neutral hydrogen and its derivatives like methanol or ammonia.
From a foreign policy perspective, hydrogen partnerships are promising. More than in the past, future energy partnerships will depend on political choices. Geology no longer dictates where we buy oil and gas. Rather, we can import low-carbon hydrogen from many countries worldwide with good conditions for renewable energy. But today’s oil and gas suppliers should also have opportunities to continue earning from the energy trade. Co-opting them for a climate-neutral world is a climate policy imperative. If the oil and gas-rich countries lose their income opportunities, they risk being destabilized. Venezuela presents a case in point. In the European Union’s neighborhood, Algeria, Egypt and also Russia are threatened with the loss of key state revenues.
The oil and gas producers are coming up with very different answers to their challenges. Today, the Gulf monarchies are already testing technologies for hydrogen production, but also for the capture, recycling and storage of CO2. Russia, for its part, is also betting on a process to generate turquoise hydrogen, which produces solid carbon. All this is part of the global race over competing technologies. If emissions savings can be credibly and measurably achieved, and more and more quantities of climate-neutral and low-carbon hydrogen are traded, this will also establish international supply chains earlier, reduce costs, share the burden among more actors and thus cushion the socioeconomic costs of emissions savings worldwide.
The Green Paradox
Germany and Europe should take advantage of these transformations in Saudi Arabia, Qatar and Russia. This would simultaneously open up new sources of income for these states and the diversification of their economies. If Germany does not, they are likely to exhaust their fossil fuel business model with other trading partners. If demand from countries with ambitious climate policies drops, the prices for fossil fuels would slump.
The probability is high, then, that the so-called green paradox would occur: Oil and gas would not remain underground but would become cheap and be used in developing and emerging countries to fuel growth there. Already today, the center of fossil fuel demand has shifted to Asia. Thus, the path via blue hydrogen can at the same time preserve value-added potential in the oil and gas-rich countries and open up an alternative to conventional fuels for net importers of primary energy worldwide.
A look at Asia shows that elsewhere, people are agnostic about the color of hydrogen when it comes to building partnerships. The competition is already in full swing. Japan is leading the way: Various processes and methods are being explored with Australia, Brunei and Saudi Arabia to test trade and transport, as well as to set standards. Hydrogen and its derivatives (mostly ammonia) are produced from lignite (Australia) or natural gas (Brunei and Saudi Arabia) and transported in three different ways. This is being done with the intent to strengthen energy trade relations and industrial policy opportunities because this is how the manufacturers of key components of a hydrogen economy gain a competitive edge over the rest of the world.
Of course, the long-term goals of climate and carbon neutrality are also in focus. Asia is keeping a broad energy and technology mix open and hopes for flexibility and a strong starting position amid global competition. Yet decarbonization does not mean an immediate shift away from oil, gas and coal. By focussing is on “clean” energy technologies and by pursuing such an agnostic approach, certain countries could benefit from the price reductions for fossil fuels due to the green paradox if other countries solely focus on renewable sources for their hydrogen production. A transition to clean energy urgently requires the largest possible quantities of climate-friendly hydrogen, preferably from different sources all over the world. It is counterproductive to exclude potential suppliers.
*[This article was originally published by the German Institute for International and Security Affairs (SWP), which advises the German government and Bundestag on all questions related to foreign and security policy.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.