Great expectations are placed in hydrogen as an energy carrier: The climate-neutral molecule will replace fossil fuels in the future in applications where direct electrification is impossible or too expensive. This enables effective climate protection in energy-intensive industries, heavy duty transport, aviation, and shipping. At the same time, industrial policy and geopolitical opportunities arise. German companies are excellently positioned to produce key components for a future hydrogen economy: e.g., electrolysers, logistics solutions, and vehicles. Moreover, switching energy imports to climate-neutral energy sources will make Germany less dependent on individual suppliers: Renewable energies are available worldwide, whereas oil and gas reserves are concentrated in just a few countries.
In Germany, the debate is currently focused on green hydrogen. In fact, to be climate-neutral by 2050, green hydrogen is the adequate solution. It is produced directly from renewables. But it will take time before it is available in large quantities. Currently, Germany plans to expand its water electrolysis capacity up to 5 gigawatts by the end of the decade, but this does not even correspond to 15 per cent of the demand in 2030. Therefore, partnerships with potential producer countries of cheap green hydrogen are being initiated – including Morocco, Chile, and Australia.
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 of our 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. But also in terms of foreign and industrial policy such a step would also open up opportunities.
Today, we import around 70 per cent of our primary energy needs in the form of fossil fuels: gas, oil, and coal. The energy transition will not bring self-sufficiency for Germany either. This is because there is a lack of land and probably also a lack of social acceptance for the expansion of renewable energies and for the necessary electricity grid expansion. In the long term, Germany will therefore have to import renewable energy sources, i.e., climate-neutral hydrogen and its derivatives such as 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 whom we buy oil and gas from. 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 energy trade. Coopting them for a climate-neutral world is virtually a climate policy imperative. If the oil- and gas-rich countries lose their income opportunities, they risk being destabilised. Venezuela presents a case in point. In the European Union’s neighbourhood, Algeria, Egypt, and also Russia are threatened with the loss of central 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 produce turquoise hydrogen, which produces solid carbon. All this is part of the global race over competing technologies. If emission 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 socio-economic costs of emissions savings worldwide.
Germany and Europe should take advantage of these transformations in Saudi Arabia, Qatar, and Russia. By doing so, we simultaneously open up new sources of income for these states and the diversification of their economies. If we do 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: The 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 centre 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 very agnostic about the colour 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 and 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 in global competition. Yet, decarbonisation does not mean an immediate shift away from oil, gas, and coal. Rhetorically, the focus is on “clean” energy technologies, and by pursuing such an agnostic approach, the countries could possibly also 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.
For the energy transition, we rapidly need the largest possible quantities of climate-friendly hydrogen; at best from different countries all over the world. It is counterproductive to exclude potential suppliers now.
This text was also published at fairobserver.com.
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