The three proceeding contributions to this Periscope edition high-light the divergence of approaches to certification in the emergent hydrogen economy.
Of the three countries discussed, Germany is the most advanced and ambitious in its approach, with both formal regulation and voluntary schemes both well progressed. In contrast, Japanese Government and industry have made clear that their priority until at least 2030 is to secure reliable supplies of low-cost hydrogen and ammonia, the emissions credentials of these fuels are of secondary importance. These contrasting approaches of two market leaders in the downstream hydrogen economy present challenges for aspiring exporters such as Australia. It is not surprising, therefore, that we are seeing a diversity of public and private approaches to both production and certification of hydrogen vectors in Australia. This conclusion will situate these approaches in light of the political, economic and environmental drivers in each country and suggest ways forward.
Challenges for Germany
German regulators face a challenge because they are trying to achieve two goals: one environmental, and one industrial. Their environmental goal is to minimise emissions leakage, that is, to ensure reductions achieved by switching to hydrogen and derivatives in Germany are not offset by increases in emissions elsewhere due to their production.1 The motivation for this goal is understood to be a combination of enlightened self-interest – which recognises that greenhouse gases are global pollutants – and political economy concerns – whereby German hydrogen producers do not want to be disadvantaged by compet-ing with producers who face less onerous emissions constraints. Wind farms in the North of Germany – the electricity sales of which are constrained by grid bottlenecks – are a case in point.
Meanwhile, the industrial goal for Germany is to help German companies stay at the forefront of development and commercialisation of hydrogen value chains, both downstream (including green steel and fuel cells) and upstream (including electrolysers). Competitiveness of these industries relies on them being able to capture early dynamic economies of scale. For the downstream industries this relies on them having access to competitively priced hydrogen and derivatives.
German regulation and certification of hydrogen and derivatives illustrates the balancing of environmental and industrial motives. On the environment side, research from the Australian National University (ANU) has shown that hydrogen derived from fossil fuels will struggle to meet even the current voluntary CertifHy standard (Longden et al., 2022). Updated standards to meet the requirements of the Fit for 55 package are likely to be stricter still. Meanwhile, Katharina Sailer’s contribution to this Periscope explains that certified hydrogen produced from renewable energy will need to meet the strict new REDII criteria, as well as prove it has not benefited from renewable energy subsidies. On the other hand, she notes that hydrogen production is likely to be exempt from Germany’s renewable energy levy. Similarly, hydrogen has not been included in the EU proposed Carbon-Border Adjustment Mechanism (though ammonia has) (EU Commission, 2021).
In order to meet both environmental and industrial objectives, Germany needs renewable hydrogen to rapidly become cheaper than other forms of hydrogen. To do this, the country needs the green hydrogen industry to grow so it can reap economies of scale. Strict certification requirements and clear signals that fossil hydrogen will not have a market in Germany is the unilateral best approach. But the benefits would be much greater if they could convince markets such as Japan to take a similar approach.
Risks for Japan
Japanese regulators are also aiming to achieve a combination of environmental and industrial goals. As Seiichiro Kimura explains in his contribution to this Periscope, for Japan, the central environmental goal is its Net Zero by 2050 commitment. Emissions leakage does not seem to be a concern. Since the emissions produced when hydrogen and ammonia are used in Japan do not depend on how they were produced, fossil and renewable versions are equally useful for helping meet Net Zero commitments. For Japan, the emphasis is on cheap hydrogen and ammonia to lower the cost of meeting these commitments and help Japanese downstream industry and technologies gain advantage in global competition. Certification of the emissions credentials of hydrogen vectors is something to worry about in the future, after supply chains have been established.
Although understandable, the current Japanese approach presents several political and economic risks. Firstly, there is the risk that the Japanese public realises they are paying a high price for their own net zero transition, without actually doing anything to reduce global greenhouse emissions or mitigate climate change. The global emissions from co-firing hydrogen made from brown coal such as that being produced in Victoria are around 50% higher than the emissions from firing the coal it replaces (Longden et al, 2022). At the other end of the supply chains there are also political risks. Voters in producing countries – who will be paying the price for their own net zero transitions – may be frustrated that their efforts are being undermined by increased emissions from production of hydrogen for export to Japan. The social licence underpinning the supply chains that Japan seeks to establish may well be withdrawn. If that is the case, Japan may pay the price for not investing more in stable, longterm supply relationships with clean hydrogen and ammonia producers. From an economic perspective, there is the risk that the global price of credible carbon offsets will rise steeply in the coming decade, leaving Japan having established expensive supply relationships. An additional economic risk is that carbon border adjustments become more commonly applied by Japan’s export markets – and that they expand to include Scope 3 emissions. Indeed, Scope 3 emissions are already a concern for multinational companies such as Apple, Google and Microsoft that have committed to net zero supply chains. These firms have a disincentive to invest in Japan’s hydrogen economy. Japanese participation in international hydrogen certification could help send valuable signals to investors, as well as help lower costs for Japanese-based firms wishing to decarbonise their supply chains.
Horses for courses in Australia
In contrast to Japan, certification of hydro-gen and ammonia is a big topic in Australia. If anything, there is an embarrassment of riches. The Australian Government is developing its Guarantee of Origin Scheme which it seeks to make compatible for domestic and international markets, and playing a key role in the international scheme being developed by the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE).2 Meanwhile, the renewable energy industry is developing its own Zero-Carbon hydrogen certification scheme through Hydrogen Australia (a division of the Smart Energy Council). At the same time, the Australian chapter of the Ammonia Energy Association is a driving force behind its certification scheme. This apparent multiplication of effort is a reflection not only of the potential Australia sees in hydrogen and ammonia exports, but also the competing forces in domestic and international markets.
Max Hewitt’s contribution to this Periscope highlights the fact that two hydrogen industries are growing in competition in Australia. Seeking to exploit Australia’s vast renewable energy potential, dozens of “green” hydrogen and ammonia projects from small to mega scale are under development. Meanwhile, seeking to remain relevant and profitable in a decarbonising global economy, Australia’s fossil fuel industry is also looking to move into hydrogen and ammonia production.
The Australian Government’s response to the competing forms of hydrogen is to take a de jure “technology neutral” approach to hydrogen industrial policy, including certification (Aisbett et al., 2021). The focus of Government certification efforts is on certifying the embodied emissions in the product, rather than the “colour”. From the perspective of the renewable hydro-gen and ammonia industry, the Govern-ment’s approach is frustratingly slow, both because it must consult widely with do-mestic and international stakeholders, and because methods for verifying emissions embedded in fossil hydrogen are more complicated than those required for 100% renewable hydrogen.
A way forward?
Efficient international trade of hydrogen and its derivatives can lower the cost and increase the benefits of the net zero transition for all three countries. Yet, despite a common understanding of the importance of consistency and interoperability of certification to free trade, political, economic and environmental considerations are driving divergent approaches in all three countries.
Katharina Sailer’s contribution refers to the important work undertaken by the German Energy Agency (dena) to assess the potential for a uniform global hydrogen certification scheme, and notes its disappointing conclusion. None-the-less, they propose a minimalist concept that is consistent with the schemes they assessed. Establishing a global norm – even if less ambitious than some parties would like – is a common approach in international governance. Global norms can often establish a ground level on which more ambitious approaches can build.
An alternative approach could be to fa-cilitate upward and downward compatibility through a Mutual Recognition Agreement (MRA). In an MRA, the principle of mutual recognition is “strictly confined to the recognition of technical competence of designated foreign bodies, in the exporting country, in specific product markets, to perform conformity assessment for products to the rules and procedures of the importing country.” (Correia de Brito et al., 2016, p.10). In the context of hydrogen certification, it would mean that bodies such as Hydrogen Australia would be recognised as able to certify hydrogen in accordance with EU regulations, and similarly bodies like TÜV Süd could be recognised as certifiers for the Australian Government’s Guarantee of Origin Scheme. Suitable Japanese organisations could be recognised as able to certify in accordance with either government’s requirements.
- See Aisbett in Mehling et al. (2021) and Stocks et al. (2020).
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