The UK Government has set itself very stretching emissions targets. A reduction of 68% on 1990 levels by 2030 and a Net-Zero target by 2050. To achieve these goals, the UK established a Committee on Climate Change with responsibility for setting a credible roadmap. It does this though a series of four-year Carbon Reduction Budgets, starting in 2008. The UK met the First and Second Budgets and is on course to meet the Third Budget. However, it is not on course to meet the Fourth and Fifth, covering the period 2023 – 2032. The CCC has set out five main measures to span the gap between the ambition of the 2050 Net-Zero Target and the reality of missing the next two Carbon Budgets. Two of those measures are demand-side. Of the remaining three measures, two involve the increasingly extensive use of hydrogen.

Ten Point Plan for a Green Industrial Revolution

It is for this reason that hydrogen features as one of the main elements of the UK Government’s Ten Point Plan for a Green Industrial Revolution published in November 2020. By 2030, the UK is aiming for 5GW of low carbon hydrogen production, with plans to create renewable energy hubs based around CCUS and hydrogen. The Government aims to use existing gas infrastructure to make hydrogen (blended with natural gas) available for use in domestic cooking and heating appliances across the UK and to support this objective, has announced Hydrogen heating trials, with the ambition of creating a hydrogen Neighbourhood and a potential Hydrogen Town before 2030.

The Industrial Decarbonisation Strategy

The UK’s Industrial Decarbonisation Strategy (IDS), published earlier this month, underlines the importance of Hydrogen in enabling the UK to meet its Net-Zero target. The IDS does not seek to make a decision whether to place the greater emphasis on clusters (more electrification), or on infrastructure investment across the UK (more hydrogen in the mix). However, the Government acknowledges that pursuing a cluster strategy may risk stranding heavy-industry assets (for example cement and steel works) post 2035, leaving greater ‘residual carbon’ in the system by 2050, which would require more offsetting GGR technology.

The IDS’ acknowledgement of a need for an increased focus on hydrogen in the UK’s decarbonisation roadmap to avoid ‘stranded carbon’ was trailed by the December 2020 update to the UK’s CCUS business models. That update included a focus on accelerated work to support hydrogen business models to overcome the cost gap between low carbon hydrogen and higher carbon fuels, such as natural gas. The UK Government is planning a consultation on preferred low carbon hydrogen business models in Q2 2021, with a final model due to be agreed in 2022.

Potential UK Hydrogen Use

In its best-case scenario, the Government estimates that UK domestic hydrogen consumption could be as high as 86 TWh by 2050 and notes early hydrogen opportunities in the conversion of steam boilers and combined heat and power processes for chemicals, refineries and paper. The Government acknowledges that the necessary hydrogen technologies for high temperature direct firing are not yet commercially ready and will require financial support to bring those technologies to market.

UK Government Support to Hydrogen

The UK’s overall approach to reaching Net-Zero is market-led and technology neutral. However, the Government acknowledges that without its intervention to address current market failures (as well as regulatory uncertainties and the high risks associated with novel technologies), it is unlikely that mass hydrogen will find a viable route to market. Accordingly, the UK is considering a range of interventions to support hydrogen development in the UK – including whether fuel standards could play a useful role in helping industry invest – and is reviewing emissions associated with different hydrogen production technologies in order to develop a UK standard that defines low carbon hydrogen.

The Government has put funding at Hydrogen’s disposal – a £240 million Net Zero hydrogen Fund, which will provide capital co-investment in early low carbon Hydrogen production; a £1 billion Net Zero Innovation Portfolio (which it estimates may be complemented by up to £3.5 billion of funding from industry and academia); and a £33 million low carbon hydrogen supply competition.

Policy Formation in the UK

There are a number of organisations which support the development of hydrogen in the UK. Two key groups, which bridge the public-private sector divide are the All Party Parliamentary Group (APPG) on Hydrogen – which is the primary interface for the private sector with Parliament – and the Hydrogen Advisory Council (HAC) – which is the primary forum for Ministerial engagement with representatives from the hydrogen sector. Both groups play an important role in raising awareness of and building support for large-scale hydrogen projects in the UK and in discussing policy options and actions to help the development of hydrogen as a strategic decarbonised energy carrier for the UK.

The APPG met in mid-March 2021. The last meeting of the HAC was in December 2020. Both groups support parallel development of blue and green hydrogen in the UK, on the basis that blue Hydrogen could become a ‘pathway’ to green hydrogen. The HAC is currently drawing up a road-map for cross-sector hydrogen deployment which will support the Government’s UK’s delayed Hydrogen Strategy which is due to be launched in Q2.

The Foundations are Laid, but the UK’s Hydrogen House Needs Building…

However, despite this impressive list of activity in the hydrogen sector, the UK currently lacks a legislative hydrogen framework (including a legal definition of ‘low carbon hydrogen’); an effective business model; and a defined revenue support mechanism (probably a CfD) for projects in the 2020s – all of which are needed to create a credible investment framework. These elements are not likely to come together before early 2022.

Covington’s hydrogen teams are reviewing the development of hydrogen legislation and frameworks in the UK and in other jurisdictions around the world and would be happy to help develop clients’ plans in this sector.

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Photo of Thomas Reilly Thomas Reilly

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador…

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador Reilly was most recently British Ambassador to Morocco between 2017 and 2020, and prior to this, the Senior Advisor on International Government Relations & Regulatory Affairs and Head of Government Relations at Royal Dutch Shell between 2012 and 2017. His former roles with the Foreign and Commonwealth Office included British Ambassador Morocco & Mauritania (2017-2018), Deputy Head of Mission at the British Embassy in Egypt (2010-2012), Deputy Head of the Climate Change & Energy Department (2007-2009), and Deputy Head of the Counter Terrorism Department (2005-2007). He has lived or worked in a number of countries including Jordan, Kuwait, Yemen, Libya, Iraq, Saudi Arabia, Bahrain, and Argentina.

At Covington, Ambassador Reilly works closely with our global team of lawyers and investigators as well as over 100 former diplomats and senior government officials, with significant depth of experience in dealing with the types of complex problems that involve both legal and governmental institutions.

Ambassador Reilly started his career as a solicitor specialising in EU and commercial law but no longer practices as a solicitor.