In December 2020, the UK PM set out an ambitious 10 Point Plan for a green industrial revolution, one of the key points of which was the production of 5 GW of low carbon hydrogen in the UK by 2030.  The Plan envisaged hydrogen playing a key role in decarbonising energy-intensive industries and heavy transport and replacing natural gas in domestic heating.

On 17 August the UK Government published its Hydrogen Strategy (together with a number of associated Consultations), which lays the foundations for the UK’s future hydrogen economy and sets out how the UK Government will support innovation and stimulate investment in low carbon hydrogen to meet its 5GW target.

The Hydrogen Strategy is one of a series of strategies the UK government is publishing ahead of the COP26. The UK government has already published its Industrial Decarbonisation Strategy, Transport Decarbonisation Strategy and North Sea Transition Deal and plans to publish its Heat and Buildings and Net Zero Strategies, as well as Number 10’s overarching Net Zero Strategy later this year.

The Hydrogen Strategy

The Strategy is honest about the scale of the challenge and acknowledges that producing 5 GW of hydrogen by 2030 will require rapid and significant scale-up in domestic low carbon hydrogen production. The Strategy also notes the urgent need for a public awareness campaign to overcome consumer concerns about safety.

The Strategy is divided into five main parts:

  • The case for low carbon hydrogen: how it is produced and used; its potential role in meeting net zero; and opportunities for UK firms.
  • A whole-systems approach to the UK hydrogen economy: the roadmap to 2030; the actions needed to develop each element of the hydrogen value chain to reach the 2030 target, Carbon Budget Six and net zero; the market and regulatory frameworks the UK will need to develop a hydrogen market by 2030.
  • The economic opportunities: how the UK will use hydrogen to create jobs in sustainable supply chains; improve research and innovation to accelerate cost reduction and technology deployment; and maximise future hydrogen export opportunities.
  • International collaboration with other countries to support the global transition to net zero.
  • Monitoring and evaluation: how the UK will monitor its progress to ensure it meets the objectives set out in the first two chapters.

Hydrogen Consultations

Alongside the Strategy, the UK Government published a number of consultation documents:

Consultation on a UK Low Carbon Hydrogen Standard (LCHS)

This Consultation sets out options for an emissions standard to underpin the deployment of low carbon hydrogen in the UK. This Consultation could have implications for companies that seek to enter the blue hydrogen market, since a LCHS could exclude projects that emit more than an agreed level of carbon dioxide per unit of hydrogen from eligibility for government support schemes.

The Consultation seeks views on initial options for the design and administration of the hydrogen standard, including:

  • A threshold for GHG emissions;
  • Consideration of different primary energy inputs and feedstock emission;
  • The system boundary of the standard, chain of custody, purity and pressure, embodied emissions, and global warming potential factors; and
  • The scope of the standard, including its use and coverage across different production methods and geographic location.

This consultation is open for 10 weeks and will close for responses on 25 October 2021.

Hydrogen Business Model Consultation

The Government recognises the need to offset the relatively higher cost of producing low carbon hydrogen and support the growth of a hydrogen economy and is keen to use a similar funding mechanism to the Contracts for Differences model which has been successful in encouraging the construction of offshore wind farms. It is unclear how the government will determine a fair subsidy and whether the cost of any such measure would be paid through household bills or by the Treasury.

The Consultation seeks views on:

  • The Government’s current thinking on contract length, scaling of support for future production volumes, and compatibility with other revenue support mechanism;
  • The proposed overarching parameters of the business model design;
  • The proposed approach for addressing price and volume risk; and
  • A proposal for near term allocation for projects such as electrolytic projects which are not part of the CCUS cluster sequencing process.

This consultation is open for 10 weeks and will close for responses on 25 October 2021.

Net Zero Hydrogen Fund Consultation

The Fund is designed to encourage the of low carbon hydrogen during the 2020s in order to accelerate scale-up to meet the 5 GW target in 230.  The Consultation sets out the proposed scope, design and delivery of the Fund, worth up to £240 million.  The Consultation focuses on:

  • Support for both blue and green hydrogen production technologies;
  • Technologies that are capable of deployment in the 2020s; and
  • The basis for grant funding. This will include capital funding for the build of new low carbon hydrogen production facilities and development support for feasibility and engineering studies.

This consultation is open for 10 weeks and will close for responses on 25 October 2021.

A hydrogen production strategy, alongside a development plan setting out support for supply chain opportunities, skills and jobs in the nascent sector is due in 2022.

Comment

In addition to being a vital element of the UK’s energy transition, the UK Government views hydrogen as a job creator; a vehicle to deliver on its ‘levelling up’ goals; and a means of encouraging significant investment into the UK economy. Ministerial comments accompanying the Strategy quote a value to the UK of £900 million of investment and 9,000 jobs by 2030, potentially rising to £13 billion and 100,000 jobs by 2050 and project that 20-35% of the UK’s energy consumption by 2050 could be hydrogen-based.

Industry has broadly welcomed the release of the Strategy, but called on the Government to raise its level of ambition. Some industry figures noted that the UK’s 2030 target of 5 GW of low carbon production compares unfavourably to the EU’s 6 GW by 2024 target, whilst others commented that Europe already has 23 hydrogen steel plants – the UK has none.

Another area of controversy is the blue/green hydrogen debate. By using the terminology of ‘low carbon’ hydrogen, the Strategy avoids explicitly choosing either blue or green hydrogen, opting instead to use a Consultation to establish emissions standards for blue hydrogen projects.

The decision to include both green and blue hydrogen in its Strategy differs from the EU approach whose focus has been more on the production of green hydrogen.  Blue hydrogen has also been the subject of some controversy with a recent study by researchers at Cornell University suggesting that blue hydrogen may produce more overall lifecycle emissions than burning natural gas.

The UK’s decision to include both blue and green hydrogen in its Strategy may be partly explained by the existence of North Sea gas and depleted oil wells which can be used to create blue hydrogen and store the resulting carbon dioxide.  But it is also a tacit acknowledgment that, with domestic production currently so low, both forms of hydrogen will be required to meet its 2030 target.

Another question that has been raised is whether hydrogen is an effective energy source for all the different sectors for which the UK Government has indicated it is intended.  Some commentators have argued that hydrogen’s short supply means that it should be targeted at hard-to-decarbonise sectors such as cement and steel production, aviation and shipping.

However, the UK Government remains keen to investigate the possible use of hydrogen in domestic heating and has launched a series of trials which will help inform a decision in 2026 on the role of hydrogen in decarbonising heat. The Government is also planning to assess the safety and technical feasibility of blending hydrogen into the existing gas supply at a 20:80 blend mix which it estimates could deliver 7 % emissions reduction. Further details are expected in the forthcoming Heat and Buildings Strategy.

The UK Hydrogen Strategy and Consultations create opportunities and risks for companies operating in the hydrogen sector. Covington’s policy and legal teams would be delighted to help companies seeking advice in navigating these new initiatives.

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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.