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Hydrogen

the energy carrier of the future

The European Union has set itself the aim of becoming the first climate-neutral continent through its Green Deal. The goal of reducing net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels was transposed into binding law through the European Climate Law, which entered into force in July 2021. Also in July 2021, the European Commission adopted the Fit for 55 package, which contains legislative proposals to implement the measures set out in the European Climate Law. Back in July 2020, the European Commission released an EU hydrogen strategy which sees hydrogen as a major factor in fully decarbonising the energy sector while making it more efficient and more integrated. 

Similarly, the German federal government set out a National Hydrogen Strategy in June 2020. This aims to create a domestic market for the production and use of hydrogen. The National Hydrogen Strategy focuses on accelerating the introduction of hydrogen technology and gradually building the capacity required to produce hydrogen from renewable energy. In June 2021, the German Bundestag passed an amendment to the Climate Change Act, bringing forward the target of carbon neutrality to 2045. It also passed an amendment to the Energy Industry Act (EnWG) in June 2021 that includes regulation of hydrogen networks.

Hydrogen’s role in combating climate change

The importance of hydrogen in achieving climate change targets has been widely recognised. Sectors that are major consumers of energy (industry, transport and buildings) are likely to be at the forefront of these efforts. In addition to being directly usable in industrial applications, hydrogen can also serve as a storage medium and is highly transportable. It can smooth out fluctuations in renewable energy, thereby ensuring reliability of supply for consumption sectors. As such, hydrogen can facilitate greater system integration of renewables.

This transformation process has already begun. In Sweden, for example, the HYBRIT project has been commissioned – the world’s first pilot/test facility for fossil-free steel production using hydrogen. Likewise in Sweden, the H2GS consortium is driving forward construction of a hydrogen-powered steel plant. In Germany, the partners in the WESTKÜSTE 100 project are planning to produce green hydrogen and climate-friendly fuels from offshore wind energy. The aim is to use them for aircraft and to feed them into the gas network. Airbus, meanwhile, has announced its intention to have a passenger aircraft fuelled by liquid hydrogen on the market by 2035, and presented three concept studies. In the automotive industry, fuel cells for generating electricity from hydrogen for electric drive systems are experiencing a surprise renaissance, especially for long distances and public transport. The German H2 Mobility initiative has set itself the initial target of installing 100 hydrogen filling stations in Germany.

Ambitious projects have also been launched with regard to hydrogen infrastructure. The AquaVentus project involves the generation of a total of 10 gigawatts of offshore wind energy by 2035, together with offshore production of 1 million tonnes of green hydrogen. The gas will be transported via a purpose-built pipeline network firstly to Helgoland and then onwards to the German mainland. The GET H2 project consists of several sub-projects for the production, transport and storage of green hydrogen. An integrated hydrogen network is to be built by 2030, stretching from north-west Germany to the Ruhr district and from the Dutch border to Salzgitter.

Growing importance of green hydrogen

There is already strong industrial demand for hydrogen as a feedstock in the chemical, petrochemical and steel sectors, which is met almost exclusively by grey hydrogen. Carbon emissions could be substantially reduced in industrial applications by using climate-neutral green hydrogen, although this will require considerable investment. In the short to medium term, electrolysis capacity needs to be created to convert the power generated by wind, water and solar energy into green hydrogen. Investment is also required in further research and development around green hydrogen production, including improving the efficiency of electrolysis and developing alternative production processes. In addition to strategic patenting issues, this will also involve R&D alliances between science and industry with the aim of moving rapidly from basic research to application-driven development.

Despite considerable investment, it is unlikely that appropriate quantities of green hydrogen will be available in the short to medium term. Accordingly, both the EU strategy and the German hydrogen strategy focus on a development path based on blue hydrogen (where production involves storage or use of the CO2 released), an approach that is somewhat controversial. Supporters justify this interim role for blue hydrogen with the need to ramp up the market, as the available quantities of green hydrogen will be insufficient to drive the establishment of a commercially viable hydrogen transport network, at least in the medium term.

Preconditions for a climate-neutral hydrogen economy

The creation of a sustainable hydrogen economy based on green hydrogen remains the clear and undisputed objective. Alongside substantial expansion of electrolysis capacity, this requires the availability of renewable energy in correspondingly large amounts. Even taking a long-term view, experts believe that Germany will not be able to generate the amounts needed, making it necessary to import green hydrogen. The requisite transport infrastructure already exists in the form of the well-developed European gas network. Having said that, European harmonisation in areas such as technical standards and proof of origin will be vital to achieving a single European market for hydrogen. This includes the development and standardisation of tank infrastructure, assuming that hydrogen will also be used to power cars in addition to electromobility initiatives. Almost all major oil companies have already produced concept studies on the “filling station of the future”.

Challenges and opportunities for businesses

As green hydrogen is not yet competitive, apart from a few exceptions, appropriate government incentives are required to make it a marketable proposition. A technology-agnostic stance is important in this regard to avoid unwelcome distortion. The substantial investment needed to develop a hydrogen economy will have to be provided chiefly by private venture capital. A transparent, reliable and consistent policy framework is thus vital to ensure the legal and planning certainty that is essential for actors. The success of commercial hydrogen strategies will depend not least on how quickly market players such as energy producers, network operators and energy-intensive industries are able to drive forward development of the required infrastructure and technologies.

Legislation and regulation on hydrogen use

Compared to what is technically feasible, the legal and regulatory framework around the use of hydrogen is underdeveloped in almost all jurisdictions. To date, Germany has no legislation that covers the hydrogen value chain.

Having said that, the amendment to the EnWG passed in June 2021 introduces a regulatory system for hydrogen networks for the first time. This step by lawmakers is aimed at gradually establishing hydrogen infrastructure in Germany. The legislation will eventually be superseded by corresponding European provisions. Those provisions are likely to be transposed into German law from 2025 onwards. The core of the new regulatory system is a right for network operators to choose whether they wish to be subject to regulation or to operate their pipelines without regulation.

There is no legal framework in place for carbon capture and storage, which is a prerequisite for a blue hydrogen market. While the introduction of optional network regulation provides more legal certainty for network operators, companies face a number of practical legal issues that are fundamental to the development and implementation of new hydrogen business models. We can provide you with expert and practical advice in this regard.

Our hydrogen expertise – how you benefit 

CMS has decades of experience in advising companies on energy and climate change. Our lawyers combine in-depth expertise in all relevant legal areas with real-world industry knowledge. This allows us to provide targeted advice on all energy law and regulatory issues associated with investment in hydrogen projects and executing such projects. We advise on developing and implementing new business models and on alliances, joint ventures and growth strategies based on mergers and acquisitions. We can provide legal advice on research and development into hydrogen technologies while ensuring that your development work and products are protected by intellectual property rights and your rights in this regard are effectively enforced. Thanks to our long experience of future mobility and e-mobility, we are also able to provide expert assistance with related hydrogen projects.

Our key areas of advice around hydrogen cover:

Legal and regulatory issues:

  • Regulation of hydrogen networks (network connection, network access, connection lines, repurposing of parallel transport systems)
  • Public-law approval of hydrogen production plants (electrolysers, reformers and separators) and any CO2 storage facilities that may be required, as well as transport via (long-distance) pipeline networks
  • Contractual mapping of the value chain
  • Safety regulations
  • Specific regulations for consumption sectors (e.g. industry, mobility)
  • Monitoring of ongoing legislative processes at national, European and international level
  • Advice on drafting the legal and regulatory framework for hydrogen

Development and introduction of new business models:

  • Designing innovative hydrogen concepts
  • Designing and implementing hydrogen-based transport and loop concepts
  • Expert opinions on legal developments and perspectives as input for strategic corporate planning
  • Legal advice on establishing and funding start-ups with innovative products or business ideas, including spin-offs from research institutes
  • Decarbonisation of industrial processes
  • Decarbonisation of the buildings sector
  • Legal support and advice on designing and implementing R&D projects
  • Advice and support around legal protection for new business models

Investment in hydrogen projects:

  • Power-to-X projects
  • Constructing and operating electrolysers
  • Projects in the industrial sector
  • Constructing and operating hydrogen infrastructure
  • Projects for producing blue hydrogen
  • Support in gaining subsidies
  • Carbon capture

Alliances, joint ventures and growth strategies:

  • M&A transactions involving the acquisition or sale of start-ups or promising established companies already operating along the value chain, including debt financing of acquisitions where required
  • Alliances and joint ventures around the shared exploration and exploitation of opportunities in the hydrogen sector
  • Drafting and negotiating R&D cooperation agreements, including considering the implications under competition and state aid law
  • Structuring, drafting and negotiating technology licensing agreements

Ensuring that innovative products and projects are protected through intellectual property rights:

  • Enforcement of patents and addressing breaches of trade secrets 
  • Advice on developing and implementing strategies to protect your innovations
  • Freedom to operate analysis, evaluation of infringing third-party rights and taking action against them
  • Advice and representation in relation to technical standardisation and its implications for patents

If you have any questions about hydrogen, please do not hesitate to get in touch with your usual contact at CMS or Dr Friedrich von Burchard.

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