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The European Union has set itself the aim of becoming the first climate-neutral continent through its Green Deal. The Green Deal Action Plan includes a European Climate Law, proposals on the sustainable use of resources – and an EU hydrogen strategy. Hydrogen is expected to be 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.
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 just been commissioned – the world’s first pilot/test facility for fossil-free steel production using hydrogen. Airbus, meanwhile, recently 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 after promising development work was abandoned in the late 1990s.
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.
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”.
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.
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. It is unclear, for example, whether the existing regulatory system for gas can and should be applied to hydrogen, and how this might be done. Hydrogen from electrolysis, for instance, is defined as a gas and thus falls within the scope of the Energy Industry Act (Energiewirtschaftsgesetz – EnWG). However, the definition of transmission in the EnWG refers to transporting natural gas, i.e. it does not cover transport of hydrogen through transmission networks of whatever kind. Nor is there any legal framework in place for carbon capture and storage, which is a prerequisite for a blue hydrogen market. Companies are therefore faced with a number of practical legal issues that are fundamental to the development and implementation of new hydrogen business models.
The German Federal Network Agency (BNetzA), which would be responsible for regulating hydrogen networks, launched a consultation procedure on regulation of hydrogen networks in July 2020 as a first step in implementing the National Hydrogen Strategy. The focus is on whether hydrogen networks should be regulated, and if so, how.
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:
Development and introduction of new business models:
Investment in hydrogen projects:
Alliances, joint ventures and growth strategies:
Ensuring that innovative products and projects are protected through intellectual property rights:
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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