Hydrogen law, regulations & strategy in China

In 2020, China’s hydrogen production exceeded 25 million tons, accounting for about one third of the world's total production. China has become the world's largest hydrogen energy producer and consumer. Production and sales of metal hydrogen storage materials have now surpassed Japan, and China is fast becoming the world’s largest hydrogen storage material producer and retailer. China produces mainly “grey” hydrogen with “green” hydrogen accounting for a very small proportion (less than 1%). Although it is likely that fossil fuel-based hydrogen will continue to be the main form of hydrogen produced in China over the next decade, it is believed that after 2030, green hydrogen will gradually become the main. China has huge potential for hydrogen production from renewable energy and has been the world's largest investor in renewable energy for 8 consecutive years. 1 https://www.dx2025.com/archives/136018.html

At present, China's hydrogen production is mainly in the fields of chemical industry and steel manufacturing, specifically in petrochemical, chemical industry and coking. Hydrogen is used mostly as a raw material to produce methanol, synthetic ammonia and other chemical products, with only a small portion used for industrial fuel.

Over the last decade, particularly since the “13^th Five-Year Plan” was outlined in 2016, there has been an enormous push to develop hydrogen-powered vehicles in China. Hydrogen fuel cells are a key component of hydrogen-powered vehicles, and hydrogen refuelling stations are the necessary infrastructure required to support the application of hydrogen fuel cell vehicles (“FCVs”) in China. At present, the application of hydrogen is mainly within the promotion of hydrogen-powered vehicles and also as the main material for synthetic chemicals.

The National Alliance of Hydrogen and Fuel Cell ( “NAHFC”) was launched in February 2018 with the aim of enhancing “the development of China’s hydrogen sector in speed and quality”. NAHFC is a government supported alliance that was jointly formed by a consortium of energy and automotive companies, including China Energy Investment Group and state-owned SAIC Motor, as well as several leading science and technology institutes. Several major international players from the energy industry are also members of NAHFC, including Air Liquide, Air Products and Linde. NAHFC acts as a platform to enable coordinated innovation, research and development of hydrogen and fuel cell projects, and as a thinktank to guide state policy. 2 http://www.h2cn.org/en/about.html#survey

In August 2020, NAHFC worked alongside the Hydrogen Council to produce the “Path to Hydrogen Competitiveness – A Cost Perspective”, a Chinese version of the Hydrogen Council’s 2019 research report. The report highlighted that developments in technology, among other areas, will aim to assist in reducing the costs associated with hydrogen production and stated that this is an area in which China has much to offer. 3
http://h2cn.org.cn/en/about.html#survey

On 22 September 2020, at the United Nations General Assembly, China pledged to achieve carbon neutrality by 2060 and to reach its peak carbon dioxide emissions by 2030. In order to facilitate this, China aims to increase its nationally determined contributions and adopt more effective policies and measures. The continuous drop in the cost of hydrogen production from wind and solar power generation provides a potential decarbonisation path for industries that are most dependent on fossil fuel energy in economic activities, such as steel, heavy road freight, shipping and cement. China needs a long-term perspective to achieve its goal of net zero emissions in the future and solar, wind and hydrogen energy are all expected to be some of the most appropriate solutions. For the goal of carbon neutrality by 2060, China is expected to shift to a structure based on hydrogen production from renewable energy, anticipating clean energy to reach 80%. 4 https://chuneng.bjx.com.cn/news/20210420/1148201.shtml

In April 2021, the “China Hydrogen Energy and Fuel Cell Industry White Paper 2020” (the “White Paper 2020”) released by NAHFC indicated that in the scenario of carbon peak in 2030, China’s annual demand for hydrogen is expected to reach 37.15 million tons, accounting for about 5% of the final energy consumption, the output of renewable hydrogen is estimated to be about 5 million tons, and the installed capacity of electrolytic cell will be about 80GW.

In the scenario of carbon neutralisation in 2060, the annual demand for hydrogen in China is expected to increase to about 130 million tons, accounting for about 20% of final energy consumption, and renewable energy production of hydrogen will be about 100 million tons. It is anticipated that hydrogen will still be used most in the industrial field, which is about 77.94 million tons, accounting for 60% of the total hydrogen demand; 40.51 million tons of hydrogen will be used in transportation, 5.85 million tons in construction, and 6 million tons in power generation and power grid balance. 5 http://finance.cnr.cn/txcj/20210422/t20210422_525467869.shtml

Transport

Since 2017, the development of China's hydrogen-powered and FCV industry has been in full swing. Hydrogen fuel cells are mainly used in commercial vehicles, which have different application fields from pure electric vehicles. Although hydrogen FCVs are still in an early stage of research and development in China, it is expected that the next five to ten years will become a “golden era” for the industrialisation and rapid promotion of hydrogen FCVs.

At the end of 2019, more than 130 hydrogen-refuelling stations had been built or were under construction in China: 61 had been completed and 52 are in operation. China has initially formed industrial clusters and demonstration-application areas in the Beijing-Tianjin-Hebei area, Yangtze River Delta, Pearl River Delta, Shandong Peninsula and the central region. These are areas of highly concentrated industrial activity where the cost of hydrogen infrastructure can be shared between market participants. At present, there are nearly 4,000 vehicles of various types operating in the demonstration areas, such as fuel cell 

Industry

China already has a recognised hydrogen energy industrial foundation. Currently, however, its production is mainly reliant on fossil fuels and hydrogen is predominantly used as a raw material for the synthesis of industrial chemicals. Unsurprisingly, the steel and chemical production industries consume the greatest amounts of hydrogen in China. Domestic hydrogen production from coal is the largest, reaching 21.24 million tons, accounting for 63.54%, followed by industrial by-product hydrogen and hydrogen production from natural gas, with the output of 7.08 million tons and 4.6 million tons respectively, and the hydrogen production from electrolytic water is about 500,000 tons. Fossil fuels, such as coal, natural gas, and petroleum, account for almost 70%; hydrogen produced from industrial by-product gases accounts for about 30%; and hydrogen produced by electrolysis of water accounts for less than 1%. In terms of regional distribution, China's hydrogen production capacity is mainly concentrated in Northwest, North and East China, accounting for 75% in total. Among them, the capacity in Northwest China is 10.67 million tons per year, in North China it is 10.21 million tons per year, in East China it is 9.4 million tons per year, in South China it is 4.99 million tons per year, in Southwest China and Northeast China it is 3.35 million tons per year and 1.95 million tons per year respectively, accounting for 8.3% and 4.8% respectively.

It has been announced that, since 2017, Chinese investment into domestic hydrogen energy projects has exceeded CNY 250 billion. In the first half of 2019, there were as many as 70 domestic investment projects in the field of hydrogen energy and fuel cells, including investments of some tens of billions of Yuan, and 50 projects with a public investment amount exceeding CNY 90 billion.

In recent years, with the successive promulgation of national policies (which are discussed in more detail below), many large enterprises have entered the hydrogen energy market. These include many well-known state-owned enterprises such as CHN ENERGY, State Grid and China HuaNeng Group.

Many energy-related private companies are also aggressively expanding into the hydrogen-energy market, intending to occupy a strategic place in the future market. Among them is Meijin Energy Group (“Meijin Energy”), one of the most high-profile names in the oil and gas industry. In June 2019, Meijin Energy announced that it had signed the “Qingdao Meijin Hydrogen Energy Town Cooperation Framework Agreement” with Qingdao Municipal Bureau of Industry and Information Technology. Under the agreement, the town’s total industrial land scale is planned to reach about 2,000 mu (equivalent to 1.33 km²) and will receive a total investment of CNY 10 billion – the majority of which will be provided by Meijin Energy. The purpose of the agreement is to invest in hydrogen technologies, for example commercial new energy vehicles (“NEVs”), membrane electrodes, fuel cell stacks and systems, as well as providing support for scientific and technological innovation centres, fuel cell testing centres and the research and production of other projects. Furthermore, the agreement stated that Meijin Energy will establish a platform dedicated to the construction and operation of hydrogen energy infrastructure and initiate the launch of a hydrogen energy industry fund for investment into major projects in the industrial chain.

In July 2019, Meijin Energy also announced that it had used its own funds to increase Guangdong SinoSynergy Hydrogen Power Development Co., Ltd. (“Synergy”) capital by CNY 180 million. Synergy have invested heavily in factories in the Yunfu Industry site, Guangdong Province, where they produced over 300 hydrogen-powered fuel cell-battery hybrid buses in 2018-2019. 6 https://www.mdpi.com/1996-1073/12/1/54 Furthermore, in August 2019, Meijin Energy and Jiaxing Transportation Investment Group Co., Ltd. signed the “Jiaxing Hydrogen energy infrastructure construction and hydrogen fuel vehicle demonstration operation platform cooperation agreement”. The agreement stipulates that the two parties will cooperate, through the establishment of a joint venture company, in the construction of hydrogen energy infrastructure in Jiaxing, Zhejiang Province, and in the demonstration operation platform of hydrogen-powered vehicles.

On 19 January 2019, Shanghai Re-fire Energy Technology Co., Ltd. and the People’s Government of Nanhai District, Foshan City, Guangdong Province formally signed a contract. The former will invest in the construction of a hydrogen energy industry base project in Danzao Town, Nanhai District. The purpose of the project is to set up several research and development bases that will focus on investigation into hydrogen fuel cells, hydrogen-powered FCVs and the related industries. The project is expected to have an annual output value of CNY 15 billion. This follows another hydrogen-energy investment worth tens of billions of Yuan in Danzao Town; the Hydrogen Power (Foshan) R&D Centre and vehicle production project that was launched in 2017.

Following the announcement of the establishment of the hydrogen energy division in July 2021, GCL new energy (00451), a subsidiary of GCL group, officially announced the hydrogen energy development plan: the goal of blue hydrogen is to gradually expand the capacity to 4 million tons of synthetic ammonia per year and supply 700,000 tons of blue hydrogen in China. The goal of green hydrogen is to build 100 comprehensive energy stations by 2025 to reach an annual capacity of 400,000 tons. In August 2021, Shenghui Technology (300423. SZ) announced the establishment of the Shenghui New Energy Co., Ltd. to invest in and layout core industries such as hydrogen energy storage.

In August 2021, Peng Huagang, Secretary General of the State-Owned Assets Supervision and Administration Commission (“SASAC”) of the State Council, said that more than one-third of the central enterprises are already in the layout of the whole industrial chain, including hydrogen production, hydrogen storage, hydrogenation and hydrogen consumption. The State Power Investment Corporation has simultaneously arranged the whole industrial chain of hydrogen production from renewable energy and fuel cell in the hydrogen energy industry. During the “14th Five-Year plan” period, Sinopec plans to lay out 1,000 hydrogenation stations or oil hydrogen joint construction stations. In addition, PetroChina officially established the Hydrogen Energy Research Institute in 2021.

High costs, difficulties in storage and lack of hydrogen infrastructure

Since hydrogen is a secondary energy source that is produced by using primary energy, and the costs of its storage, transportation, and production are high, people in China are sceptical as to whether hydrogen energy is economically viable. 

Industry experts say that the current core technology and equipment related to China’s hydrogen infrastructure require improvement, and a large amount of scientific and technological innovation and input are needed to reduce the cost of hydrogen energy. In addition, although the use of liquid hydrogen storage and transportation can reduce the cost of hydrogen, China’s liquid hydrogen-related equipment manufacturing and industrialisation is in its early stages and it will take time for liquid hydrogen storage and transportation to be widely adopted.

Legislative framework

In common with many jurisdictions, China does not have a well-defined legislative framework for hydrogen projects across various sectors. This creates a number of gaps and uncertainties, which need to be addressed before the hydrogen economy is able to flourish. 

Legislation

China has not yet introduced specific or unified laws or administrative regulations on the use of hydrogen energy. The policy basis for the development of hydrogen energy utilisation in China is mainly founded on national industrial planning policies and local pilot regulations. Planning policies are discussed in more detail, below. 

With regard to pilot regulations, 28 provinces have included the development of hydrogen energy in their provincial “14th Five-Year Plan for National Economic and Social Development and the Outline of Long-Term Goals for 2035”; ten provinces, including Guangdong and Shanxi, have included the development of hydrogen energy in their Government Work Reports in recent years. As well, provinces such as Shandong, Hebei and Zhejiang have released development plans for their local hydrogen energy industry. Additionally, many other provinces have formulated relevant policies to promote the development of the hydrogen energy industry that relate to the construction of hydrogen energy infrastructure, the manufacturing of key components and the supporting operation services. For example, the NEV industry action plan, issued by Shanxi Province in 2019, outlined plans to carry out hydrogen fuel vehicle projects in Taiyuan, Datong and other cities; Guangdong Province issued the “Implementation Plan for Accelerating the Development of Hydrogen Fuel Cell Vehicle Industry” in 2020, setting out the establishment of an independent, controllable and technologically advanced hydrogen fuel cell vehicle industry chain.

Policy and government programmes

The “13th Five-Year National Strategic Emerging Industry Development Plan” issued by the State Council in 2016 proposed to promote the development of on-board hydrogen storage systems and hydrogen preparation, storage, transportation and refuelling technologies, as well as to promote the construction of hydrogen refuelling stations.

The Government Work Report of the State Council 2019, states that there is a national mandate to “promote the construction of charging and hydrogen refuelling facilities”. This is the first time that hydrogen energy has been included in a Government Work Report and reflects its growing importance in China. 

In March 2020, the National Development and Reform Commission and the Ministry of Justice issued “Opinions on Accelerating the Establishment of Green Production and Consumption Laws and Policies”, stating that the promotion of clean energy development requires the study and formulation of standards and supporting policies for new technologies, such as hydrogen and ocean energy.

In January 2021, National Development and Reform Commission promulgated the “Catalogue of Encouraged Industries in the Western Region”. Among them, hydrogen processing and manufacturing, hydrogen energy fuel cell manufacturing, hydrogen transmission pipeline and hydrogenation station construction have been included in the catalogue of encouraged industries in Guizhou Province and Inner Mongolia Autonomous Region; hydrogen energy and other new energy and related device manufacturing industries and industrial operation services have been included in the catalogue of encouraged industries in Shanxi Province.

In February 2021, the State Council issued the “Guiding Opinions on Accelerating the Establishment and Improvement of the Green and Low-carbon Circular Development Economic Systems”, which put forward to promote the green and low-carbon transformation of the energy system and develop hydrogen energy.

In March 2021, the National People’s Congress approved the “Outline of the 14th Five-Year Plan for National Economic and Social Development and the Long-Range Objectives Through the Year 2035 for the People's Republic of China”, stating that China plans to deploy a number of future industries in cutting-edge technology and industrial transformation fields such as hydrogen energy and energy storage.

Primary legislation

The draft Energy Law of the People's Republic of China, issued on 10 April 2020, highlighted various energy sources. However, unlike other secondary energy sources such as electrical power, thermal power and refined product oil, hydrogen was not listed separately, but was only categorised as “other new energy sources”. 7 Article 2(2) of Energy Law of the People's Republic of China (Draft for Comments) : Applicable Scope The energy mentioned herein means various available energy resources that can be derived directly or through processing or conversion, including the primary energy sources like coal, crude oil, natural gas, coal bed methane, waterpower, nuclear energy, wind power, solar energy, geothermal energy and bio-energy, the secondary energy sources like electric power, thermal power and refined product oil, and other new energy sources and renewable energy sources.  Therefore, the importance and potential of hydrogen is yet to be fully reflected in China’s legislation. In any case, the inclusion of hydrogen energy in the energy category in the draft aims to promote the development of relevant industries. After being included in the energy category, it is expected to be easier for enterprises to obtain approval for the construction of hydrogenation stations, hydrogen production, storage and transportation. 8 https://www.yicai.com/news/100588754.html

Generation

According to the Regulations on the Safety Management of Hazardous Chemicals, hydrogen belongs on the hazardous chemicals list. Therefore, it is generally believed that the operators of hydrogen-production plants and hydrogen-refuelling stations should obtain hazardous chemical business licences. Such licences are issued by the safety production supervision and management department which is part of the Ministry of Emergency Management of PRC. 

“China's Energy Development in the New Era” was published by the State Council in December 2020, stating that China will accelerate the development of hydrogen energy industry chain technology equipment such as green hydrogen production, storage, transportation and application, and promote the development of hydrogen energy fuel cell technology chain and hydrogen fuel cell vehicle industry chain.

On 19 April 2021, the National Energy Administration published “Guiding Opinions on Energy Work in 2021”, proposing to carry out pilot demonstrations in the hydrogen energy industry, to deepen China-EU cooperation in energy technology innovation such as hydrogen energy, and to promote the implementation of a number of cooperative demonstration projects.

In terms of the standard setting, at present, China currently has 12 national standards and 2 industry standards in the field of hydrogen energy safety; 4 national standards, 3 industry standards, and 1 local standard in the field of gas quality testing; 2 national standards and 3 industry standards in the field of gas purification; 33 national standards in the field of hydrogen storage containers; 19 national standards in the field of transportation; 8 national standards in the field of hydrogen refuelling stations; and 8 national standards in the field of fuel cell systems.

Transportation

The Ministry of Transport issued the “Inland Waterway Navigation Development Outline” in June 2020, indicating that it will study and promote the application of hydrogen energy within the industry.

Currently, the laws and regulations are vague on the qualifications required for the operation of hydrogen refuelling stations at national level. Therefore, some local governments have issued local normative documents on this. For example, Interim Provisions on the Safety Management of Hydrogen Refuelling Stations and Hydrogen Fuel Vehicles in Suzhou City (Draft for Solicitation of Comments) clearly stipulates that the production safety of hydrogen refuelling stations and hydrogen fuel vehicle operating units shall comply with the Work Safety Law, Administrative Regulations on the Safety of Hazardous Chemicals. The hydrogen refuelling station operating enterprises must apply for the PRC Mobile Pressure Vessel/Cylinder Filling Permit from the Administration for Market Regulation of the city where they are located before engaging in business activities. The site selection, design, construction, and safety management of hydrogen refuelling stations shall comply with current national standards.

It is worth noting that the competent authorities under the local regulations are also different. For example, in Shanghai, the Housing Urban-Rural Development Department was stipulated to be responsible for the management of hydrogen refuelling station operating licenses, as well as for the implementation of the issuance of interim operating licenses for hydrogen refuelling stations. In Dalian, it is a function of the Municipal Development and Reform Commission to promote the approval, construction and management of hydrogen refuelling stations.

In terms of construction specifications, the General Office of the Ministry of Housing and Urban-Rural Development released the national standards, Technical Specifications for Hydrogen Refuelling Stations (Partial Amendments) in March 2021 and Technical Standards for Automobile Refuelling and Hydrogen Refuelling Stations in June 2021. These standards stipulate technical requirements in the design, construction, and management of newly built, rebuilt and expanded hydrogen refuelling station projects.

Foreign Investment

In terms of foreign investment, the “Catalogue of Industries Encouraging Foreign Investment (2020 Edition)” (the “Catalogue”) mentioned that various hydrogen energy industries will be included under the “foreign-investment encouraged” category. Among the industries to be included are the fuel production, storage, transportation, liquefaction, construction and operation of hydrogen refuelling stations, and hydrogen fuel cell manufacturing. The Catalogue is a government document that provides guidance on industries that are encouraged to seek investment – though it does not mean that foreign investment is required. Under the guidance, foreign investors interested in investing in hydrogen energy projects in China may enjoy preferential treatment, for example on taxation or security land rights. 

Subsidies

On 23 April 2020, the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology, and the Development and Reform Commission jointly issued a notice adjusting current purchase subsidies for FCVs granting “rewards for compensation” to demonstration cities. The notice also stated that it should take about four years to establish the hydrogen energy and FCV industry chain. This timeframe has been estimated based on the currently high costs associated with producing hydrogen fuel cells, batteries and the long-distance transportation of hydrogen across the country. 

Hydrogen, gasoline, and natural gas (i.e., rich in methanol) are classed as hazardous chemicals in the “Catalogue of Hazardous Chemicals (2015 Edition)”, due to their flammable nature. However, from an energy point of view, hydrogen does not yet have a dedicated regulatory department or corresponding classification system. 

In April 2019, the State Council issued an opinion on implementing a division of labour among key work departments in the “Government Work Report”. Instead of one central authority, the report recommended that various government departments should be responsible for: stabilising automobile consumption; continuing to implement preferential policies for the purchase of NEVs; and promoting the construction of charging and hydrogen refuelling facilities. Departments listed include the National Energy Administration, which is the competent authority for energy in China, and various other authorities which will each have a regulatory and supervisory role for different stages or processes, such as the production, storage or transportation of hydrogen. 

In 2020, the Ministry of Education, the National Development and Reform Commission, and the National Energy Administration jointly issued the “Energy Storage Technology Professional Discipline Development Action Plan (2020-2024)”, which will act as a roadmap for universities and other educational institutions. This plan notes that, in order to promote the hydrogen energy revolution in China, basic theoretical research at undergraduate, master and doctorate-level is needed over the coming years to develop highly efficient, low-cost energy storage systems. It is further noted that education and research should focus, in particular, on promoting compressed air energy storage, chemical-energy storage, new types of batteries, fuel cells, phase change energy and hydrogen storage. 

The White Paper 2020 takes the “low-carbon and clean hydrogen supply system under the vision of carbon neutrality” as its main line. It puts forward the view that decarbonisation is the first driving force for the development of this round of hydrogen energy industry. It also predicts that in the context of carbon neutrality, the scale of hydrogen production from renewable energy is expected to reach 100 million tons. With an installed capacity of 500GW of electrolysers, the reduction in hydrogen production from renewable energy alone is expected to reach 1.5 billion tons/year, accounting for about 13% of China’s current total CO2 emissions. In order to achieve the goal of carbon neutrality by 2060, China anticipates that hydrogen energy will play a key role in the entire system, and specifically heavy industry, medium and heavy transportation, and building heating industries that are difficult to decarbonise. 9 https://www.dx2025.com/archives/136018.html

According to the goals announced in the White Paper 2020, hydrogen energy looks to become an important part of China’s energy system. It is predicted that by 2050, hydrogen energy will account for about 10% of its energy system, and the annual economic output value will exceed 10 trillion Renminbi. The popularisation and application of hydrogen energy is expected to be realised in the fields of transportation, industry, and more. The output of fuel cell vehicles is anticipated to reach 5.2 million units/year, the capacity of stationary power generation devices will be 20,000 units/year, and the production capacity of fuel cell systems will be 5.5 million units/year. 10 https://www.qianzhan.com/analyst/detail/220/210617-7e452a9b.html

The “Blue Book of China’s Hydrogen Energy Industry Infrastructure Development”, issued by the National Hydrogen Energy Standardization Technical Committee (SAC/TC309), clarifies that by 2030, 1,000 hydrogen refuelling stations and 1 million hydrogen fuel cell vehicles will be built in China. This aims to drive the upstream infrastructure and fuel cell industry demand, thereby realising the development of the entire hydrogen energy industry chain. 11 https://auto.sina.com.cn/news/hy/2021-09-02/detail-iktzqtyt3542665.shtml

Regarding major renewable energy projects for the “14th Five-Year Plan”, the State Hydropower and Electricity Institute recently issued a notice stating that new energy power generation and hydrogen energy integration development projects are able to participate in the application process. It is expected that state-owned enterprises, such as China HuaNeng Group, China Datang Corporation and China Three Gorges Corporation, will apply to develop hydrogen energy projects. 

On 1 February 2021, the Ministry of Science and Technology of PRC released “Soliciting opinions on the 2021 project application guidelines for 18 key special projects including the ‘Hydrogen Energy Technology’ in ‘The 14th Five-Year Plan’ National Key R&D Program”. It is planned to focus on the 4 technical directions of green hydrogen energy production and scale transfer system, hydrogen energy safe storage and rapid transmission and distribution system, hydrogen energy convenient upgrading and high-efficiency power system, and comprehensive demonstration of “hydrogen into thousands of homes”, and 19 guiding tasks will be launched. 

In April 2021, the world’s largest green hydrogen production project from electrolysed water, Baofeng Energy’s National Comprehensive Demonstration Project for Hydrogen Production from Solar Energy Electrolysis, was put into operation in Ningxia. The project uses solar water electrolysis to produce green hydrogen and green oxygen, and directly supplies the chemical system to replace fossil energy to produce high-end chemical products. It directly reduces nearly 400,000 tons of standard coal and reduces CO2 emissions by about 700,000 tons per year.