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Hydrogen uses, laws & regulations in industry

Explore reliable legal information about hydrogen energy in industry

Industrial applications are the most widespread and significant of hydrogen uses in operation today; 33% of all hydrogen (in pure and mixed forms) is used in oil refining, 27% in ammonia production, 11% in methanol production and 3% in steel production. 1 https://webstore.iea.org/download/direct/2803 Almost all hydrogen used in these industrial applications is derived from fossil-fuel sources. Unsurprisingly, the industrial sector is therefore often cited as the hardest sector to decarbonise and one where a scale of need would help catalyse the roll out of low-carbon hydrogen.

There are significant opportunities to use low-carbon hydrogen technologies in the heat generation process across a much broader range of industries, subject to overcoming the current barriers – in particular, substantial adoption costs and insufficient scale of capacity of low-carbon hydrogen production. 2 https://webstore.iea.org/download/direct/2803  To this end, legal and regulatory frameworks capable of supporting the growth of industrial low-carbon hydrogen use are needed. Given the wide range of applications and uses for hydrogen in the industrial sector, this chapter focuses primarily on hydrogen use as a feedstock in industrial heat-generation and draws on international examples to highlight the key legal considerations for investors, developers and financiers entering this sector.

Hydrogen Technology in industrial processes

High-intensity heat generation is required for a number of reasons: melting, drying, gasifying, facilitating chemical reactions, and so on. 3 https://webstore.iea.org/download/direct/2803  Heat can be used directly, in furnaces, or indirectly, for example to produce steam which is then used for heating. 4 https://webstore.iea.org/download/direct/2803  At present, the primary source of energy in high-temperature industrial heating is fossil fuels (coal provides 32%, with natural gas supplying 31% and oil 15%). 5 https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/plugging-in-what-electrification-can-do-for-industry  As the demand for industrial heat continues to increase, it’s share in energy-related COis also likely to increase, accounting for a quarter of global emissions by 2040. 6 https://www.iea.org/commentaries/clean-and-efficient-heat-for-industry

However, hydrogen may provide a solution. 7 https://www.carbonbrief.org/in-depth-hydrogen-required-to-meet-uk-net-zero-goal-says-national-grid 8 https://www.nationalgrideso.com/document/173791/download 9 https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf  In an ambitious high adoption scenario, it has been estimated that hydrogen could provide approximately half of the energy required to power the UK’s industrial, heating and transport sectors by 2050. 10 https://www.edie.net/news/8/Hydrogen--could-provide-half-of-the-UK-s-net-zero-energy-demand-/

Yet, in terms of industrial heating, this progress would need to start from a low base. At present there is almost no dedicated hydrogen production for use as a feedstock in heat-intensive industries (other than chemicals, iron and steel). 11 https://webstore.iea.org/download/direct/2803

Opportunities and barriers for hydrogen use in industrial processes

The scale of hydrogen production needed for the industrial sector lends it to favouring blue hydrogen - i.e. where the associated carbon dioxide is captured, transported and stored using CCUS technologies. This is where countries such as the UK and US are placing emphasis for the roll out of hydrogen projects at scale. However, for other countries, where carbon capture is impractical, the use of low-carbon hydrogen in industrial heating may be achieved, for example through the use of small-scale localised electrolysis. 12 https://webstore.iea.org/download/direct/2803 - see p.119  In any event, focusing on geographic clusters or industrial pockets is an opportunity for stimulating large-scale demand in given areas, which would in turn encourage investment in these areas.

Nevertheless, the process would not be so simple as to merely replace fossil fuel feedstocks with hydrogen. This is because heat-generation technologies across industrial sectors are diverse and specific to those sectors and there are a number of practical challenges which would need to be overcome. In the cement industry, for example, the high combustion velocity of hydrogen relative to carbon-based fuels, as well as its non-luminous flame, makes the application of hydrogen difficult to monitor. 13 https://webstore.iea.org/download/direct/2803 and Li, J. et al. (2014), “Study on using hydrogen and ammonia as fuels: Combustion characteristics and NOx formation”, International Journal of Energy Research, Vol 38, pp. 1214–23.

Further, although some infrastructure needed for such processes already exists, new infrastructure would need to be developed, including new pipelines and storage infrastructure. 14 https://www.auroraer.com/wp-content/uploads/2020/06/Aurora-Hydrogen-for-a-Net-Zero-GB-An-integrated-energy-market-perspective.pdf?eid=G%2FuTryBZDHrp6kDwxxMybQ%3D%3D#gf_25  With the requirement for significant capital outlays, the lack of assured demand is therefore a dilemma policymakers and the private sector need to address.

One opportunity for policymakers, here, is in creating a new regulatory environment that facilitates the development and uptake of low-carbon hydrogen technologies. For instance, while there are clear benefits to using low-carbon hydrogen in the steel industry, regulations on production quality mean that careful and thorough investigation is necessary before this technology can be rolled out. 15 http://www.element-energy.co.uk/wordpress/wp-content/uploads/2019/11/Element-Energy-Hy-Impact-Series-Study-4-Hydrogen-in-Yorkshire-the-Humber.pdf

Ultimately, significant policy support is required if there is to be a significant uptake in hydrogen technology across heat-intensive industrial sectors. Although industrial heat demand is likely to rise in the medium term - a 9% increase is anticipated by 2030 - without additional policy support, it is difficult to anticipate noticeable increases in low-carbon hydrogen use. 16 https://webstore.iea.org/download/direct/2803

As globalisation of the hydrogen economy progresses, it is expected that locally generated hydrogen will become increasingly supplemented by trans-border shipment of hydrogen, with it being generated in jurisdictions where renewable electricity and the ability to store CO2 is more readily available. The economics of these types of projects is still uncertain, however if the price can compete with locally sourced hydrogen then this will open up this market to industrial users.

Currently the contractual frameworks for these projects are developing. For some entities at least these projects look similar in structure to LNG and large-scale cross-border gas transportation projects and projects for the transportation of petrochemicals (areas where the economics do stack up). For other, these will need to follow offtake structures more familiar with renewable generation such as power purchase agreements. Or there will be an adaptation of both approaches as the market develops.

The challenges with trans-border shipment of hydrogen is more on the technical side.  In order to be shipped in liquid form, hydrogen has to be cooled to minus 253 degrees Celsius, which is 20 degrees above absolute zero (the lowest level of the thermodynamic scale), and 100 degrees cooler than LNG.  There are also issues with the volatility of liquid hydrogen.  That said, liquid hydrogen carriers and stabilising catalysts are being develop and tested and expected to be deployed in full scale projects in the near future.  In the meantime, green ammonia (constituted of nitrogen and hydrogen) is seen as a less technically challenging and currently commercially viable type of hydrogen transportation project, so this is another route to a hydrogen market for industrial users to consider.

Towards an Effective Framework for Hydrogen in the Industrial Sector

Developers, investors and advisers in the energy sector will appreciate that energy projects must navigate a complex regulatory regime. A variety of different regulatory bodies and key stakeholders operate within this framework; offshore seabed owners, marine management authorities, oil and gas authorities, government departments, shipping authorities, environmental bodies and health and safety executives are but a few of the stakeholders low-carbon hydrogen projects may need to consider.

Therefore, to integrate blue and green hydrogen technologies into existing energy systems, so that they may be used as an industrial feedstock, requires a more joined up approach across these stakeholders. 17 https://www.ogauthority.co.uk/media/6625/ukcs_energy_integration_phase-ii_report_website-version-final.pdf see page 18  It will be especially important to ensure that regulatory frameworks can successfully facilitate and manage the key infrastructure in blue and green hydrogen: transportation and storage facilities.

Some jurisdictions covered by this guide, notably Japan, South Korea and some EU jurisdictions, have already taken steps in this regard.

For example, in the UK, the Oil and Gas Authority (“OGA”) has acknowledged that, as well as clarifying the content of regulations for hydrogen technologies and associated infrastructure, the roles played by the myriad of stakeholders and authorities must also be rationalised. Guidance issued by those authorities must be aligned, where possible, to assist developers of first-of-their-kind projects in understanding how to apply existing rules in this novel field. 18 https://www.ogauthority.co.uk/media/6625/ukcs_energy_integration_phase-ii_report_website-version-final.pdf see page 22 In practice, this will result in additional time and cost to the project while the rules and guidance are assessed and put to use. For example, in relation to consenting hydrogen projects, some authorities may not have sufficient guidance to inform an application for consent to develop a hydrogen project. It is through further alignment with the policies of the wider decarbonisation agenda that pilot projects and industry, as a whole, can proceed in a timely manner, paving the way for greater uptake of hydrogen technologies in industrial settings over the coming decade. 19 https://www.ogauthority.co.uk/media/6625/ukcs_energy_integration_phase-ii_report_website-version-final.pdf see page 31

Similarly, countries like the Netherlands have been clear in voicing their expectation that hydrogen networks will be regulated in a similar way to existing gas and electricity networks. 20 https://www.lexology.com/library/detail.aspx?g=84848b41-0541-4269-a151-30c87f6e20ff  The Dutch authorities have also recognised the challenges in the current laws for the storage of hydrogen.  While preferring to have European or international safety guidelines and standards developed, they have begun establishing general principles relating to the safety risks of hydrogen storage with the ultimate aim of developing a bespoke framework specific to hydrogen. 21 file:///C:/Users/smpg/Downloads/Hydrogen-Strategy-TheNetherlands.pdf see page 6

Funding the Hydrogen Industrial Market

In a number of jurisdictions covered by this guide, the availability of public and private financing to develop hydrogen technologies for industrial applications is nascent, though improving. However, in comparison to the use of hydrogen in transportation, there are fewer examples of funding mechanisms which are specific to the industrial use of hydrogen.

Nevertheless, there are some examples of financing mechanisms, often combining public and private funding, which are being harnessed to develop hydrogen technologies for industrial feedstocks:

  • Italy: in 2019, SNAM S.p.A (“SNAM”) launched a project (“SNAMTEC”) aimed at increasing energy efficiency, reducing pollutant gas emissions and promoting innovation in the energy sector. Among the initiatives included in SNAMTEC, SNAM launched a trial that took place for a month in the Campania Region. The trial introduced a quota of 5% hydrogen into the energy mix and has, 22 https://www.snam.it/en/Media/Press-releases/2020/Snam_results_first_nine_months.html  proven that the introduction of even a small portion of hydrogen in the energy mix would allow a substantial reduction in carbon dioxide emissions.
  • Germany: there is a well-established precedent of public funding for hydrogen technologies in Germany. In respect of industrial hydrogen use, the German Federal Ministry of Education and Research is providing more than €60 million in funding to the “Carbon2Chem” project, which explores how industrial gases from steel production can be used to create valuable primary products for fuels, plastics or fertilisers. It is expected to make 20 million tonnes of the German steel industry's annual CO2 emissions economically exploitable in the future. This represents 10% of Germany’s annual CO2 emissions produced by industry and manufacturing. The project’s other partners intend to invest more than €100 million by 2025. 23 https://www.fona.de/en/measures/funding-measures/carbon2chem-project.php
  • Czech Republic: although there is no specific funding mechanism for hydrogen technologies, there are examples of collaborative approaches to support such schemes. For instance, in 2019, the Region of Ústí and Labem along with UNIPETROL, a.s. (a PKN Orlen Group company) assembled a consortium of 17 public and private entities to sign a memorandum on partnership and cooperation in the development and use of hydrogen as a clean source of energy. The goal of this initiative is to support the use of hydrogen in local industry.

UK: in February 2020, the Department for Business, Energy and Industrial Strategy (“BEIS”) announced a £90 million package as part of its larger innovation fund. £28 million of this is earmarked for the development of hydrogen production projects, including two of Europe’s first-ever large-scale, low-carbon hydrogen plants. 24 https://www.gov.uk/government/news/90-million-uk-drive-to-reduce-carbon-emissions  One of these is the HyNet project, which is discussed in more detail in the UK chapter of this guide. This is led by Progressive Energy Limited, in collaboration with Johnson Matthey, SNC Lavalin and Essar Oil. It involves the development of a hydrogen production facility on Merseyside, to be part of the UK’s first net-zero industrial zone using carbon capture and storage technology. From 2025, HyNet will produce, store and distribute hydrogen as well as capture and store carbon from industry in the North West of England and North Wales using state-of-the-art technology to build new infrastructure whilst also upgrading and reusing existing infrastructure which is currently involved in fossil fuel production. 25 https://hynet.co.uk/ Hydrogen produced at this plant will be used at a Unilever manufacturing site close by, as well as Pilkington’s Greengate glassworks – this will be the first time hydrogen is used in glass manufacturing worldwide. 26 https://www.theengineer.co.uk/hynet-3m-funding-boost/  Further, in October 2021 the Chancellor of the Exchequer confirmed in the UK’s Budget and Spending Review for 2021 that the government plan to spend £240 million on the Net Zero Hydrogen Fund (“NZHF”), originally announced in the Prime Minister’s Ten Point Plan for a Green Industrial Revolution, which will be delivered between 2022 and 2025. The NZHF aims to support the commercial deployment of new low-carbon hydrogen projects during the 2020s, with an ambitious target of 5GW of low carbon hydrogen production by 2030.

Hydrogen industrial clusters

In an effort to coordinate how clean hydrogen may become a viable solution for decarbonising European economies, in 2020, the European Commission (the “Commission”) launched a Hydrogen Strategy for Europe. This sets out a strategic framework which the European Clean Hydrogen Alliance can then use to develop an investment agenda and project pipeline. The strategy envisages that from 2025 to 2030, hydrogen will need to become an intrinsic part of European energy systems. During this period, it is anticipated that demand-side policies will be required to ensure that uptake of hydrogen technologies is realised in industrial settings. The development of hydrogen industrial clusters – where decentralised renewable energy production will be located alongside energy-intensive industries – is a fundamental part of this vision.

In time, the Commission considers that a need will develop for Union-wide hydrogen transmission infrastructure, so that hydrogen may be transported from renewable energy generation centres to areas where industry is heavily concentrated. To scale up the deployment of hydrogen technologies, EU support and stimulus packages will be required, with the aim of having a competitive hydrogen market operational in the Union by 2030. This will allow hydrogen to penetrate all sectors of the economy, including industries where decarbonisation is currently more costly, as 2050 approaches.

In the UK, a similar cluster strategy is developing and research here has been focussed on a potential hydrogen cluster located in the Yorkshire & Humber region. This region is the most significant amongst the UK’s six largest industrial clusters, in terms of energy use and greenhouse gas emissions, and there are opportunities to replace natural gas with hydrogen across a number of sectors, including glass manufacturing, the secondary steel industry, cement production and the lime sector. The rationale behind the development of a hydrogen cluster is that by first establishing projects which would supply a handful of large local industrial users, this may support a cost-effective hydrogen transition which can then be rolled out more broadly. There is political support in the Humber region for decarbonisation initiatives and it is hoped that by first utilising blue hydrogen, this will reduce the costs associated with the subsequent introduction of green hydrogen produced by using energy from offshore wind projects in the North Sea.

The broader international approach follows a similar vein. The International Energy Agency has recommended that industrial ports should become the “nerve centres” for the up-scaling of hydrogen technologies. The potential for cluster development around the North Sea, the North American Gulf Coast and China’s Pacific coastline has been underlined.

Conclusion

Undoubtedly, the role that industrial and manufacturing processes will play in the energy transition will be key for the achievement of national and international climate change goals. Both blue and green hydrogen will have a role to play, with the scale and capital needs of the industrial sector making this an interesting proposition for those investors ready to move beyond R&D projects. The processes of today may need adapting and creating over the coming years, but hydrogen will play a role in unlocking complimentary technologies, such as carbon capture and storage, while also expanding the areas where it is currently deployed. With the marine and automotive landscape changing too, industrial sectors will determine just how deep and how far the low-carbon hydrogen revolution will reach.