CMS Expert Guide to Hydrogen Law and Regulation

Since we last reported on the hydrogen sector in 2021, the pace of developments in the sector has kicked up a couple of gears. While the scale of the challenges that still need to be overcome should not be underestimated, the last 18 months have seen a stream of announcements of major new developments. What is particularly noteworthy is that the announcements are not only in Europe and USA, but from jurisdictions across the globe. China, South Korea and Japan being the notable examples. 

Hydrogen projects are springing up in every continent and governments are scrambling to pass frameworks to regulate the emerging sector. Part of the push comes from climate commitments. With the continuing push towards decarbonisation and energy security, the need for reliable supplies of low-carbon hydrogen is increasingly seen as critical for achieving Paris Agreement aims. 

The step up in pace, scale and geographical breadth in the sector makes the publication of this Expert Guide particularly timely. With over 600 energy lawyers working from over 80 offices, CMS is ideally placed to comment on the developments in key areas such as the models being deployed for infrastructure development, emerging regulatory regimes and available sources of financing. Hydrogen crosses into parallel sectors the same way as methane gas has been a feature of more than just the energy sector - therefore, for this guide, we have included chapters on the use of hydrogen in the industrial and transport sectors, where it is expected to play a significant role. 

The increase in pace in the sector is driven by several key factors, including: 

• Policy and Regulatory Support: Governments across Europe have introduced ambitious hydrogen strategies and funding programmes to accelerate the deployment of hydrogen technologies. The UK's rollout of the Hydrogen Business Models, the European Hydrogen Backbone and the EU's RePowerEU plan as well as the European Hydrogen Bank auctions are notable examples.
• Technological Advancements: Innovations in electrolysis and carbon capture technologies have started to improve efficiency, making hydrogen production more viable at scale.
• Market Dynamics: The geopolitical landscape and energy market volatility have underscored the importance of energy security, prompting increased investment in hydrogen as a clean and reliable energy source. However, despite efficiency gains from technological advancements, the sector has been affected by inflation, pushing up the costs of materials and utilities required for constructing and operating hydrogen projects.
• Sustainability Goals: The global commitment to achieving net-zero emissions continues to position hydrogen as a crucial component of the energy transition particularly in relation to heavy industry and energy storage, driving demand and investment in green hydrogen projects.

While the move to hydrogen becoming a major part of the future energy mix is becoming unavoidable, delays and cancellations of projects remains an issue. There remain many challenges to overcome. These include complexities in securing financing, high costs of renewable energy inputs, demanding and complex subsidy requirements, and a lack of offtakers willing to take these hard to quantify risks or pay the high costs of entry. For example, the Uniper H2Maasvlakte project in the Netherlands was delayed due to difficulties in securing a power purchase agreement to supply electricity for the project and uncertainty over sufficient offtake interest 1 . As a result, the project has withdrawn from the EU Innovation Fund financing. Similarly, Shell has put its Aukra low-carbon hydrogen project on Norway’s west coast on hold, citing a lack of immediate demand for blue hydrogen 2 , while Equinor also pulled its plans for a Norwegian hydrogen production plant, stating that it could not continue maturing the project without long-term firm commitments from European buyers 3 . Others have had better success, such as Shell’s 100MW REFHYNE II project, which reached FID 4  despite a couple of years’ delay.

Hydrogen initiatives are global

Europe has long been seen as the engine for commercialising new low carbon technologies. However, it is notable that it is China that has been at the forefront of hydrogen project development, with several high-profile initiatives underway, including SINOPEC’s planned 400km pipeline, which is to run from Inner Mongolia to Beijing  5 . Europe still has a key role as the USA and China have both focused on their domestic markets. Europe is seen as the continent with the most potential for international investments and cross-border hydrogen projects serving both domestic and regional markets. Projects such as GreenH2Atlantic 6  in Sines, Portugal – a new hydrogen plant with a capacity of 100MW that aims to start operation in 2025 – and GreenHyScale 7  in Denmark, one of the world's first 100MW electrolysis plants co-funded by the EU and built in collaboration with a consortium of partners, exemplify the diverse applications of hydrogen, from industrial use and energy storage to transportation. Another significant project is the Lahti Power-to-Gas Plant in Finland, which aims to build a Power-to-Gas plant producing renewable synthetic methane, green hydrogen, and district heating from excess process heat. The construction of the first phase is planned for 2025–2027, with substantial EU funding awarded. Additionally, Hydrogen Valleys 8  in regions such as Auvergne-Rhône-Alpes (France) (IMAGHyNE) 9 , Pays de la Loire (France)(VHyGO initiative 10 ), northern Denmark (CONVEY 11 ), and Alentejo (Portugal) 12  are developing integrated hydrogen ecosystems.

Number and scale of financings ratchet up 

Whilst financing challenges remain acute for the sector, the financing landscape for hydrogen projects has evolved significantly, with a marked increase in investments and financial instruments tailored to support the sector. In 2023, global spending on hydrogen supply projects under construction reached USD 3.5 billion 13 , with a substantial portion allocated to electrolysis facilities. Europe has been a major beneficiary of this investment surge, with numerous projects reaching FID, driven by robust policy incentives and funding mechanisms such as the EU's Innovation Fund. 

Key factors driving successful projects to FID include clear and effective incentives, demand-side visibility, and strong industrial policies. For example, the Hydrogen Council reported a seven-fold increase 14  in hydrogen projects reaching FID globally over the past four years, highlighting the growing maturity and scale of the sector.

Hydrogen infrastructure networks are being progressed alongside 

Policymakers recognise that the development of robust infrastructure is crucial for the successful deployment of hydrogen technologies, and that this infrastructure is unlikely to materialise without their intervention. The variety of ancillary equipment includes pipelines, storage systems, and refuelling stations. 

In Europe, significant investments are being made to build and manage this infrastructure. For instance, Germany has made USD 3.2 billion in financial guarantees 15  available for the construction of hydrogen pipelines, and the Hydrogen Acceleration Act 16  aims to digitalise, simplify, and prioritise planning, approval, and procurement procedures for hydrogen infrastructure. The European Network of Network Operators for Hydrogen (ENNOH) 17  has also been established to coordinate certified hydrogen transmission network operators across EU member states. These efforts are essential to ensure the efficient and reliable supply of hydrogen, reduce costs, and support the scaling up of hydrogen projects. 

A dedicated chapter of this Expert Guide focuses on activities in Europe relating to the infrastructure needed to transport, store, and manage hydrogen projects.

Focus on hydrogen for industrial and transport sector continues

Hydrogen has been recognised for its potential to decarbonise the so-called “hard-to-abate” sectors, particularly industrial and transport uses, which cannot be decarbonised effectively through other means such as electrification. In the industrial sector, hydrogen can be used as a feedstock, fuel, or reducing agent in processes such as steel production, chemical manufacturing, and refining. Notable projects include the Stegra (formerly H2 Green Steel) Project in Sweden 18 , which aims to produce green steel using hydrogen, and the RWE GET H2 Nukleus Project in Germany 19 , which will supply industrial hydrogen consumers.

In the transport sector, hydrogen is expected to be used to power fuel cell electric vehicles (FCEVs), including cars, buses, trucks, and trains. Although progress is slow, hydrogen refuelling infrastructure is planned to support FCEV fleets, especially for long-distance, long-haulage transport. One example of progress is in South Korea where a quarter of metropolitan buses are expected to be hydrogen powered by the end of this decade, and hydrogen tram networks are in development. 

Globally, more focus is also shifting to the maritime sector. For example, the second EU Hydrogen Bank auction for hydrogen projects has allocated EUR 200 million 20  for projects in the maritime sector – i.e., hydrogen production for shipping where European ports will be used. Projects are looking to transport ammonia (already a global commodity) and thereby make use of existing processes and supply chain, but with the added benefits of decarbonisation. 

Other examples of maritime projects include in the North Sea countries. In Norway, Enova is set to grant NOK 1.2 billion to 15 ‘green’ shipping projects, including funding for 9 hydrogen vessels 21 . In the UK, HyHAUL, the HGV demonstrator project, will roll out 20 fuel cell vehicles to haulage operators by 2026, with a further ambition to deploy 300 vehicles by 2030. 22  These initiatives are crucial for reducing emissions from the transport sector and achieving sustainability goals.

The remaining piece are the customers for the hydrogen to be produced

While progress has been made, and is steadily being made, across almost all other front, the need to secure buyers is the key reason why many hydrogen projects have lately stalled. Although some countries are starting to send clear demand signals – no more so than through the RFNBO requirements stipulated across EU countries – until the national laws, regulators and policies catch with the ambitions laid out on the hydrogen production side, securing buyers is set to remain a challenge. This is where the next area of focus needs to be – and perhaps will feature more in the next edition of our guide in the future.

Conclusion 

There is a sense of momentum in the hydrogen sector. The past years have seen rapid transformation, with significant developments in financing, infrastructure development, and project implementation. The sector has also become truly global, albeit with Europe and China still leading the way, with substantial investments and regulatory advancements paving the way for a robust hydrogen economy. The road ahead for the sector remains winding and rocky, and will depend on unlocking the promised billions in private sector investment, robust regimes for the development of costly ancillary infrastructure such as networks, and a push towards the use of hydrogen by key parts of the economy such as the industrial complex and transport. 

This guide aims to provide a comprehensive understanding of the legal issues and recent developments in the hydrogen sector, helping stakeholders navigate the complexities of this evolving market. Should you have any questions or wish to discuss any topics covered here in more details, please reach out to the authors or to Dalia Majumder-Russell.