Policies Can Spur Hydrogen Import Value Chains

Coauthored by Sjoerd Pernot and Michèle Koper

Achieving the climate goals set in the Paris Agreement, as adopted by the European Union (EU) and the Dutch government, requires the transition toward a net-zero energy system. Hydrogen is expected to play an important role in such an energy system, growing to a share of 13%-14% in the 2050 EU energy mix from less than 2% in 2020. This includes the use of hydrogen in energy transport and storage, in hard-to-abate demand sectors, and as an industrial feedstock.

In addition to domestic production, international trade can play an important role in the hydrogen supply chain—improving diversity of supply, reducing costs, and strengthening international cooperation, among other benefits. Recognizing these benefits, the Dutch government has outlined a strategy for strengthening energy diplomacy and hydrogen imports. To kick-start hydrogen imports, the government is promoting hydrogen trade through strategies such as trade missions, memorandums of understanding, and cooperation with potential exporting regions, including the Middle East, North Africa, and the Iberian Peninsula.

Despite this effort, however, hydrogen imports are materializing slowly, and targets are at risk of being missed. In response, the Dutch Ministry of Economic Affairs and Climate Policy asked Guidehouse to identify the barriers that companies experience in setting up hydrogen imports and to provide policy recommendations for overcoming these barriers. Barriers throughout the entire hydrogen import value chain were examined, ranging from the production and export of hydrogen overseas to its import and transit in the Netherlands. Potential barriers to trade flows such as contracts, business relations, and financing were covered as well.

Overview of the Hydrogen Import Value Chain

(Source: Guidehouse)

To identify the barriers, 23 interviews were conducted with commercial, financial, academic, and public/semipublic organizations. These interviews resulted in a long list of barriers that companies encounter when setting up hydrogen imports, from which four key barriers were distilled. Policy recommendations, including examples of policy instruments that could be applied, were developed to overcome these four key barriers. The barriers and recommendations are incorporated in a letter to the Dutch Parliament by the Ministry of Economic Affairs and Climate Policy, which includes the study as an appendix.

One of the policy recommendations to address an identified key barrier is focusing support on the hydrogen demand side. Potential offtakers for imported hydrogen need certainty in terms of price and volume (i.e., security of supply). At the same time, establishing a steady volume for long-term demand enables potential suppliers to bring projects to the stage of financial investment decision. While many hydrogen projects are being developed, the interviewed parties indicated that securing long-term commitments is challenging. Implementing policy instruments that allow offtakers to engage in long-term contracts for imported hydrogen would also facilitate hydrogen production, conversion, and transport projects. Thus the positive effects of government support for hydrogen demand can propagate through the entire value chain and help kick-start hydrogen imports to the Netherlands.

To learn more about this and the other three key barriers and corresponding policy recommendations, please find the full report here.