Green hydrogen and green steel producers to qualify for free allowances

Producers of green hydrogen, zero-emission steel or zero-emission ammonia will be eligible for free emissions allowances, which will provide them with a new source of revenue. The aim is to level the playing field with producers of the same products using fossil fuels. This will be made possible by updated rules for the free allocation of allowances under the EU ETS. 

Producers of green hydrogen, ammonia, and iron and steel using green hydrogen will be eligible for free allowances under the EU emissions trading system (EU ETS).  The news was reported by Hydrogen Insight, citing a recently published EU regulation on free allocation.

The rules, approved after a lengthy legislative process, address a situation in which free allowances were allocated only to fossil-fuel-intensive industries, but not to producers of the same products using renewable energy sources.

The regulation explicitly grants producers of renewable hydrogen and its derivatives the same entitlement to free allowances as producers of grey hydrogen and ammonia, and steelmakers using coke ovens. Producers using renewable alternatives will be able to claim and sell allowances from 2025, providing them with a new source of revenue intended to level the playing field for these sectors.

According to trade association Renewable Hydrogen Coalition (RHC), this incentive will encourage investment decisions on green hydrogen projects. The number of allowances these producers will be eligible for will be determined using EU benchmarks, which monitor emissions across the sector and set an emissions threshold based on the 10% of facilities in Europe with the lowest emissions in each category..

Free allocation of allowances will be temporary and will be gradually reduced over the next ten years. It will be replaced by the EU’s Carbon Border Adjustment Mechanism (CBAM). The EU expects that imposing a carbon tax on imported industrial products such as hydrogen, steel and iron, as well as fertilisers and electricity, will remove the need to provide free allowances to European polluters. Free allocation is intended to level the playing field between products imported from non-EU countries and domestic products.

For example, H2 Green Steel said that revisions to the CBAM and emissions trading rules were a key factor in its decision to build a 700MW electrolyser-based steel plant in Boden, Sweden.

"It is great to see that decarbonised technologies for producing hydrogen, iron and steel are now on an equal footing under the ETS," said Ola Hansén, H2 Green Steel’s director of public affairs."This act is crucial for all companies, both established and emerging, planning to invest in new technologies," he added.

Currently, the price of allowances under the EU ETS is around EUR 60 per tonne of CO2. Prices, however, fluctuate considerably; last year, for example, they exceeded EUR 100.