IEA: Investment in low-emissions hydrogen is gaining momentum, but capacity and demand remain low

Investment and projects focused on low-emissions hydrogen are on the rise. Final investment decisions for these projects have doubled over the past 12 months, but installed capacity and demand remain low as the sector faces uncertainty. The International Energy Agency (IEA) said this in its report published today. It added that rules to support demand in key sectors such as heavy industry, refineries and long-distance transport are needed to accelerate deployment.

The investment decisions represent a fivefold increase in current low-emissions hydrogen production by 2030. The total capacity of electrolyzers that have reached a final investment decision now stands at 20 gigawatts (GW) worldwide.

China accounts for the largest share of new projects over the past year, at more than 40 percent. The country is now home to 60 percent of the world’s electrolyzer manufacturing capacity.

Despite the new projects, installed electrolyzer capacity and low-emissions hydrogen production remain low, as developers are waiting for government support before investing. Uncertainty about demand and regulatory frameworks means that most projects are still in the planning or early development stages, and their implementation is at risk.

Global hydrogen demand could rise by around three million tonnes this year, mainly in the refining and chemical sectors. However, the IEA said this should be seen as a result of broader economic trends rather than successfully established rules. It added that demand is currently largely met by hydrogen produced from fossil fuels. Low-emissions hydrogen still plays only a marginal role.

The report also highlighted a mismatch between government production and demand targets. While production targets set by governments around the world amount to 43 million tonnes by 2030, demand targets total only 11 million tonnes.

Technology and production costs remain a major challenge. Electrolyzers in particular are falling behind due to higher prices and strained supply chains. Cost reductions depend on technological development and achieving economies of scale.

Low-emissions hydrogen is expected to become an important element in decarbonizing various industrial sectors, transport and energy. It offers an alternative to fossil fuels with lower greenhouse gas emissions. So-called blue and green hydrogen are considered low-emissions. Blue hydrogen is produced from fossil fuels, but carbon dioxide emissions are captured and stored, reducing its climate impact. Green hydrogen is produced using renewable energy sources and is therefore virtually emissions-free.