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Green hydrogen - You may not smell it, but it is coming


In this article:

    It is green as well as colourless; vaporous, not vapid; fluid, yet powerful. Green hydrogen is all those things and increasingly it is being seen as a force for good given the promise that it holds as an alternative to fossil fuels. Countries, counties and cities are teaming up as they seek to advance the transition away from ‘dirty’ oil, gas, coal and other energy sources.  

    Some recent news items: 

    • The state administration of Schleswig-Holstein and the City of Hamburg have decided to support the hydrogen economy.
    • Saudi Arabia has approved a memorandum of understanding with China in the field of clean hydrogen energy.
    • The German Ministry for Digital Affairs and Transport will provide around EUR 16.6 million in support to Saarland-based bus businesses for clean drive conversions and a hydrogen research project.
    • By implementing hydrogen production and storage technologies in some member states, Europe will be able to further its common interest in hydrogen.[1]
    • Green hydrogen got a boost in the US with a USD 4 billion plant that will be the biggest facility powered by wind and solar in the US. [2] 

    Green hydrogen as a key to the energy transition

    Green hydrogen (H2) is expected to play a significant role in the energy transition: it can make long-haul transport sustainable in addition to carbon-intensive processes such as steel manufacturing, ammonia production and desulferising oil. It will enable countries to reduce their dependency on natural gas and cut greenhouse gas (GHG) emissions. It could eventually account for 10 to 30%[3] of global energy supply.

    Currently the majority of hydrogen production is ‘grey’, produced using fossil gas or coal using Steam Methane Reforming (SMR). ‘Blue hydrogen’ is produced in the same way as grey hydrogen but the CO2 is captured during the manufacturing process and stored permanently underground. ‘Green hydrogen’ on the other hand is produced through the electrolysis of water with 100% or near 100% renewable energy and close to zero greenhouse gas emissions.

    Over the last couple of years, the momentum for green hydrogen has grown spectacularly amid strong public support, especially in the US in the form of the Inflation Reduction Act (IRA), and in Europe through the RePowerEU plan (more below). Countries including Spain, France, Germany and Portugal have committed billions of euros to green H2 development.

    Regulatory support – US versus Europe

    Governments around the world have committed to investing USD 126 billion in hydrogen development globally, according to Bloomberg NEF, with the US and Europe are leading the way. India and China have released hydrogen-specific strategies, but their commitments are still modest. More than 30 countries now have official hydrogen strategies and further announcements are expected in 2023.

    In the short run, we believe the US Inflation Reduction Act offers more visibility than RePowerEU. The IRA offers tax credits for projects with sufficiently low carbon dioxide emissions. The US 2021 Infrastructure Bill provides for USD 10 billion in hydrogen-related funding, including for regional hubs, for a cost reduction programme and initiatives to support domestic equipment manufacturing and domestic supply chains. This translated into robust growth in hydrogen investment in the US in 2022.

    Europe started its support earlier, but is facing delays for some projects. The region aims to double the amount of green hydrogen available for consumption by 2030. The goal is to supplement the 10 million metric tons of domestic production from the 2020 strategy target with an equivalent amount of imports. It plans to launch a EUR 3 billion European Hydrogen Bank to support H2 development. Key drivers of future growth in Europe are the high carbon prices on the EU ETS trading system, expected regulatory support, expanding scale, and high fossil fuels prices.

    In the longer run, Europe should be a key market for green hydrogen as it represents 50% of the cumulative green H2 pipeline by 2030[4].

    Green is the way to go

    Green hydrogen is clearly ahead of other forms in terms of project development: it represents 67% of the proposed capacity[5], while the remaining 33% is blue hydrogen.

    Green hydrogen can already be competitive against blue hydrogen at current European gas prices. While the cost of green hydrogen has scope to fall further, blue H2 suffers from high gas prices and does not solve the issue of fossil fuel dependency. It consumes twice as much water as the green variety and emits twice as much carbon in the production process.

    Investment in green hydrogen more than tripled in 2022 to USD 1.2 billion[6]. Green H2 is the fastest growing sector of the energy transition, but it remains the smallest one. Some estimates point to USD 88 billion in investment in electrolysers to meet future needs, according to IRENA.

    A chicken and egg dilemma

    The potential for green hydrogen use appears considerable. For example, EU steel producers have ambitious plans. In ammonia, oil refining and methanol production, the adoption of green H2 usage should bring substantial reductions in green house gas emissions. In long-haul transportation, green H2 represent a more credible approach to decarbonisation than electrification considering the size and cost of batteries.

    Despite the substantial growth in investment, capacity development and project pipelines, 2022 saw delays, postponements and a rescaling of ambitions, especially in Europe. This was partly due to regulatory uncertainty in Europe, mainly around the definition of green hydrogen and concrete announcements on subsidies, but also because of issues with expanded electrolyser[7] manufacturing capacity that has outpaced demand. Greater commitments on the demand side are needed before further capacity can be added.

    Investment opportunities

    We believe the emerging green hydrogen trend offers opportunities for investors. These include index investing, but also targeted equity investing in electrolyser technology, green H2 production, storage, fuelling, transportation, and other applications.

    Investors can consider infrastructure debt to finance green hydrogen projects involving heavy transportation (trucks, non-electric locomotives, ferries), green steel production, distribution (upgrades of existing pipelines), and combined H2 and renewables storage (as a way to manage intermittency of renewables).

    As for financing green hydrogen development, we believe that support from supranational institutions such as the European Investment Bank and the European Bank for Reconstruction and Development) could help de-risk projects for commercial lenders and reassure investors.

    [1] Source for this report and the previous three reports: Green Hydrogen News (  

    [2] Source: Green Hydrogen Gets a Boost in the U.S. With $4 Billion Plant – WSJ  

    [3] BNEF 2020 Strong Policy/Theoretical Max  

    [4] Bloomberg New Energy Finance  

    [5] JPMorgan- Global Alternative Energy: Into the 4Q Print and FY23 Outlook; Improving Supply Chains, Energy Security and Policy Provide Catalysts  

    [6]Bloomberg New Energy Finance  

    [7] Electrolysis is a way to produce hydrogen from renewable and nuclear resources. It uses electricity to split water into hydrogen and oxygen in an electrolyser. Source:,a%20unit%20called%20an%20electrolyzer


    Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
    Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

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