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INSIGHTS
WHAT IS GREEN HYDROGEN?
The basic definition of green (versus grey,
brown, or blue) hydrogen is well known —
see our article Hydrogen: Is it the Answer
to Clean Energy? from the Autumn 2020
edition of this publication. However,
the term "green hydrogen" belies a
fundamental ambiguity: when it comes
to the details of production, there is no
common definition of green hydrogen
across industry sectors.
Regulators and governments around the
world are grappling with the question:
"what is green hydrogen?" or, more
specifically: "what requirements need
to be complied with in its production
to satisfy the regulatory objectives
in the end-use markets in which
that hydrogen is to be used (be that
transport, heavy industry, or renewable
energy storage)?" For developers and
financiers of green hydrogen production
projects, understanding the regulatory
requirements of these various end-use
markets is therefore fundamental to
structuring projects, which will in turn
have an impact on how they are financed.
THE CURRENT AND ANTICIPATED
REGULATORY LANDSCAPE IN EUROPE
The European Union published its
Hydrogen strategy for a carbon-neutral
Europe in July 2020, but to date the
regulatory regime remains fragmented
and sector-specific. For example,
the regulatory pressure driving the
decarbonization of steel manufacturing
(using, amongst other things, hydrogen
adoption) comes primarily from the
European Commission's efforts in
reforming the emissions trading system
(EU ETS) together with its proposed
adoption of a carbon border adjustment
mechanism (CBAM). These regulatory
efforts exert little or no control over
the sustainability requirements for how
green hydrogen used by green steel
manufacturers has been produced.
Whereas, for hydrogen produced as a
zero-carbon fuel for the transport sector,
the relevant European regulation — the
Renewable Energy Directive (Recast) 2018
(RED II) — is much further-reaching. RED
II stipulates a number of sustainability
criteria that must be satisfied during the
production of green hydrogen, as well
as requirements for reduction in the
lifecycle greenhouse gas (GHG) emissions
associated with it, in order to be classified
as a renewable transport fuel of non-
biological origin (RFNBO).
It remains to be seen whether such
differences in the approach to regulating
different sectors will remain, or whether
there will be a degree of convergence, as
the decarbonization agenda accelerates.
06
Structuring and Financing a Green
Hydrogen Project on the Back
of the Anticipated Regulatory
Environment in Europe
