The Clean Industrial Deal can mobilise green hydrogen

The Skies and Seas Hydrogen-fuels Accelerator (SASHA) Coalition has released a position paper outlining how the Clean Industrial Deal can mobilise solutions to drive shipping and aviation’s competitiveness and decarbonisation.

Both shipping and aviation are significant contributors to global emissions, making up around a 3% contribution each. When looking at European transport emissions, the sectors are responsible for 13.5% and 14.4% of emissions respectively, with aviation’s emissions alone increasing by 5% year-on-year in the six years leading up to the pandemic.

They are also both significant contributors to the European economy: four out of five of the largest container shipping companies are European, nearly 74% of goods traded between the EU and the rest of the world (by volume) are transported by sea.

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Both ReFuelEU Aviation and FuelEU Maritime require the use of alternative fuels, with FuelEU Maritime targeting an 80% reduction in greenhouse gas intensity by 2050. However, current regulations and the emissions trading scheme (ETS) do not sufficiently promote green hydrogen solutions, which have the greatest potential to reduce emissions while minimizing biodiversity impacts. Analysis suggests aviation policies will only reduce emissions by 38% by 2050.

In addition, fossil liquified natural gas (LNG) is being put forward as a so-called transition fuel by the shipping industry. Under FuelEU Maritime, the lifecycle greenhouse gas intensity of fossil LNG will make it compatible until 2035. However, LNG brings with it a high risk of methane leakage, and when un-combusted methane leaks into the atmosphere it contributes to climate warming due to being a greenhouse gas 80 times more potent than CO2 in the short-term.

The Clean Industrial Deal therefore presents an exciting opportunity to introduce an enabling environment that incentivises the use of green hydrogen solutions over other alternatives, namely LNG and biofuels, that will not effectively decarbonise shipping and aviation while limiting wider environmental impacts.

Green hydrogen solutions

According to the paper, green hydrogen solutions – be that green hydrogen used directly as a fuel itself, in a fuel cell or to produce alternative fuels such as e-kerosene, e-methanol or e-ammonia – provide the only alternatives to fossil fuels (other than direct electrification, which will have limited applications in the near term) that are compatible with both European climate and biodiversity goals. Being at earlier stages of development with correspondingly higher costs, they need targeted policy support.

De-risking green hydrogen is a much-needed intervention but requires safeguards to ensure the hydrogen is used only where alternatives like electrification aren’t available. Furthermore, financial mechanisms that help decarbonise shipping must be paid for by the industry itself.

…said Aurelia Leeuw, Director of EU Policy.

The EU was the first in the world to include maritime in their ETS (with a mechanism in place to use revenues to support deployment of renewable and low-carbon fuels), FuelEU Maritime has set a conditional target for 2% uptake of e-fuels by 2034, and the EU Hydrogen Bank has reserved €200 million for maritime offtakers.

Currently only two e-methanol and two e-ammonia projects for shipping have reached final investment decision (FID) – equivalent to just ~6% of the volumes required to meet the 2% target set out in FuelEU Maritime.

However, developing green hydrogen fuels presents challenges, as their production demands large amounts of renewable electricity. By 2050, shipping could need up to 59.5 million tonnes of hydrogen annually, requiring global advancements in hydrogen production.

Additionally, a significant supply of fresh water is needed, raising concerns about equitable access and the potential environmental impact of desalination. To address these challenges, projects should include adequate desalination plants if necessary.

Policy and regulation to drive investment

Effective policies and regulation will be key to driving forward investment in e-fuels and zero emission technologies for shipping and aviation. Europe has ambitions to be a significant producer of green hydrogen, a resource that will be key to decarbonising a number of hard-to-electrify sectors such as shipping and aviation.

However, it is also a solution that – at least in the immediate term – will likely come at a cost premium. While we have markets with clear use cases – shipping and aviation – the key to unlocking investment and driving uptake of green hydrogen-solutions will be effective regulation. Investor confidence and regulatory environment are closely linked.

Given the low number of significant e-fuel projects reaching FID, it is clear that existing regulations are not going far enough to instil confidence that there will be guaranteed demand for these solutions.

Likewise, with no framework in place to stipulate the use of zero emission flight technologies, we risk investment in these solutions slowing. This is particularly concerning given the lifetime of aircraft – around 30 years – and the time needed to certify new technologies.

With regulatory ambition being key to influencing business decisions, overcoming barriers in seeking finance and deploying capital, the following recommendations would encourage growth and innovation in these sectors, giving Europe a competitive edge in shipping, aviation and green industry, while meeting its ambitious climate targets.