By Adrian Odenweller & Falko Ueckerdt Potsdam Institute for Climate Impact Research, Member of the Leibniz Association, Potsdam, Germany

Abstract

Green hydrogen is critical for decarbonizing hard-to-electrify sectors, but it faces high costs and investment risks. Here we define and quantify the green hydrogen ambition and implementation gap, showing that meeting hydrogen expectations will remain challenging despite surging announcements of projects and subsidies. Tracking 190 projects over 3 years, we identify a wide 2023 implementation gap with only 7% of global capacity announcements finished on schedule. In contrast, the 2030 ambition gap towards 1.5 °C scenarios have been gradually closing as the announced project pipeline has nearly tripled to 422 GW within 3 years. However, we estimate that, without carbon pricing, realizing all these projects would require global subsidies of US$1.3 trillion (US$0.8–2.6 trillion range), far exceeding announced subsidies. Given past and future implementation gaps, policymakers must prepare for prolonged green hydrogen scarcity. Policy support needs to secure hydrogen investments, but should focus on applications where hydrogen is indispensable.

Main

There is a widespread consensus among scientists1,2,3,4,5, industry 6 and increasingly also policymakers7 that green hydrogen, produced from renewable electricity via electrolysis, is critical for reducing emissions in end-use applications that defy straightforward electrification. Additionally, hydrogen is a promising candidate for long-duration energy storage of renewables 8,9  and the precursor to all electrofuels10, which are highly versatile yet costly 11. Consequently, policy measures to stimulate the ramp-up of the hydrogen market are gaining momentum as more than 40 governments have already adopted hydrogen strategies1,7. Prominent examples are the supply-side subsidies implemented through the the US Inflation Reduction Act12 and the EU Hydrogen Bank 13. Such policy support is urgently required: to meet the median ambition in 1.5 °C scenarios, namely, 350 GW by 2030, green hydrogen production needs to grow 380-fold, more than doubling each year. However, implementation is not going according to plan.

Following a surge of enthusiasm14,15, the green hydrogen market and associated expectations have recently entered a phase of consolidation16 as high costs17,18, limited demand 19 and lagging implementation of support policies1 are hampering deployment. Shortfalls in the announced deployment of electrolysers, the key component for green hydrogen production, are representative of the systemic challenges of scaling up supply, demand and infrastructure at the same time. In 2022, instead of the 2.8 GW electrolysis capacity initially announced, eventually only 0.62 GW was realized on time. Similarly, in 2023, of the 7.1 GW initially announced, only an estimated 0.92 GW was realized and operational. In stark contrast to these recent setbacks, announced future growth rates of green hydrogen have increased substantially over the past 3 years, indicating a backlog of projects as well as further increasing ambition. This raises questions such as whether recent failure rates and the looming ‘valley of death’20 can be overcome to meet updated project announcements, whether the expected role of hydrogen in ambitious climate change mitigation scenarios has changed and what plausible implementation pathways exist given currently announced hydrogen support policies.

In this paper, we structure and analyse the past and future challenges of the nascent green hydrogen industry by introducing and quantifying the green hydrogen ambition and implementation gap. This builds on the well-established concepts of emissions gaps21 and recent extensions towards a carbon dioxide removal gap22. Looking back, we define the past implementation gap as the difference between announced and eventually realized capacity in 2022 and 2023. Looking ahead to 2030, we define the ambition gap as the difference between 1.5 °C scenario requirements and announced projects and find that it has been gradually closing in the past 3 years for most scenarios. However, this has been accompanied by a widening future implementation gap, which we define as the difference between announced projects and projects that are backed by policies in 2030. Analysing the competition between green hydrogen (and hydrogen-based electrofuels) and incumbent fossil competitors across 14 end-use sectors, we estimate that realizing all green hydrogen projects would require subsidies, or alternative policies such as end-use quotas, for at least another decade, even with ambitious carbon pricing and potentially indefinitely without. This paper is structured around these three gaps and concludes with a discussion of policy implications to safeguard climate targets against uncertain green hydrogen supply.

The wide green hydrogen implementation gap in 2022 and 2023

Green hydrogen project announcements reveal two opposing trends over the past 3 years. First, there has been a notable short-term setback, with capacities diminishing as projects approach their announced launch year. This trend of downward-adjusted expectations persists in both 2022 and 2023, indicating a dramatic green hydrogen implementation gap in recent years. Second, however, this trend reverses from 2024 onwards, with project announcements increasing steadily over the past 3 years. This steep mid-term growth of announcements is mostly driven by Europe, which accounts for the largest share of announced capacity by 2030, followed by Australia and Central and South America. These opposing trends raise the question as to whether future promises can overcome past setbacks. We address this question in the next section, following the quantification of the 2022 and 2023 green hydrogen implementation gaps.

Tracking 190 individual green hydrogen projects announced globally for 2023 over the past 3 years, we observe a substantial implementation gap as only 0.3 GW of the initially announced 4.3 GW added capacity was eventually installed and operational, leading to an overall success rate of 7%. Furthermore, comparing announcements by 2021 with the final outcome reveals that virtually no project announced in 2021 was realized on time in 2023, with 86% experiencing delays and 14% disappearing altogether. Similarly, of the projects announced in 2022, only 3% were realized on time, with 76% delayed and 21% disappearing. Projects in the feasibility study or concept stage almost always had a success rate of zero, implying that projects announced without a final investment decision (FID) in 2021 or 2022 were never realized on time in 2023. Across all years of announcement, even projects that had secured FIDs, or that were already under construction, were mostly delayed or had disappeared. The success rate varies by region, with projects in North America equivalent to the global average, European projects below average, Asian projects above average and a success rate of zero for Australian projects. On the global level, these high failure rates are not compensated by an influx of newly announced projects or projects that were delayed from previous years, such that a dramatic green hydrogen implementation gap of almost 4 GW remained in 2023.

The low success rates of green hydrogen projects are not unique to the year 2023. In 2022, the overall success rate was 6%, with similar patterns of delay and disappearance of projects over time. The high failure rates in 2022 and 2023 may be attributed to supply chain disruptions caused by COVID-19, surging electricity prices during the European energy crisis and rising global interest rates. However, in Europe, the energy crisis was also seen as an opportunity to accelerate green hydrogen deployment, although this has yet to materialize. Considering the project announcements for 2024, it remains questionable whether the more than 12 GW currently announced will be realized on time. Although nearly 5 GW (40%) has already achieved an FID or is under construction, this was also the case for project announcements made in 2022 for 2023, of which only 8% were completed on schedule. It will take some more years to determine whether the recent implementation gaps were exceptions caused by unusual global events, or the unfortunate norm.

Substantial implementation gaps may be common for emerging energy technologies in the early stages of technology diffusion, as large projects almost always exceed their budget and run behind schedule23. However, while research has identified similarly high failure rates for complex and customized technologies24 such as carbon capture and storage25, this does not apply to highly modular technologies such as solar photovoltaics (PV) and wind power23,26. For green hydrogen, recent evidence suggests that while the mass-producible electrolyser stack is highly modular, other components of the electrolyser system and the overall green hydrogen production plant are more complex and require customization17, making them more prone to budget and time overrun23. As long as the underlying uncertainties remain unresolved, policymakers should avoid relying solely on project announcements to assess progress on green hydrogen.

Apart from the unsettled question of electrolyser modularity, three tangible factors contribute to the low success rate of green hydrogen projects. First, cost estimates for electrolysers have recently surged due to increasing equipment and financial costs1, and because only the electrolyser stack may be set for rapid cost reductions24. Second, analysts have observed a lack of offtake agreements19, which could arise from a limited willingness to pay for costly green hydrogen. Furthermore, required hydrogen end-use investments, such as transforming steel production from a blast furnace to a direct reduction route, are often difficult to reverse and therefore pose the risk of becoming locked into an expensive and potentially scarce energy carrier. Third, bridging the substantial cost gap and reducing investment risks requires hydrogen-specific support policies and regulation, even in countries with ambitious carbon pricing27. However, lagging implementation of support policies1 and regulatory uncertainty regarding green hydrogen production standards in the European Union (EU) and the United States, although crucial to ensure climate benefits28,29, have hampered growth.

What implications does the sobering track record of past project announcements have for the future of green hydrogen in ambitious climate change mitigation scenarios? To explore these ramifications, we next focus on the mid-term horizon towards 2030. First, we provide an overview of electrolysis requirements in 1.5 °C scenarios, introducing the 2030 green hydrogen ambition gap. Second, we analyse the economic viability of surging project announcements and estimate the subsidy volumes that would be required to realize all projects, leading to the 2030 green hydrogen implementation gap.

The closing 2030 green hydrogen ambition gap

Comparing green hydrogen project announcements with 1.5 °C scenarios, we find that the green hydrogen ambition gap for 2030 has been gradually closing over the past 3 years. Due to a steadily growing project pipeline, the gap has already closed for most scenarios, including the median of both the integrated assessment model (IAM) scenarios (169 GW) and the institutional and corporate scenarios (350 GW).

Green hydrogen requirements vary substantially across different 1.5 °C scenarios, consistent with previous research30 . For 2030, this lack of consensus leads to an enormous range of 3–1,072 GW for the IAM scenarios and 30–1,016 GW for the institutional and corporate scenarios (excluding an outlier of 1,700 GW), with corresponding interquartile ranges of 38–375 and 203–655 GW, respectively. This heterogeneity results from two key uncertainties. First, the pace at which the nascent green hydrogen value chain can be scaled up is highly uncertain31, particularly as project announcements have been a poor indicator of growth. However, to reach 1.5 °C scenarios by 2030, green hydrogen would need to experience unprecedented growth rates. Second, although evidence shows that hydrogen and electrofuels are promising for decarbonizing maritime shipping32, aviation33 and steel34, substantial uncertainty remains concerning the competition with alternative mitigation options such as direct electrification, biofuels or carbon capture and storage35,36,37. This structural uncertainty also persists in the long run, explaining the high heterogeneity until 2050.

Despite the high heterogeneity, a notable trend emerges in a subset of the 1.5 °C scenarios: the International Energy Agency (IEA) Net Zero Emissions by 2050 Scenario (NZE), which has been updated annually over the past 3 years38,39,40, indicates a steady downward revision of required electrolysis for 2030. This adjustment reflects recent setbacks for green hydrogen and the rapid progress of competing mitigation options, particularly the deep electrification of road transport as well as industrial and residential heat40. Meanwhile, the 2030 green hydrogen project pipeline has nearly tripled from 161 GW to 422 GW, surpassing the requirements for 1.5 °C in 48 of the 60 IAM scenarios, and 9 of the 15 institutional and corporate scenarios. As a result, the green hydrogen ambition gap in 2030 has already closed for 60–80% of the scenarios and can be expected to close soon for the IEA NZE scenario.

Although the convergence of project announcements and 1.5 °C scenarios is encouraging, the past green hydrogen implementation gaps in 2022 and 2023 cast doubt on the reliability of ever-increasing project announcements. Of the 422 GW announced by 2030, 97% are still in the concept or feasibility study phase, which have exhibited critically insufficient success rates in the past (see the previous section). Achieving the level of ambition required in 1.5 °C scenarios hinges on overcoming these high failure rates. Yet, how much policy support would be required to realize all project announcements?

Estimating the 2030 green hydrogen implementation gap

The flipside of the closing of the green hydrogen ambition gap is the widening future green hydrogen implementation gap in 2030, which we define as the difference between project announcements and projects that are supported by policies. In this context, we estimated the policy support required to realize all 422 GW of green hydrogen project announcements by 2030. Modelling pay-as-bid market premium auctions, we estimated the required subsidies across 14 end-use sectors represented in the projects database. We modelled the competition between four green products (green hydrogen, plus three hydrogen-based synthetic electrofuels, e-methanol, e-kerosene and e-methane) and five incumbent fossil competitors (natural gas, grey hydrogen, grey methanol, kerosene and diesel). For each end use, we calculated the gradually declining cost gap between the green product and its fossil competitor, considering higher efficiencies of hydrogen if applicable and accounting for end-use-specific transport and storage costs. We explored the impact of more progressive and more conservative parameter values, which cover wide ranges for green products and fossil competitors. For the latter, we also assessed the impact of a high carbon price in line with EU climate targets. To recover their costs, green hydrogen and electrofuel projects must sell at their respective levelized costs throughout the payback period. Assuming that offtakers are broadly not willing to pay a premium for green products, the cost gap determines the specific per-megawatt hour subsidy required. To estimate the total required subsidies, for each end use, we tracked all project announcements throughout their payback period and combined this vintage tracking with the cost gap between the levelized cost of the projects and the corresponding fossil fuel cost. Our model includes the impact of end-use-specific implemented demand-side policies, which reduce subsidy requirements by increasing the willingness to pay but also incur macroeconomic costs.

Across all end uses, the competitiveness analysis reveals a substantial and prolonged cost gap between all green products and their respective fossil competitors. This is exemplified by the competition between green hydrogen and natural gas, which is relevant for end uses such as industry, power and grid injection, as well as between green hydrogen and grey hydrogen, covering the end uses ammonia, refining and some biofuel routes. Together, these account for over 90% of the announced electrolyser capacity by 2030. In contrast, project announcements for electrofuels remain limited, which may be due to a larger cost gap to the fossil competitors in the respective end uses). Without carbon pricing, the cost gap between green hydrogen and natural gas of US$150 MWh−1 in 2024 implies that green hydrogen is initially more than seven times as expensive as natural gas while the cost gap between green hydrogen and grey hydrogen is only slightly lower at US$121 MWh−1 in 2024. As green hydrogen costs decrease, the cost gap gradually reduces, but typically prevails also into the long term. This pattern holds across all end uses. Without carbon pricing, in our central estimate, no green product becomes competitive with its fossil competitor until 2050. This is robust across a wide range of progressive and conservative parameter values.

In contrast, under an ambitious carbon price pathway in line with EU climate targets41, green products gradually achieve cost parity with their fossil competitors. While the exact timing of cost parity remains highly uncertain, a relative sequence of hydrogen end-use competitiveness can be derived. In our central estimate, green hydrogen first becomes competitive with grey hydrogen in 2034 (for example, for ammonia and refining), followed by green hydrogen becoming competitive with diesel in 2037 (for mobility), e-methanol becoming competitive with grey methanol in 2043 (for example, for chemicals), and green hydrogen becoming competitive with natural gas in 2044 (for example, for industry and power). In our central estimate, e-kerosene and e-methane narrowly miss reaching cost parity with their fossil competitors by 2050. Thus, even with ambitious carbon pricing, the cost gap persists for at least one decade, depending on the end use and the scenario. Sustained support policies complementing carbon pricing are therefore essential to foster green hydrogen growth and reduce investment risks.

The main drivers of green hydrogen costs are electricity prices and electrolyser investment costs. For electrofuels produced from green hydrogen and renewable carbon, these two factors dominate the overall costs. Although electrolyser investment costs have recently surged1,17, this trend is expected to reverse soon due to learning by doing and economies of scale. Note again that to estimate the volume of required subsidies, we considered a scenario where all project announcements until 2030 are realized on time, while after 2030, cost reductions are driven by the median electrolysis capacity in 1.5 °C scenarios. This leads to rapidly falling electrolyser costs. We used a payback period of 15 years to calculate the levelized costs as well as to estimate the required subsidies; this period represents the typical length of implemented policy support such as auctions42 and is therefore more relevant for investment decisions than the technical lifetime. Our 2030 levelized costs of green hydrogen (LCOHs) are consistent with recent studies .

The annual subsidies required to realize all project announcements across all end uses by 2030 are bell-shaped, with the height and timing of the peak varying by scenario. Without carbon pricing, the required annual subsidies rise sharply to a plateau of around US$90 billion per year throughout the 2030s. With carbon pricing, the required annual subsidies peak at US$44 billion per year in 2030. The resulting cumulative subsidies for all 422 GW by 2030 follow an S curve. In our central estimate, the required cumulative subsidies are US$1.3 trillion without carbon pricing and US$0.5 trillion with carbon pricing, subject to considerable uncertainty. However, these figures only pertain to the 2030 project pipeline. Aligning green hydrogen with 1.5 °C scenarios after 2030 would require substantially higher subsidies, rising to US$9.3 trillion (US$4.2–17.7 trillion range) without carbon pricing by 2050.

Due to a substantial discrepancy between required and announced subsidies, a wide 2030 green hydrogen implementation gap arises. The cumulative subsidies required to realize all project announcements by 2030 exceed currently announced subsidies, estimated at US$308 billion as of September 202343, by over 300% without carbon pricing and by over 60% without. There are counteracting uncertainties regarding this estimate, as announced subsidies are likely to increase in the future, but challenges may arise during their implementation. Even if all currently announced global subsidies were immediately available, without carbon pricing this would only support 61 GW (32–106 GW range) by 2030. Depending on the scenario, implemented demand-side policies could support a similar share of project announcements, underlining the crucial role of demand-side regulation for fostering green hydrogen growth.

Our results indicate that permanently subsidizing green hydrogen and electrofuels to compete with cheap fossil fuels would likely end up being prohibitively expensive in the long term, highlighting the key role of carbon pricing in closing the cost gap. Without carbon pricing, green hydrogen growth in line with the 1.5 °C scenario median requires annual subsidies that far exceed the historical support of solar PV and wind. In particular, without carbon pricing, green hydrogen and electrofuels likely require subsidies until at least 2050. In contrast, under an ambitious carbon price pathway, the required green hydrogen and electrofuel subsidies could remain in the same range historically observed for solar PV and wind, with per-megawatt hour subsidies steadily decreasing until 2050.

Discussion and conclusion

The past and future of green hydrogen is characterized by three gaps, reflecting the challenges of scaling-up a novel and as yet uncompetitive energy carrier that requires dedicated policy support. First, the 2023 implementation gap shows that only 7% of initially announced green hydrogen capacity was eventually realized. Second, the 2030 ambition gap has gradually closed over the past 3 years as the project pipeline increasingly exceeds the requirements in 1.5 °C scenarios. Third however, this has led to a wide 2030 implementation gap as enormous subsidies would be required to realize all of the projects by 2030, and even more to put green hydrogen on track for 1.5 °C in the long term.

The high past failure rates indicate a limited reliability of project announcements published by industry, which may announce green hydrogen projects for strategic reasons, such as raising attention or attracting subsidies. Although sobering, this can provide valuable insights for realistic scale-up analyses of green hydrogen31 and other low-carbon energy technologies in feasibility studies44,45,46, some of which45 have recently faced criticism for lacking statistical rigour47. Our results are particularly useful for analyses that use uncertain project announcements as input data25,48. System planners, policymakers and society should interpret the increasingly steep growth suggested by recent project announcements with caution, focusing on scale-up challenges, such as lacking competitiveness and the need for policy support.

To close the green hydrogen implementation gap, policy makers need to bridge the cost gap to fossil fuels and de-risk hydrogen investments. This requires a balanced policy mix and a robust strategy to navigate the following three key uncertainties and risks.

First, the huge past and future implementation gaps indicate that green hydrogen will likely fall short of 1.5 °C scenarios. Even if policy support is strengthened, it remains uncertain whether this would be sufficient to drive the necessary hydrogen investments. Realizing current project announcements would require unprecedented growth rates, exceeding even the fastest-growing energy technology in history, namely, solar PV. Given that green hydrogen technologies are more complex, less standardizable and require new infrastructure, all of which slow down technology diffusion24, realizing such unprecedented growth is unlikely.

Second, current hydrogen policy instruments often seek to spur hydrogen investments by bridging the cost gap to fossil fuels through supply-side subsidies such as fixed-premium auctions. However, as we have shown, this approach requires not only excessive subsidy volumes but also strong perseverance as policy support could be required for several decades, or even indefinitely without carbon pricing or strong demand-side regulation. Subsidies for near-term green hydrogen production are often framed within a narrative of kickstarting a ‘hydrogen economy’ through a short policy push, after which green hydrogen becomes cost-competitive and scales up on its own. However, this critically depends on optimistic assumptions about technology cost reductions, which stands in contrast to recent cost increases of electrolysers1. Without ambitious cost reductions, the ‘kickstarting’ narrative is misleading and raises false hopes.

Third, the primary role of hydrogen in climate change mitigation is to replace fossil fuels in hard-to-electrify sectors. However, strong political support for hydrogen is often accompanied by overconfidence in its potential15, resulting in conflicting visions about its future role. Many global climate change mitigation scenarios show a modest long-term share of hydrogen of 5–15% in final energy2,40,49, focusing on key end uses where hydrogen is highly valuable due to a lack of alternatives5. In stark contrast, incumbent actors in gas, heat, industry and transport tend to endorse a wide use of hydrogen across sectors50, even in end uses such as residential heat, where electrification is cheaper, more efficient and readily available2,40,49,51. Uncertainties remain around the role of hydrogen in complementing the electrification of heavy transport and industrial heat11,35,40.

Disregarding these uncertainties and risks, and instead focusing on supply-side subsidies with the expectation of abundant low-cost green hydrogen in the future, risks crowding out readily available and more economical options, thereby delaying climate change mitigation. To minimize these risks while safeguarding the scale-up of green hydrogen, we draw two key policy conclusions.

First, supply-side subsidies, which reduce the investment risk of electrolysis projects, should be complemented by demand-side policies that guide hydrogen to its most valuable use cases by increasing their willingness to pay. The benefit of demand-side measures is illustrated by the European Hydrogen Bank’s recent inaugural auction, which resulted in surprisingly low successful bids of €0.37–0.48 kg−1 compared with a similar auction in the UK, which received only high bids equivalent to €9.40 kg−1 . Aside from regional heterogeneity, this stark difference may be attributed to the EU’s demand-side quotas, such as the mandatory 42% green hydrogen share of all hydrogen used in industry by 2030 under the Renewable Energy Directive III (ref. 54), and mandates for hydrogen-based electrofuels under ReFuelEU Aviation55 and FuelEU Maritime56 regulations. Although they incur macroeconomic costs, demand-side policies can reduce the pressure on supply-side subsidies, helping to close the implementation gap.

Second, policymakers should plan the transition from subsidies to market mechanisms. In the short run, achieving rapid near-term hydrogen growth is crucial to keep 1.5 °C scenarios within reach. This requires strong policies, such as subsidies to directly bridge the cost gap, minimize investment risks and initialize a hydrogen market. However, as hydrogen technologies and markets mature, policy support should shift to market-based mechanisms to (1) reduce policy costs, (2) reveal the full hydrogen costs to markets and consumers, and (3) create a level playing field with other mitigation options. The most important technology-neutral strategy is ambitious carbon pricing. However, as carbon prices are currently too low and too uncertain in the future, complementary instruments are required to de-risk the remaining uncertainties. These include technology-neutral auctions of carbon contracts for difference57, which hedge investors against unpredictable prices by covering the difference between emissions abatement costs and carbon prices, as well as tradable, technology-neutral quotas for, for example, low-carbon materials, fostering green lead markets.

In summary, a comprehensive policy strategy for green hydrogen should include targeted demand-side measures and a gradual transition from subsidies to market mechanisms. In the short term, this would de-risk early investment at manageable costs, guiding hydrogen to its most valuable use cases. In the long term, this would transfer investment risks and competition between hydrogen and other mitigation options to the market, thereby establishing a credible commitment for climate change mitigation while spurring green hydrogen growth.

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Find the full report here: https://www.nature.com/articles/s41560-024-01684-7