Key Points

 

The United Kingdom is vying to become a "global leader on hydrogen by 2030", the second goal in its Ten Point Plan for a Green Industrial Revolution. Though the hydrogen strategy fits neatly into the United Kingdom's broader climate and economic goals, many of the details of the plan are yet to be released.

 

The strategy document places more emphasis on economic than climate goals, although there are few firm targets set for either. Unlike some other hydrogen plans, the United Kingdom isn't pursuing an export-oriented strategy in the short term but is focusing on securing domestic deployment and serving new or reinvigorated local industrial clusters.

 

The UK Hydrogen Strategy is broadly in line with the goals and targets set out in its Sixth Carbon Budget. The government projects that reaching its goal of 5 gigawatts (GW) of low-carbon hydrogen production by 2030 would reduce industrial emissions by 24 percent by 2050, shipping emissions by 29 percent, and those in fuel supply production by 7 percent.

 

The United Kingdom aims to have identified two low-carbon industrial clusters for deployment by the mid-2020s and four by 2030, which it hopes will become significant hubs of hydrogen demand. A prominent early example is the East Coast Cluster, which includes the region of Humber, the United Kingdom's largest emitting industrial region.

Analysis

Vision

 

The UK Hydrogen Strategy sits at the intersection of two overarching goals for the UK government. First, it has the potential to become a high-growth sector that can help address long-standing productivity problems in its economy. Second, it will likely be a critical component of mid-century decarbonization, particularly in "hard-to-abate" sectors like heavy industry and transport.

 

In 2016, former prime minister Theresa May announced a new economic "Industrial Strategy" to address decades of low and uneven productivity growth in the United Kingdom. Boris Johnson, upon becoming the prime minister in 2019, initially retained much of this approach; however, the phrase "Industrial Strategy" was dumped in the March 2021 budget and officially rebranded the "Plan for Growth".

 

As part of this economic strategy, the government released its Ten Point Plan for a Green Industrial Revolution in November 2020. This officially made a competitive, low-carbon hydrogen industry one of its priority sectors, second only to offshore wind in its pursuit of "clean growth". The subsequent Hydrogen Strategy, launched in August 2021, adds further clarity to the strategy, even if some of the specific policy details are yet to be announced.

 

The strategy itself has few firm targets other than the 5 GW production goal by 2030, which was already announced in the Ten Point Plan. The government has announced it is pursuing a "twin track" approach, inclusive of both blue and green hydrogen in reaching the target. Green hydrogen is a secondary focus of the strategy, as it is not expected to be economically competitive in the short term and is confined largely to the government's innovation agenda.

 

Blue hydrogen, which is made using natural gas and the resulting emissions from carbon capture, utilization, and storage (CCUS), dovetails with other key policy goals, such as the mission to develop four CCUS clusters by 2030, utilize existing gas pipeline infrastructure, and build up capacity in what is currently the cheaper technology. Further details on the production strategy and twin track approach, including an official Low Carbon Hydrogen Standard, will not be released until early 2022.

 

The strategy document places more emphasis on economic than climate goals, although there are few firm targets set for either. The plan hopes to establish "UK companies at the forefront of the growing global hydrogen market" and includes some optimistic modeling scenarios with impressive jobs and investment estimates for the industry's trajectory. By 2030, for example, it estimates that the UK hydrogen economy could be worth ￡900 million ($1.2 billion) and support over 9,000 jobs, increasing to as much as ￡13 billion ($18 billion) and 100,000 jobs by 2050. Unlike some other hydrogen plans, the United Kingdom isn't pursuing an export-oriented strategy in the short term but is focusing on securing domestic deployment and serving new or reinvigorated local industrial clusters.

 

While the Hydrogen Strategy is relatively light on emissions mitigation details, low-carbon hydrogen features prominently in its Sixth Carbon Budget, 2020 Energy White Paper, Industrial Decarbonisation Strategy, and most recently, its Net Zero Strategy. The Climate Change Committee (CCC) estimates increased use of hydrogen and other low-carbon technologies could be responsible for about 8.5 percent of total emissions reductions between 2020 and 2050. The CCC recommends focusing hydrogen end-uses in areas where other solutions are not feasible or overly expensive, particularly shipping and heavy industry. It estimates hydrogen can be the source of 24 percent of industrial emissions reductions by 2050, 7 percent of fuel supply (the production, processing, and distribution of fossil fuels), and 29 percent of shipping.

 

The recent Hydrogen Strategy also includes a greater focus on domestic heating, where the role for the low-carbon fuel is less clear. This appears to be a desire on the part of the government to utilize the existing gas network by blending it with low-carbon hydrogen. However, a final decision will not be made until late 2023, after feasibility studies and some small trial projects, including a Hydrogen Village, have been looked at.

 

Strategy

 

The UK Hydrogen Strategy is a roadmap of future policies, reports, infrastructure plans, and feasibility studies that will detail exactly how the government will deliver on its ambitions. While many of the details are yet to be announced, its broad approach is relatively clear.

 

The strategy boasts a "whole-system approach" with indicative policy actions based around four areas—hydrogen production, networks and storage, end-uses, and market development—with most policy action focused on production. To meet production goals, in 2022 the government will launch a ￡240 million Net Zero Hydrogen Fund, which will subsidize the cost of capital, and release its hydrogen business model, which will provide long-term revenue support to producers. While it is unclear at this stage what that support could look like, it is likely that policymakers will try and repeat the successes of the UK offshore wind business model strategy.

 

In networks and storage, the strategy announces a "call for evidence" on the future of the gas system and says that it will launch a future ￡60 million Low Carbon Hydrogen Supply competition and a ￡68 million Longer Duration Energy Storage Demonstration competition to promote innovation in these areas. These innovation competitions have been a popular tool of this government and form a key part of its broader Net Zero Innovation Portfolio.

 

Some details don't feature prominently in the hydrogen strategy as they have already been announced in complementary roadmaps and reports. The bulk of short-term hydrogen demand is expected to come from industry, for example, the strategy for which was largely laid out in the Industrial Decarbonization Strategy. Here, the primary policy levers are carbon pricing (the UK Emissions Trading Scheme and Climate Change Levy), funding for demonstration projects (particularly the ￡1 billion Net Zero Innovation Program), and deployment funding (discussed below).

 

Institutionally, the key actors in the UK Hydrogen Strategy are the Department of Business, Energy & Industrial Strategy (BEIS), the CCC, and the Hydrogen Advisory Council, as well as the various funds and public financing institutions being established to support the United Kingdom's decarbonization goals.

 

The BEIS and Treasury are the two major economic ministries in the UK government. Where the Treasury is largely in charge of horizontal economic policies that affect the productivity of the whole economy, the BEIS focuses on vertical policies that support particular sectors or industries. The recent shift from a UK "Industrial Strategy" to a "Plan for Growth" appears to reflect a swing in the internal distribution of economic policymaking power from the vertical to the horizontal approach.

 

The CCC is an independent, non-departmental public body, which was established in 2008 under the Climate Change Act. The CCC provides regular advice to the UK government, including on the size and makeup of its carbon budgets, which are a statutory cap on total greenhouse gas emissions, set every five years by Parliament. The CCC provided recommendations for a Sixth Carbon Budget in December 2020, which was passed by Parliament in April 2021, limiting total emissions to 63 percent below 2019 levels by 2035. This report also included a series of recommendations for hydrogen innovation and deployment, many of which are replicated in the Hydrogen Strategy.

 

The Hydrogen Advisory Council reflects the strong ties between business and government in the United Kingdom's broader industrial strategy. The model has been successful in other sectors, such as the Offshore Wind Industry Council. The council is the primary forum for BEIS engagement with the sector and is tasked with providing advice and recommendations on a deployment roadmap, the hydrogen business model, and standards and regulations. Though membership rotates, the council is currently cochaired by the BEIS secretary of state and the UK country chair for Shell.

 

Finally, the United Kingdom is launching and designing a number of public financing options to help leverage private investment in both hydrogen projects and complementary infrastructure. In June 2021, the government launched the government-owned but functionally independent UK Infrastructure Bank, with a ￡22 billion ($30 billion) capitalization and a mandate to invest in infrastructure while helping to tackle climate change and support regional economic growth. The UK Hydrogen Strategy notes that the bank "will provide leadership to the market in the development of new technologies including hydrogen", though its independence and relatively flexible mandate make it hard to assess how much of its lending capacity will go to hydrogen specifically. This has been something of an about-face for the government, which sold its national Green Investment Bank (GIB) in 2017 to pay off public debt, despite its impressive record.

 

BEIS is also launching a ￡240 million ($330 million) Net Zero Hydrogen Fund in early 2022 for "government co-investment in production capacity". Though currently in the design phase, the government has said it will "support commercial deployment" by addressing "barriers related to commercial risk and high production costs". Unlike the GIB or Infrastructure Bank, this fund is unlikely to be an independent body, but rather run out of the BEIS. The government had already announced similar funds, as part of its industrial decarbonization agenda, that could also end up supporting hydrogen innovation and deployment. These include the ￡20 million Industrial Fuels Switching Competition, the ￡171 million Industrial Decarbonisation Challenge Fund, the ￡315 million Industrial Energy Transformation Fund, and the ￡1 billion Carbon Capture & Storage Infrastructure Fund.

 

Geography

 

The geography of hydrogen development in the United Kingdom is inherently tied to the regional distribution of its industrial sector. There is both a proactive and reactive piece to this. On the one hand, the United Kingdom's Industrial Strategy included a mission to "establish the world's first net-zero carbon industrial cluster by 2040 and 4 low-carbon clusters by 2030". On the other, decades of deindustrialization in the United Kingdom have led to significant regional inequalities, the redress of which has become a political priority of successive governments. These clusters are likely to become demand centers for hydrogen, particularly hydrogen with CCUS in the early phases of deployment.

 

In this sense, the geographic distribution of hydrogen projects and infrastructure will depend on the rollout and success of the United Kingdom's CCUS strategy, which is more mature than its hydrogen counterpart. For example, the primary funding mechanism for development of these industrial clusters is the ￡1 billion CCUS Infrastructure Fund. Also run by the BEIS, it will allocate funding to first sequence the design of future clusters, before helping finance individual projects across "capture applications" (such as blue hydrogen) that are attached to these clusters. BEIS aims to have identified two CCUS clusters for deployment by the mid-2020s in order to reach four by 2030. Initial activity started in 2019, through the ￡170 million Industrial Challenge Fund, and in early 2021, several winners of its design competition were announced, making them likely, if not guaranteed future CCUS clusters.

 

A prominent example of these emerging industrial clusters is the East Coast Cluster, which includes the region of Humber, the United Kingdom's largest emitting industrial region. Enabled by the Northern Endurance Partnership—a partnership between BP, Eni, Equinor, National Grid, Shell, and Total—the cluster formed in October 2020 and received funding from the Industrial Decarbonization Challenge in March 2021. In July, the group submitted its application for funding to be one of the first CCUS clusters officially recognized in the government mission. The cluster has identified 17 projects eligible for government support, including several to scale blue hydrogen. BP has announced four possible hydrogen projects in the region, including the United Kingdom's largest blue hydrogen project, which would be capable of producing up to 1 GW, or one-fifth of the government's 2030 target.