Energy Economics
Green Hydrogen
What green hydrogen is, why it could decarbonise heavy industry and transport, and what makes it expensive today.
Hydrogen is a fuel that produces only water when used. But how it is made determines whether it is clean. Green hydrogen is produced by splitting water into hydrogen and oxygen using electricity from renewable sources, a process called electrolysis.
Colours of hydrogen
- Grey hydrogen: made from natural gas, releasing carbon dioxide. Most hydrogen today is made this way.
- Blue hydrogen: made from natural gas with carbon capture.
- Green hydrogen: made with renewable electricity.
Why it matters
Some sectors are hard to decarbonise with electricity alone. These hard-to-abate sectors include:
- Steel: hydrogen can replace coal in making iron.
- Fertiliser: ammonia production already uses hydrogen, mostly grey.
- Refining and chemicals.
- Shipping and aviation, possibly using fuels made from hydrogen.
- Long-duration energy storage.
The cost challenge
Green hydrogen is currently more expensive than grey hydrogen. Costs depend on:
- Renewable electricity prices, the largest cost.
- Electrolyser costs, which are falling as production scales up.
- Utilisation: electrolysers running more hours spread fixed costs.
- Transport and storage: hydrogen is difficult and costly to move and store.
India’s mission
India launched its National Green Hydrogen Mission in 2023, with a target of producing 5 million tonnes of green hydrogen a year by 2030, supported by incentives for electrolyser manufacturing and hydrogen production. India hopes its low-cost solar power can make it a competitive producer and exporter.
A steel plant uses coal to turn iron ore into iron, releasing large amounts of carbon dioxide. Replacing coal with green hydrogen could make "green steel" with far lower emissions. Early projects in Sweden and elsewhere are testing this. For now, green steel costs more, so its spread depends on falling hydrogen costs, carbon prices or buyers willing to pay a premium.
Uncertainties
Economists caution that hydrogen may not be the best solution everywhere. For cars and home heating, direct electrification is usually more efficient. Hydrogen’s role is likely to be greatest where electricity cannot easily be used directly.
Most hydrogen produced today is grey, made from natural gas with significant emissions. Only hydrogen made with clean electricity, or with effective carbon capture, cuts emissions.
- Green hydrogen is made by splitting water with renewable electricity.
- It could decarbonise hard-to-abate sectors like steel, fertiliser and shipping.
- It is currently more expensive than grey hydrogen, mainly due to electricity and electrolyser costs.
- India's 2023 National Green Hydrogen Mission targets 5 million tonnes a year by 2030.
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