In February 2023, the European Commission proposed detailed rules to define what constitutes renewable hydrogen in the EU, with the adoption of two Delegated Acts pursuant to the Renewable Energy Directive.

The first Delegated Act sets out conditions for hydrogen, hydrogen-based fuels and other energy carriers to be considered as renewable fuels of non-biological origin (RFNBO) – which would count towards EU renewables targets. The key proposals under this Act are as follows:

  • electrolysers to produce hydrogen will have to be connected to new renewable electricity sources in order to incentivise an increase in the overall volume of renewable energy available to the grid (as opposed to increasing pressure on existing generation assets which the Commissions notes may potentially increase fossil-based power generation instead). Given the lead time required for new generation facilities, ‘new’ renewable electricity sources can include sources that have come into operation within 36 months prior to the installation of the RFNBO production facility;
  • criteria have been introduced to ensure that renewable hydrogen is only produced when and where sufficient renewable energy is available (which are referred to as temporal and geographical correlation) – hydrogen is intended to absorb excess renewable electricity which would otherwise be wasted, and production should be avoided during hours where renewable electricity is in short supply and expensive;
  • these requirements will apply to both producers within the EU as well as producers outside the EU who wish to export renewable hydrogen to the EU. The Commission also refers to a certification scheme relying on voluntary schemes for “a simple and easy way” to demonstrate compliance; and
  • there will be a gradual transition period for the phasing in of these more stringent rules for projects that start operation before 1 January 2028. Additionally, until 31 December 2029, the temporal correlation requirement shall be deemed to be complied with as long as the RFNBO is produced during the same calendar month as the relevant renewable electricity – from 2030, a stricter hourly requirement will be applied.

The second Delegated Act provides a methodology for calculating life-cycle greenhouse gas emissions for RFNBOs. This methodology takes into account greenhouse gas emissions across the full lifecycle of the fuels, including upstream emissions, emissions associated with taking electricity from the grid, from processing, and those associated with transporting these fuels to the end-consumer. It also clarifies calculation of greenhouse gas emissions of renewable hydrogen in the event of co-production in a facility that also produces fossil-based fuels.

Market Reaction

Commentary has been mixed in the market, with commentators noting that the existence of the delayed regulation, even if there are issues with its contents, is better than the absence of regulation (given that the Inflation Reduction Act in the USA provides significant incentives for clean hydrogen production in the USA). Concerns have been raised around the temporal and geographical correlation requirements mentioned above, including that they will inevitably lead to increased costs for the production of renewable hydrogen.

There has also been some opposition to the transition period for the rules and also permitted derogations for countries with a low-carbon electricity mix, which appear to have been intended to allow sufficient time for the development of the EU hydrogen industry. Environmental activists have commented that the transition period allows for hydrogen to be produced from fossil fuels until the end of the decade.

Nevertheless, the establishment of rules for the EU is a welcome development in the global hydrogen economy. As other countries around the world look to entering the green hydrogen space, these rules should certainly provide some possible options for implementation.

Singapore announced its national hydrogen strategy in October 2022 and its Energy Market issued an expression of interest seeking responses for development of a small scale (50 MW) pathfinder project for low or zero carbon hydrogen in December 2022. Singaporean and foreign companies have already started joint efforts to develop the necessary infrastructure.