‘Emissions concerns will constrain investment in blue hydrogen as green H2 sector grows’: Fitch

Blue hydrogen produced from methane with carbon capture and storage may have “unique advantages” over green H2, but concerns over greenhouse gas emissions will constrain the former’s development, according to new analysis from Fitch Solutions.

“While blue hydrogen offers unique benefits, including the ability to decarbonize fossil fuels and prolong the use of existing fossil fuel assets, several challenges will restrain its growth over the near-term with ESG [Environmental, Social, and Corporate Governance] standards posing risks to proliferation,” the analyst writes in its new outlook report for low-carbon hydrogen.

Fitch explains that blue hydrogen is appealing to large energy firms as it represents a way to mitigate emissions while retaining “some level of economic viability” from their fossil-fuel assets. This will allow “existing reserves to be exploited without impacting commitments to reduce carbon emissions”, it says, adding that blue H2 can also supply greater volumes of hydrogen “in contrast to the similar size outputs of green systems”.

The report says that the renewable energy capacity needed to supply large amounts of green hydrogen is “highly restrictive, acting as a curtailing factor on the segment’s development in the near term”.

But it adds: “However, we expect several technological barriers to scaling and cost for blue hydrogen will prove prohibitively expensive without high carbon prices.”

The report continues: “Ongoing legislation and financial backing may be restricted from business as-usual fossil fuel expansion with Environmental, Social, and Corporate Governance (ESG) regulations tightening around such investments.

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“There are two key issues that are being raised, the first being the locking-in of infrastructure and assets that are carbon-intensive processes, and the second being the blue hydrogen production process itself. It has been outlined that the full emissions profile of blue hydrogen is not entirely emissions-free and some research estimates that it could produce 20% more emissions in some cases than existing grey hydrogen production from natural gas.”

It is not possible to capture all the emissions from the methane reforming processes used to produce H2, while upstream methane emissions also contribute to its greenhouse gas footprint.

“Therefore, comparing blue against green outlines a key flaw in investing in the hydrogen sector, as blue is significantly more polluting. As such, while blue hydrogen presents unique advantages, we expect that the project pipeline will remain much more constrained than green hydrogen over the coming years, resulting in subdued growth prospects and investment.”

The study adds that green hydrogen continues to dominate the global low-carbon H2 pipeline, accounting for “an overwhelming majority of projects”.

“The pipeline for hydrogen projects in our Key Projects Database has increased significantly over the past six months from 139 projects over Q2 21 to 190 by Q4 21. We highlight that the growth is primarily driven by the green subsector, with a sizeable 174 green hydrogen projects against 15 for blue hydrogen.”

The leading companies in the green hydrogen space are French utility Engie, with 12 projects, Spanish gas distributor Enagas (10), Shell and Orsted (7 each), and industrial gases company Air Liquide, Australian company Fortescue Future Industries, and German utility RWE all on six.

This post appeared first on Recharge News.

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