Is Blue Hydrogen a Bridging Technology? - The Limits of a CO2 Price and the Role of State-induced Price Components for Green Hydrogen Production in Germany

The European Commission aims to establish green hydrogen produced through electrolysis using renewable electricity and, in a transition phase, hydrogen produced in a low-carbon process, or blue hydrogen. In an extensive cost analysis for Germany up to 2050, based on scenario data and a component-based learning rate approach, we find that blue hydrogen is likely to establish itself as the most cost-effective option, and not only as a medium-term low-carbon alternative. We find that expected CO2 prices below €480/tCO2 have a limited impact on the economic feasibility of electrolysis and show that substantial increases in excise tax on natural gas could lead blue hydrogen to reach a sufficient cost level for electrolysed hydrogen. Unless alternatives for green hydrogen supply through infrastructure and imports become available at lower cost, electrolysed hydrogen may require long-term subsidies. As blue hydrogen comprises fugitive methane emissions and financing needs for green hydrogen support have implications for society and competition in the internal market, we suggest that policymakers rely on hydrogen for decarbonising only essential energy applications. We recommend further investigations into the cost of hydrogen infrastructure and import options as well as efficient subsidy frameworks.