Economic Impact Assessment for the Hydrogen Sector to 2030

Hydrogen is one of the key solutions to decarbonising the UK economy along with other carbon abatement solutions such as electrification, CCUS, biofuels and energy efficiency. It provides a low carbon alternative to fossil fuels that has many of the same desirable features, such as burning with a high temperature flame, without producing carbon emissions during combustion. Hydrogen will be particularly valuable in hard-to-decarbonise sectors that have few cost-effective alternatives including elements of industry, heavy transport and dispatchable power generation. However, it’s use could be much more widespread depending on how costs, preferences and policy for different low carbon solutions develop. The Government’s Hydrogen Strategy estimates that, based on analysis from the Climate Change Committee (CCC), in 2050 between 20% and 35% of the UK’s final energy demand could be met with low carbon hydrogen1 . While hydrogen provides a promising solution to reducing emissions, current deployment of low carbon hydrogen is low with almost all hydrogen in the UK produced from unabated fossil fuels resulting in high emissions. In the UK, hydrogen production must meet the Low Carbon Hydrogen Standard (LCHS) to access government support. This is currently set at 20g CO2 e/MJ(LHV) and will ensure that future deployment will deliver significant emissions reductions when switching from fossil fuels2. The period to 2030 will be a critical time for the UK to seize the economic opportunity presented by low carbon hydrogen sector. Internationally, increasing attention has been placed on hydrogen as a solution to global emissions. In the USA, the Inflation Reduction Act (IRA) has provided fixed rate tax credits of up to $3/kg (£2.4/kgII) for clean hydrogen production3. Closer to home, the EU is targeting 10 million tonnes of domestic electrolytic production and an additional 10 million tonnes of electrolytic hydrogen imports by 20304. This will be achieved through a variety of policy levers including an auction for fixed price subsidy support for electrolytic production with a ceiling of €4.5/kg5 (£3.84/kgIII). In the UK, Government have set an ambitious target of up to 10 GW of low carbon hydrogen production by 2030 with at least half of this from electrolytic sources6. This will be supported by the Hydrogen Production Business Model (HPBM), a two-way variable CfD which could potentially provide hydrogen for a price as low as the natural gas price7 . As global supply chains, investment and skills are in international competition, the UK must continue its ambitious hydrogen aspirations to ensure the decarbonisation and economic opportunity presented by low carbon hydrogen is captured. This study estimates the economic impact of the low carbon hydrogen sector in the UK by 2030. The impact is assessed by estimating the costs of hydrogen deployment and applying employment and GVA multipliers to these costs based on historic economic activity. These estimates are broken down by different forms of low carbon hydrogen production and end use as well as the enabling infrastructure required to connect production and demand, namely hydrogen networks and storage. Both the employment and GVA are estimated for each of these value chain elements for every year between 2024 and 2030. Employment and economic growth from the hydrogen sector will be created across the UK with many benefits arising in regions that have faced historic underinvestment such as the industrial clusters and Scotland. Beyond the high-level economic benefits estimated in this study, the hydrogen sector creates an opportunity for the hundreds of thousands oil and gas sector jobs in the UK to transition to a low carbon alternative.
This report can be found on Hydrogen UK's website.