Editor's note: This is the second installment of a two-part series examining the future of green hydrogen in Europe. Part one outlines the potential benefits of green hydrogen and examines the obstacles to its full adoption in the bloc. Part two analyzes possible avenues for the development of a competitive global green hydrogen market and the impacts such a market would have on climate, geopolitics and energy security.

Despite an uncertain outlook amid structural limitations and recent economic headwinds, green hydrogen may help accelerate the European Union's decarbonization and strengthen its energy security while bringing profound global economic and geopolitical implications. In recent years, a global energy crisis, supply chain disruptions, high inflation and rising borrowing costs have driven up costs for new green hydrogen projects and reduced the impact of government support, while a recent fall in natural gas prices has widened the cost gap between green and fossil fuels-based hydrogen. Meanwhile, there is still some degree of regulatory uncertainty in Europe and North America, resulting in lengthy time lags between the announcement of support schemes and the actual disbursement of funds to project developers. As a result, only a fraction of newly announced green hydrogen initiatives currently reach a final investment decision. Moreover, most government action has so far focused on supporting production rather than increasing demand, even though robust demand is key to ensuring that the green hydrogen industry survives once government support dries up. Additionally, while the vast majority of new projects are export-focused, progress on the infrastructure that would be needed to eventually move that hydrogen to demand centers, including new pipelines, underground storage facilities and port terminals, continues to proceed slowly. Finally, China enjoys a dominant position in large-scale electrolyzer manufacturing, currently controlling about 40% of total global capacity according to the International Energy Agency, or IEA. While the United States and the European Union are moving to challenge this dominance by boosting domestic electrolyzer production through initiatives such as the Inflation Reduction Act and the Net-Zero Industry Act, continued market concentration would pose significant supply chain risks for the green hydrogen industry in light of worsening trade and tech competition between China and the West.

• An IEA report published in January shows that companies around the world have announced plans for upward of 360 gigawatts of green hydrogen projects slated to launch before 2030. Yet only 3% of these projects have concluded financial arrangements or initiated construction amid a lack of robust demand and rising costs. The recent cancellation of a few key projects across different locations exemplifies the impact of recent regulatory and financial headwinds. 
• For instance, the United Kingdom's Project Cavendish, which aimed to realize a 700 megawatt (MW) blue hydrogen plant, was called off in November 2023 due to technical and economic challenges, as well as uncertainty about government support. 
• Also in November 2023, northern Germany's independent oil refinery Heide discontinued a project designed to build 30 MW of electrolysis capacity (to become 700 MW by 2030) and transition from gray to green hydrogen in its operations, citing rising costs and insufficient government funding. 
• In the United States, fertilizer giant Nutrien put its 1.2 million ton per annum blue ammonia project in Geismar, Louisiana, on hold in August 2023 after only one year, citing escalating capital costs and the unpredictability of securing offtakers. 

Demand from projects currently underway, technological advances and continued policy support will, over time, help the nascent green hydrogen industry achieve the necessary scale to bring down both costs and risks for governments and the private sector. Prioritizing the transition from blue to green hydrogen in the oil refining and chemicals sectors, where hydrogen is already used, will provide an early source of demand to support the industry. Additionally, focusing on derivatives like green ammonia will allow for easier and cheaper development of long-distance trading between producers and consumers of green hydrogen products. Meanwhile, production costs will decrease over time alongside technological advances that lower renewable energy production costs for solar and wind generation. Even taking into account the still high costs of transporting hydrogen to remote demand centers, building electrolyzers at locations with abundant renewable energy resources will help contain production costs for green hydrogen. Against this backdrop, if major economies continue to provide policy and financial support to the energy transition over the coming years, we could expect slow but steady growth in green hydrogen demand through the rest of the decade, largely driven by still niche applications across industry and transportation. Over time, renewable energy costs will decline, significantly more electrolyzers will be deployed, new infrastructure will come online and carbon prices will increase. These developments will enable demand and production capacity to start taking off, with green hydrogen gradually becoming cheaper and possibly overcoming fossil fuels in terms of cost-competitiveness by the mid-2030s. This will likely first happen in countries where the costs of deploying the technology employed to manufacture green hydrogen (including electrolyzers) are lower, like China, or where renewables are cheap and natural gas prices are high, like India. In places with limited renewable resources and higher electricity prices, such as most of Europe, Japan and South Korea, green hydrogen prices will take longer to fall. By 2050, 2023 research by the European Commission indicated that in a net-zero scenario, green hydrogen in the European Union could cost as little as 2 euros ($2.17) per kilogram (about a third of the fuel's current price), and the bloc's demand for green hydrogen could grow as high as 68 million tons per annum (almost 10 times higher than today). These shifts would be driven by new applications in industry, electricity storage and generation, and transportation via aviation, shipping and trucks.

• According to the IEA, green hydrogen costs will fall by as much as 30% by 2030 as a result of falling costs of renewable electricity and the scaling up of hydrogen production. The costs of green hydrogen technologies such as fuel cells, refueling equipment and electrolyzers will also fall as global manufacturing capacity increases.

The development of a global green hydrogen market will help create new global energy relations, potentially reshaping geopolitical dynamics. With the costs of producing green hydrogen falling faster than those of transporting it, cross-border energy relations will likely grow increasingly regional. For instance, countries with abundant renewable energy resources and access to water could serve nearby demand centers in developed economies with large industrial sectors via pipeline or ship. This would open up new opportunities for cooperation between countries that have not previously traded in energy. Countries with large areas of unused or underdeveloped land, abundant renewable energy and relatively low domestic demand are best positioned to produce green hydrogen and export it to nearby countries that have insufficient available land for production, limited renewable resources and greater domestic demand. This will likely result in deals between, for instance, European and North African countries or between Australia and countries with high import requirements in the region like Japan and South Korea. These new trade ties would likely lead to the formation of new energy hubs around the world. In Europe, the North Sea and the Mediterranean basin could become two such hubs, with countries in the European Union's immediate neighborhood exploiting abundant wind and solar energy to supply industrial powerhouses in the bloc with cheap and virtually uninterrupted green hydrogen. Concrete plans to build hydrogen-ready pipelines connecting Tunisia to Germany via Italy or Mauritania and Germany via Spain and France indicate interest on both sides of the market to seal potential new energy partnerships via physical links. 

• Regions like Africa, the Americas, the Middle East and Oceania boast the greatest potential for green hydrogen production. Yet the viability of large-scale, low-cost production depends on renewable resources' availability and may vary significantly in light of other factors such as existing infrastructure, capital costs, technological availability, policy support and political stability. Despite the wide potential of the region, the political instability often affecting North African countries poses the most significant potential obstacle to investing in green hydrogen production and transport facilities there.
• Over time, renewable-abundant regions could attract energy-intensive industries from Europe, North America and Asia, with manufacturers deciding to invest in facilities near green hydrogen production to cut transportation costs. Initiatives like the European Union's Carbon Border Adjustment Mechanism, which favors imports into the bloc from non-EU low-carbon manufacturers, could accelerate this trend, further incentivizing countries to adopt green hydrogen to avoid carbon taxes.

The European Union has been proactively engaging with countries in North Africa through various memorandums of understanding, or MoUs, and other agreements for the development of green hydrogen production and infrastructure in the region.

• Egypt announced ambitious green hydrogen plans during the 2022 U.N. Climate Change Conference, signing agreements with several energy developers and an MoU with the European Union to enhance cooperation on regulatory and infrastructural development. 
• Morocco's hydrogen strategy envisions significant domestic use and exports by 2030, supported by EU funds and internal stakeholders like state-owned fertilizers manufacturer OCP, which has already committed $8.5 billion in green ammonia production investment in the country.
• Algeria aims to produce and export 30-40 terawatt-hours per annum of hydrogen and hydrogen-based fuels by 2040 and cover 10% of Europe's hydrogen demand by the same year via a potential subsea pipeline to Italy. Recent German funding indicates a step toward this goal with a 50 MW pilot project in the city of Arzew.
• Mauritania has also attracted EU interest and investment pledges for its green hydrogen potential, with suggestions of producing green iron and steel for the EU market. Several large-scale projects have been proposed but remain in preliminary phases, with progress dependent on the development of demand in the European Union, policy support and actual financial commitments.
• Namibia and the European Union signed an MoU in November 2022 establishing a strategic partnership on sustainable raw materials value chains and renewable hydrogen, with the African country seeking to invest $20 billion with the help of the European Union to produce 1-2 million tons of green hydrogen by 2030 and 10-15 million tons by 2050. In March 2024, the German government said it was ready to designate renewable energy company Enertrag's $10.8 billion Hyphen project on Namibia's southern coast to produce around 2 million tons of green ammonia and 350,000 tons of green hydrogen annually, which would enable Berlin to expand financial support.

The uptake of green hydrogen could strengthen Europe's energy security, but new supply chain risks will arise regarding the raw materials and technologies needed to produce it. A growing role for green hydrogen in the European Union's energy mix could help the bloc bolster its energy independence and resilience by increasing diversification, reducing its overall reliance on energy imports and mitigating the price volatility of other commodities. Besides its potential to boost decarbonization efforts, green hydrogen could also offer energy import-dependent countries more energy security compared with blue hydrogen, as it is independent of fluctuations and potential disruptions in the natural gas market. Moreover, green hydrogen sets itself apart from fossil fuels in that it is not extracted but manufactured, utilizing a wide variety of primary energy sources from across the globe. This means green hydrogen production is unlikely to be highly concentrated in just a handful of countries, so supplies will not become tools of geopolitical influence as easily as oil and gas have been for the past decades. However, this is not the case for the raw materials and technologies needed to produce green hydrogen, including solar panels, wind turbines and electrolyzers, as well as minerals like lithium, cobalt and rare earth elements, many of which are concentrated in a few countries. For instance, the Democratic Republic of the Congo is a major source of cobalt, while China dominates the supply of rare earth elements, solar panels, wind turbines and electrolyzers. This concentration can lead to various supply chain risks, including trade restrictions, tariffs and political instability affecting supply. Moreover, as demand for both raw materials and technologies soars at a faster pace than global mining and refining operations, the market will likely tighten over the coming years, meaning that even minor shifts in supply or demand could lead to substantial price volatility that could ripple through the green hydrogen supply chain until the market stabilizes over time.

• Supply shortages would be more likely to arise in the early years of a green hydrogen market's development when the number of suppliers — as well as import/export infrastructure — is still limited.
• Even countries that are set to become the most dependent on imports for their green hydrogen supply like Germany, Japan and South Korea will develop at least some domestic production capacity. Germany, for instance, plans to produce up to 30% of its domestic demand. This means green hydrogen could enable these countries to decrease their overall energy import dependency.