To accelerate the global clean energy transition and achieve climate neutrality by mid-century, the world must drastically curb fossil fuel consumption. Although hydrogen has been indispensable in the energy and chemical industries for decades, the environmental footprint of the existing hydrogen value chain is unsustainable. Hence, in jurisdictions with net-zero emission goals such as the EU and China, electrolytic hydrogen production powered by renewable energy has drawn rising attention as a versatile and sustainable energy vector with potential to help decarbonize the energy economy, especially in carbon-intensive industrial sectors.

Hydrogen in China 

China is the largest hydrogen producer and consumer in the world, with an annual national hydrogen production of 34.1 million tons (Mt). Hydrogen manufacturing worldwide relies on fossil fuels, however, the production mix in China is dominated by coal (72 percent), rather than natural gas as in the rest of the world. 

Ammonia manufacturing is the largest hydrogen consuming industry in China, followed by methanol synthesis, petroleum refining, chlor-alkali and other industrial processes, which utilize hydrogen on-site for either process heat or as a feedstock. There is a 4.5 Mt/year gap between national hydrogen production and sector-specific consumption representing potential for better hydrogen utilization. The hydrogen wastes could be applied to industrial decarbonization and serve as the basis for a future renewable hydrogen industrial chain. 

Currently, electrolytic hydrogen production in China is still at its infant stage. As of July 2022, there have been 50 renewable hydrogen production projects underway across China. The aggregate production capacity of 32 out of the 50 planned renewable hydrogen pilot projects across China exceeds 297 kt/year. Among China’s renewable hydrogen production demonstrationprojects, four are operational. The largest is Baofeng Energy’s renewable hydrogen project in Ningxia province, with 200 MW solar PV commissioned in April 2021. Its annual renewable hydrogen output is about 240 million m3, which are all used for olefin production, the equivalent of 560 kt of CO2 emissions reduction each year. Another landmark project is Sinopec’s 20 kt/year solar-to-hydrogen pilot project launched in November 2021. The project is equipped with hydrogen pipelines and storage facilities and is expected to be commissioned in June 2023 to replace the natural gas-based hydrogen stream in Sinopec’s Tahe Refinery, leading to 485 kt/year of CO2 emissions reduction on an annual basis. 

From a geographic perspective, sites of renewable hydrogen production are concentrated in China’s far west, north and northeast, while future consumption centres are along the coastal line in the southeast. This mismatch resembles the situation of China’s coal value chain. Two potential solutions could help address this divergence: First, relocating large end-users closer to production sites, which would also bring economic benefits to less developed regions; Second, planning and construction of long-distance power transmission or renewable hydrogen grid infrastructure.

Hydrogen utilization 

Hydrogen provides a potential solution for large-scale, long-duration energy storage that could compensate the variability of renewable energy generation, especially wind and photovoltaic power. Renewable hydrogen could help decarbonize carbon-intensive industrial sectors. It could be utilized either as an energy carrier or as feedstock. In the iron and steel sector, hydrogen direct reduction iron (DRI) helps save large amounts of coke consumption. In maritime shipping and long-haul aviation, it is inefficient and costly to adopt direct electrification for carbon abatement. As a result, renewable hydrogen is widely accepted as the way to achieve net-zero. 

As an energy carrier, hydrogen suffers from a relatively large efficiency loss during various conversion processes. Therefore, before investment to ramp up renewable hydrogen supply across China, it is necessary to first identify the most promising areas, known as no-regret options, for hydrogen utilization. Compared with the power and transport sectors, China’s industrial sectors, especially iron and steel manufacturing, are much more carbon-intensive and faced with fewer options to mitigate process-related emissions. Thus, adopting renewable hydrogen in industrial sectors is not only a no-regret option, but also a move that could help boost the scale up of renewable hydrogen production. China’s DRI-based crude steel output by renewable hydrogen is projected to reach 124.2 Mt by 2050, locking in about 6.7 Mt/year of renewable hydrogen demand. 

Implications from national hydrogen strategies in Germany and China 

As more countries set mid-century net-zero commitments, some advanced economies have issued national hydrogen strategies, with the twin goals of decarbonizing carbon-intensive sectors while also capturing industrial development opportunities in the new hydrogen supply chain. In June 2020, Germany released its National Hydrogen Strategy with a coherent framework supported by 38 specific measures to ramp up renewable hydrogen in areas of production, consumption, transport, infrastructure, and research. In addition, the strategy incorporates 9 billion EUR in government funding to leverage private investment and nurture a future renewable hydrogen value chain. In March 2022, China released its national hydrogen policy, the Medium- and Long-term Development Plan for Hydrogen (2021-2035), setting the tone for central government support of the hydrogen industry. As Germany is a leading economy with ambitious climate agenda, the country’s experience and lessons related to renewable hydrogen economy can benefit China in fostering its infant hydrogen supply chain.

Both Germany and China are global manufacturing powerhouses with carbon neutrality goals around mid-century and they face common but differentiated challenges in clean energy transition. As China’s second largest trading partner and an advanced economy with ambitious climate aspiration, the EU in general and Germany in particular play a leadership role in conceptualizing and nurturing the global development of a renewable hydrogen economy. European practices and lessons, especially those from Germany, are particularly policy relevant to China. 

As part of its National Hydrogen Strategy, Germany has created a State Secretaries' Committee on Hydrogen, National Hydrogen Council, and Hydrogen Coordination Office, making a well-structured governance framework in support of hydrogen development. These organizations set targets and objectives, develop action plans, implement the strategies and monitor the progress so as to ensure the strategy always aligns with market trends and delivers on its overall targets. Moreover, the German federal government identifies four strategic markets in hydrogen production, industrial application, transport and heating. It gives priority to promoting sectoral application of renewable hydrogen and uses government green procurement, carbon contract for differences and demand quotas for climate-friendly base materials to encourage a broader market for climate-neutral and recycled products. It is worthwhile for China to consider Germany’s concept of valuing both hydrogen production and application and the various policy tools mentioned above.

Experiences and learnings from electric vehicle development in China 

Electric vehicles (EVs) were first introduced in the 2000s to reduce China’s heavy reliance on oil imports and alleviate widespread air pollution. This policy faced criticism, given the role of coal in China’s power mix, but policy makers persistently pursued EVs as an economic development strategy and as an alternative to fossil fuel-burning internal-combustion engine vehicles. Today, coal power’s share in China’s national power mix has declined from more than 70 to 60 percent, making EVs an important pillar in transport decarbonization. China has also grown into the world’s largest EV market with 3.4 million sold in 2021 alone, accounting for more than half of global total. 

 In retrospect, separating downstream EV deployment from upstream power decarbonization during the infant stage of the EV industry turned out to be an appropriate political decision. Likewise, decarbonizing China’s present carbon-intensive hydrogen production should not constrain hydrogen deployment in downstream sectors for now. Given the phased approach of the dual carbon goals, scaling up renewable hydrogen production in China should go hand-in-hand with fostering downstream utilization, aiming at creating synergy that resembles the development of the Chinese EV industry.

Article Resouce:This article is a short version of “Prospects of Renewable Hydrogen in China and Its Role in Industrial Decarbonization” by Kevin Jianjun Tu and Isadora Wang.