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Explainer: Relief for green hydrogen producers as tough European standards thrown out. But questions remain for Australia’s exports.

In a surprise move, the European Parliament last week voted against stringent criteria defining renewable hydrogen, which had the potential to alter the course of renewable hydrogen projects in Australia and beyond.

What’s the issue?

Europe has big plans for the production and purchasing of renewable (green) hydrogen. Indeed, it has established a green hydrogen production goal of 20 million tonnes per annum by 2030, half of which is to be sourced from international imports, meaning a major export opportunity for Australia’s clean energy superpower ambitions.

  • The Europeans have been working to develop a common definition of green hydrogen, to ensure that the molecule fuel they buy meets agreed environmental credentials.
  • One key concern has been that the demand for green hydrogen will gobble up large shares of the output of existing renewable electricity generation and ultimately increase the demand for fossil-based power generation.
  • To allay these fears, the European Commission released draft rules in May for all green hydrogen to be made from ‘additional’ electricity generation (that is, plants built within the last three years) and for electricity generation and hydrogen production to be time-matched down to the hour.

What happened?

On 13 September 2022, the European Parliament beat the European Commission to the punch in finalising the rules and, in a close-run vote, pre-emptively threw out the requirements for ‘additionality’ and hourly time-matching for green hydrogen.

Instead, our understanding is that renewable hydrogen producers will simply be required to demonstrate a renewable electricity power-purchase agreement for the equivalent amount of electricity demand and to time-match on a quarterly basis up until 2030 (and thereafter, monthly, quarterly or annually).

Why did the European Parliament reject the proposed rules?

It’s not entirely clear, but the strong backlash from heavy industry and the renewable energy sector helped shift some parliamentary votes.

  • It also appears that the United States can claim some of the credit for the outcome. The new Inflation Reduction Act, which was passed in August and will direct US$369 billion at energy and climate initiatives, has legislated very generous support for green hydrogen (hydrogen production tax credits of US$3/kg of hydrogen) and industrial decarbonisation projects. European lawmakers had grown worried over the summer that this new clean energy competition from the Americans would see much-needed green hydrogen investment flow to the US.

Why does it matter?

Prospective renewable hydrogen producers in Australia were concerned that Europe – the largest prospective export market for Australia at present – could become commercially unviable with the new rules.

There’s one (important) catch

Unfortunately, while the European Parliament’s decision bodes well for Australia, it’s not yet time to celebrate. While European MPs threw out the time-matching and additionality rules, the treatment of international imports was left in limbo, with MPs narrowly rejecting an amendment that these rules should also apply to hydrogen imports.

So what’s next?

  • The European Commission will now need to consider its next steps in finalising the green hydrogen definitions in light of the Parliamentary vote. This includes how imports are to be treated.
  • However, with previous advice to industry being that Europe cannot develop different rules for domestic and international production due to World Trade Organisation obligations, the hope is that these more relaxed settings will ultimately come into effect for prospective international producers like Australia.