Challenges and instruments to support the market ramp-up of the hydrogen economy in Germany

Challenges and instruments to support the market ramp-up of the hydrogen economy in Germany

Germany is at risk of missing its ambitious hydrogen targets for 2030 - what can be done now to boost the market ramp-up

Hydrogen will play an important role in achieving long-term decarbonisation targets. However, the current market development for hydrogen - production, transport, storage and consumption - still falls far short of the targets set for 2030.

The main challenges of the hydrogen market must be solved quickly if the targets are to be successfully achieved. In particular, the high costs and risks for market players along the hydrogen chain must be reduced in order to enable the necessary investments. The current regulatory framework already contains a number of individual measures, but lacks a holistic approach.

As part of a short study for E.ON Hydrogen GmbH, we analysed instruments to promote the market ramp-up of hydrogen. We analysed (fixed and variable) production premia, tax incentives, Carbon Contracts for Difference (CCfD) and quota obligations.

The key findings of our study are:

  • The national hydrogen targets are very ambitious and require a considerable joint effort on the part of politicians and market players in order to become reality.
  • In the short and medium term, the hydrogen ramp-up is associated with additional economic costs that will ultimately be borne by taxpayers or consumers, regardless of the policy instruments chosen.
  • All the funding instruments we considered have their specific strengths and weaknesses – there is no "silver bullet" to overcome the challenges of the hydrogen ramp-up.
  • A sensible design of the instruments should take into account the criteria of technology neutrality, competitive procedures, cross-sector approach and – last but not least – sufficient funding volumes.
  • The implementation or expansion of funding instruments on the supply and/or demand side must be accompanied by a coordinated and reliable long-term development of hydrogen transport and storage infrastructures.

You can download our short study here.