The latest insights from the We Mean Business coalition

Bringing down the costs of renewable hydrogen for industry

To note: this article uses the term ‘renewable hydrogen’ as opposed to ‘green’ or other colours to refer to the different hydrogen production routes. Renewable hydrogen includes hydrogen which is produced through water electrolysis with electricity generated from a renewable source e.g. solar, wind turbines.

Recent Net-Zero Industry Tracker data shows progress in decarbonizing some of the high-emitting industrial sectors that are critical to our economies, but there’s still a long way to go. Energy efficiency and direct electrification provide the most efficient pathway to phase out the demand for fossil fuels in many sectors, but there are applications where renewable hydrogen will have a key role in decarbonization. For instance, in the direct reduction of iron ore in steelmaking. 

Identifying when renewable hydrogen is the right fit  

Renewable hydrogen, which is produced from renewables such as wind and solar as opposed to fossil-based ‘grey hydrogen’, is celebrated as a clean alternative to fossil fuels such as gas for industrial decarbonization. Hydrogen combustion and use in fuel cells generates only water vapor, has high energy density, and the potential to be used as a feedstock for manufacturers to produce industrial materials such as methanol, ammonia and steel, with fewer adjustments to on-site infrastructure compared to direct electrification. However, it’s crucial to take a nuanced view. Simply assuming that renewable hydrogen is the best option for industry overlooks the complexities of hydrogen’s lifecycle impacts. A comprehensive life-cycle assessment (LCA) is essential to understand its true environmental and economic costs and ensure alignment with 1.5°C pathways. Beyond the production of renewable hydrogen, storage and transport can significantly influence both emissions and overall costs. High-energy compression, liquefaction, or infrastructure requirements for pipelines or shipping can offset some of the environmental benefits.  

By considering the entire supply chain—from production to end use—we can better identify opportunities to optimize renewable hydrogen’s role in decarbonizing industry while ensuring its cost-effectiveness and sustainability.

Barriers to widespread adoption 

Despite its potential utility, renewable hydrogen production levels remain low – and still represent a tiny proportion of total hydrogen production. According to the IEA’s Global Hydrogen Review 2024, hydrogen production reached 97 Mt in 2023, of which less than 1% was from renewable hydrogen.  

Among other factors, the widespread adoption of renewable hydrogen is hindered by high production costs arising from capital-intensive electrolyzers deployment and high electricity costs in some regions. Currently, the production of renewable hydrogen is roughly one-and-a-half to six times more costly than unabated fossil-based production. 

A 2023 survey of 250 business leaders worldwide, led by the We Mean Business Coalition and supported by the Climate Champions Team and Bain & Company, the Corporate Climate Stocktake found that more than half of the leaders surveyed identified commercial viability of renewable hydrogen and supporting infrastructure as major hurdles.  Respondents cited the need for sustained governmental intervention to overcome these barriers. 

The Corporate Climate Stocktake was followed in 2024 by the World Business Council for Sustainable Development’s (WBCSD) Business Breakthrough Barometer report, highlighting the difficult business case for renewable hydrogen due to high costs and infrastructure gaps, but also uncertain demand. According to the Business Breakthrough Barometer report, despite a 40% increase in project count, less than 1% of announced hydrogen capacity has secured binding offtake agreements, making large-scale investments risky. The lack of harmonized global standards further complicates trade and investment decisions. While some businesses are targeting high-margin sectors like food production to cover early costs, most acknowledge that without government-backed incentives and infrastructure investments, hydrogen will struggle to scale commercially.

Key factors to boost production and reduce costs  

For renewable hydrogen to become competitive with fossil-based alternatives, there are three action-areas where progress must be made. 

1. A conducive policy environment to drive demand  

For renewable hydrogen to compete with fossil fuels or grey hydrogen, the negative externalities related to fossil-based alternatives need to be priced in through carbon pricing, and subsidies are required to establish lead markets for clean hydrogen. According to the IEA, nearly USD 100 billion in public funds has been allocated globally to support renewable hydrogen projects, with two-thirds of this funding in advanced economies. Funding related to demand-side policies adds up to USD 40 billion. However, the IEA expects policies in place to trigger demand for 6 Mtpa of hydrogen by 2030, corresponding to merely 15-20% of production targets. Contracts for difference (CfDs) and hydrogen auctions have been carried out or are being planned worldwide in countries like the UK, Germany, Japan and Singapore. Read WBCSD’s policy recommendations to boost demand for low-carbon hydrogen.  |

2. International standards and trade policy 

Companies point to a lack of aligned international standards for “green” or “low carbon” hydrogen, which limits their ability to capture a premium. While several jurisdictions such as Brazil and UK have published their own definitions, what is needed is consensus on life-cycle GHG intensity of hydrogen production and use. Reaching a global consensus on a standard that is based on the lifecycle emissions of hydrogen (CO2e/kg H2) and is aligned with 1.5°C would provide companies more certainty and uniformity. WBCSD for example considers 3kg CO2 / kg H2 using full life cycle analysis as the threshold for clean or decarbonized hydrogen. 

For companies, international alignment on green product trade and standards could facilitate global trade of renewable hydrogen, which in turn could help determine the optimal locations for producing renewable hydrogen and its derivatives, such as fossil-free hydrogen-reduced iron. Noting that transporting renewable hydrogen over long distances presents a difficult economic equation, this could enable efficient production through international markets. 
 

3. Infrastructure development  

 According to IEA’s Global Hydrogen Review, while there is a significant pipeline of announced hydrogen infrastructure projects with the total length of planned pipelines reaching almost 40,000 km by 2035, the total projects that have reached final investment decision (FID) remains low at only 4%.  

Repurposing natural gas pipelines could provide a lower-cost alternative. However, in addition to technical challenges such as material compatibility, pressure constraints and blending limits if blended with gas, this requires political will towards a shift from fossil-based natural gas to renewable hydrogen transportation. The European Hydrogen Backbone implementation roadmap proposes early-market public support for a Pan-European network for hydrogen supply from cheaper regions to boost EU competitiveness and energy resilience.  

What cannot be overlooked, however, are legitimate concerns around hydrogen transport and storage.  Advanced materials or coatings may be required for pipelines or storage tanks as hydrogen can cause embrittlement in metals, but underground storage in salt caverns can be an option where geographically possible. Shipping hydrogen in liquefied form or as ammonia offers flexibility but comes with high energy demands for the conversion and reconversion process, further highlighting the need for supportive, stable fossil free electricity supply without considerable price volatility.
 

The role for demand-side initiatives  

The following initiatives aim to stimulate market demand, encourage industrial usage, and facilitate the transition to low-carbon energy sources. 

Two leading examples from the U.S. include the Hydrogen Demand Initiative (H2DI) led by the EFI Foundation and the U.S. Department of Energy (DOE) which has committed up to $1 billion to support businesses purchasing hydrogen from the Regional Clean Hydrogen Hubs. 

Meanwhile in Europe, the EU’s European Clean Hydrogen Alliance (ECHA) brings together industry, national and local authorities, civil society, and other stakeholders to coordinate investment and demand creation across the continent. 

Also, the industry-led First Movers Coalition of more than 10 companies is working to create early market demand and drive down costs through economies of scale. By committing to green procurement including procurement of renewable hydrogen, these companies aim to accelerate the adoption of clean energy technologies. 

Finally, underscoring the critical role of demand in scaling clean hydrogen and green products, WBCSD’s newly established Center for Decarbonization Demand Acceleration (CDDA) is set to drive impact. This business platform gathering companies from various sectors is focused on aligning market demand, standards, and investment to accelerate industrial decarbonization through collaboration and procurement innovation. 

At COP29, the WBCSD’s CDDA and the Industrial Transition Accelerator unveiled the Green Purchase Toolkit, offering businesses practical guidance on procuring low-carbon products to support the decarbonization of heavy industry and long-range transport sectors.

Conclusion 

Where direct electrification and/or energy efficiency is not viable, competitive or more efficient, renewable hydrogen can play a role. Addressing cost barriers through a conducive policy environment, international standards and trade policy, as well as support for infrastructure development can help unlock renewable hydrogen’s full potential. As governments, industries, and investors collaborate, renewable hydrogen can play a role in a cleaner, more resilient future.