The European Commission may discontinue binding national targets for renewable hydrogen in the next iteration of its Renewable Energy Directive (RED) and could instead propose an indicative EU-wide consumption target of 8mn t/yr by 2040, based on a draft document seen by Argus.
A draft commission impact assessment on a "post-2030 renewable energy framework" in RED IV includes a measure without binding quotas in its "packaged policy option". This indicates a preference for this approach over two alternatives presented in the document.
The proposed measure would set "an EU indicative renewable hydrogen consumption target for energy and non-energy use in industry and refineries" of 8mn t/yr for 2040, the document states. Low-carbon electrolytic hydrogen, for example made with nuclear power, could also be considered compliant, according to the document.
The EU-wide target would be backed up by "financing support and incentives at EU and national level".
Renewable or low-carbon electrolytic hydrogen producers could sell credits to obligated parties under national quota systems for transport fuel suppliers, even though these would not have specific hydrogen sub-quotas beyond 2030. Unlike under the current system, hydrogen supplied to industry could generate these credits. This would effectively allow for higher costs in industry to be passed on to transport fuel consumers, thereby alleviating concerns around industrial competitiveness.
The report indicates that the proposed measure with an indicative 8mn t/yr target could lead to the most effective deployment of renewable hydrogen "considering system costs and electricity integration."
Meanwhile, the focus on domestic renewable hydrogen consumption and the exclusion of derivatives from targets "would incentivise that the transformation process for the derivatives production is located in the EU," according to the draft.
The text does not suggest that there would be any changes to existing RED III targets with this measure. RED III requires member states to ensure that renewable fuels of non-biological origin (RFNBOs) meet a 1pc share in transport fuel supply by 2030. In industry, 42pc of all hydrogen must be renewable by 2030 and 60pc by 2035.
The assessment considered two alternative measures.
One would set binding national renewable hydrogen targets in industry and transport for 2040, in a continuation of the current RED III framework. But the text stops short of specifying potential target levels.
While keeping binding national targets, the measure would involve making changes to fulfilment options. It would allow statistical transfers between member states to encourage hydrogen production in regions with the highest renewables potential. It would also allow for overachievement in industrial targets to be counted towards the transport goals and would enable member states to include low-carbon electrolytic hydrogen as a fulfilment option.
The report states that this alternative measure could help "build a hydrogen economy across all member states" but might "result in the use and production of renewable electricity for hydrogen production where it is not efficient".
Based on "current trends and existing legislation," the EU's electrolytic hydrogen consumption could reach 18mn t/yr by 2040, the report estimates.
But hydrogen adoption may not be as cost-efficient as previously anticipated as cost declines have lagged expectations, according to the text.
A third alternative would be to focus solely on monitoring progress in the hydrogen sector, while discontinuing the RED III targets and even scrapping the 2035 industry goal. With this measure, there would be no new goals or financial support mechanisms.
But this would yield "a sub-optimal level" of renewable hydrogen deployment given the resulting policy uncertainty and lack of investment incentives, the report concludes. In addition, it would "highly penalise first-movers".
The assessment is partly based on an initial stakeholder consultation regarding RED IV earlier this year, but the considerations on a future framework are still at a very early development stage.
The RED III text took several years to be finalised and the final provisions, including on renewable hydrogen targets, reflected a compromise between the commission, the European Parliament and the European Council.
