Hydrogen: price transparency will help fuel a green revolution

Environmentalists such as former US vice-president Al Gore extol “the magic of markets” as a way to cut back green costs. There are efforts to establish a tradeable market in hydrogen, the fuel expected to play a big role in decarbonisation. A hydrogen price index proposed by Deutsche Börse’s power and gas exchange EEX is an indication of rising interest.

Details are scant. But the reported aim is to publish a price of hydrogen that will reflect the over-the-counter market and bilateral trades in import and export agreements.

Lex: hydrogen

Considerable data already exist. S&P Global Platts assesses hydrogen production costs in different regions. The main variable is the cost of natural gas, currently used in more than 95 per cent of global production. A sizeable gap has opened up between the cost of hydrogen in gas-importing countries and those with plentiful supplies such as the US Gulf Coast.

Hydrogen prices from Platts are thus based on input costs. Creating an index based on actual prices paid for hydrogen is more of a stretch. There is, as yet, little trade in the gas. In 2020 EU countries exported — to other member states and externally — less than 0.2 per cent of total hydrogen consumption, according to Hydrogen Europe. What little hydrogen trade exists tends to be subject to long term contracts.

Even the debate about how best to transport hydrogen is at an early stage. Australia will soon export its first liquid hydrogen cargo to Japan. But it may well be cheaper to build pipelines or ship hydrogen-carrying ammonia instead. Regulations also need to be agreed. It would make sense to certify the carbon intensity of hydrogen, as with the “guarantee of origin” certificates for renewable energy.

Much must happen before a publicly traded index can become a reality. But it is a laudable ambition. Hydrogen has a crucial role in tackling the hard-to-decarbonise sectors. Price signals should help in targeting limited supplies and incentivise hydrogen production in low-cost countries. Greater transparency on pricing could make a difficult transition more efficient.

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