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UK Industrial Decarbonisation Strategy: The future is hydrogen

  • United Kingdom
  • Energy and infrastructure - Hydrogen

22-03-2021

On 17 March 2021, the UK government launched the Industrial Decarbonisation Strategy (the “Strategy”), setting out its policy framework and priorities to move towards a low carbon economy. Announced in the Energy White Paper published in December 2020, and building on the Prime Minister’s Ten Point Plan for a Green Industrial Revolution, the Strategy sets out how the government will support the decarbonisation of UK industry and provides an indicative roadmap to achieving net zero. For more information about the Strategy, please see our bulletin Industrial Decarbonisation Strategy: Paving the way to net zero.

 To meet its ambitious net zero target, the UK government anticipates that emissions from the industrial sector (including steel, chemicals, paper, ceramics, glass, oil refining and manufacturing) will need to fall by around two thirds by 2035 and by at least 90% by 2050.

The Strategy highlights the role that hydrogen has to play in the UK’s journey to net zero and recognises the importance of developing and deploying hydrogen technology and infrastructure as part of the package of measures to cut industrial carbon emissions. The UK government’s ambition is for industry to replace fossil fuels with low carbon fuels such as hydrogen by 2050, with a possible 10-16TWh of hydrogen consumption per year by 2030, and the possibility for hydrogen consumption to reach 86TWh by 2050 if access to hydrogen is widespread across the UK.

Policy priorities

While the Strategy sets out the overall priorities for decarbonising UK industry and developing low carbon industrial clusters, specific focus is placed on:

  • Establishing appropriate mechanisms to support the deployment and use of low carbon hydrogen technology and infrastructure for industry; and
  • Creating the conditions to ensure industrial uptake of fuel switching to hydrogen.

In order to deliver on these priorities, the Strategy acknowledges that a variety of policy measures will need to be developed to address market failures, remove barriers to deployment, support development and encourage private sector investment. However, the Strategy notes that details of how hydrogen will drive decarbonisation efforts in industry will be set out in the Hydrogen Strategy that is currently being developed and will be released in Q2 2021, with further consultation on specific measures to take place over the next 12 months.

Actions across the hydrogen value chain

The Strategy highlights various actions that are being undertaken by the government in order to prepare the way for widespread hydrogen use in industry as part of decarbonisation efforts. In terms of technology and innovation, the Strategy notes that a variety of low-regret hydrogen technologies and processes have been developed and commercialisation studies undertaken with the support of funding under the 2016-2021 Energy Innovation Programme. To assist in future infrastructure deployment arising out of such technological developments, a variety of planning reforms are also underway to streamline hydrogen project approval processes as part of the National Infrastructure Strategy released in late 2020.

Work is also being carried out to gather evidence on the emissions associated with different hydrogen production technologies and a UK standard to define low carbon hydrogen is also being developed in conjunction with industry. Such hydrogen classification measures will be particularly important to encouraging future investment in hydrogen technology and infrastructure and will need to dovetail with the low carbon product standards that are also being proposed as part of the Strategy.

As hydrogen storage and transportation infrastructure will be critical to the net zero journey, the government is also supporting a range of research, development and testing projects under the Hydrogen Grid R&D Programme with a view to determining the safety, feasibility, costs and benefits of blending hydrogen into the public gas transmission and distribution networks. As this is a multi-year endeavour, further policy decisions on hydrogen use in the gas grid are expected by the mid-2020s although deployment in private networks to service industrial consumers may arise much earlier.

Funding support

The Strategy recognises the UK government’s role in the delivery of large infrastructure projects for key technologies, including hydrogen, where there is a shared benefit and the risk/cost is too great for the private sector. Several different funding mechanisms that will be available over the next 5 years to support the deployment and use of low carbon technology and infrastructure are therefore outlined in the Strategy. In respect of hydrogen, demonstration and deployment funding will be available through the following programmes:

  • The £240 million Net Zero Hydrogen Fund which will provide capital co-investment for low carbon hydrogen production projects;
  • The £1 billion Net Zero Innovation Portfolio which builds on the existing Energy Innovation Programme to provide grant funding for the development of innovative technologies in the key areas of industrial decarbonisation, hydrogen, CCUS, bioenergy and other disruptive carbon reduction technologies; and
  • The £170 million Industrial Decarbonisation Challenge which provides grant funding for the development of CCUS and hydrogen at scale as part of decarbonising industrial clusters at Humberside, South Wales, Grangemouth, Merseyside, Teeside and Southampton.

In addition, the Strategy notes that the forthcoming Hydrogen Strategy will provide details on the revenue mechanisms that the government will employ to support business models for low carbon hydrogen projects. The government has also committed to a consultation on preferred low carbon hydrogen business models in Q2 2021, with final model(s) to be determined by 2022.

Long-term economic benefits

The benefit of developing and deploying hydrogen technology and infrastructure to achieve industrial decarbonisation is not only environmental, it also provides significant economic benefits with the Strategy forecasting an annual UK hydrogen production equipment market with a value of approximately £4 billion by 2050. The deployment of low carbon infrastructure and technologies is also forecast to support up to 33,000 direct jobs in the UK, representing a significant opportunity for the UK economy.

Looking ahead

The Strategy sets out the UK government’s ambition for a thriving low carbon industrial sector in which hydrogen technology and infrastructure will play a critical role. However, much of the detail around implementation will be developed in the coming months and years. Further details on hydrogen’s specific role in a low carbon industrial sector, as well as the development of a broader hydrogen economy, is expected in the Hydrogen Strategy to be released in the middle of this year and we will provide further updates as more information is made available.

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