International Engagements on Low-Carbon Hydrogen

While hydrogen may play a role in the energy transition as a fuel, its main role is likely to be as an input for industrial processes and the production of other fuels across various applications. Handling hydrogen is difficult and hazardous; it is prone to leaks and costly to transport. Uncertainty abounds over the cost, applications and even the definition of low-carbon hydrogen. This paper adopts the UK government definition. However, low-carbon hydrogen can be used to displace hydrogen currently produced from fossil fuels, serve as a reactant in decarbonised industrial processes, and be combined with nitrogen or low-emission carbon sources to produce synthetic fuels that are easier and cheaper to transport. Hydrogen could become central to the decarbonisation of fertilisers, chemicals, aviation and maritime fuels, and steel, among other applications.

From a security of supply perspective, this shifts the focus from the source of hydrogen used in the UK to sources of critical materials, fuels and technologies produced using hydrogen. These may become essential to the UK economy and national security in the coming decades. Reliable and low-cost global supply chains will be an essential component of UK critical industries, infrastructure, and, ultimately, defence.

This paper examines whether the UK could or should do more to ensure security of critical supply chains involving hydrogen, by examining the activities of peer countries in three regions – Africa, the states of the Gulf Cooperation Council and Latin America – with the potential to produce low-carbon hydrogen cheaply.

In each region, European competitors have been more focused than the UK on using international engagements to secure future supply and influence the direction of industries in partner countries. Germany, in particular, is very active, and has put together diplomatic teams and working groups dedicated to low-carbon hydrogen at the same time as funding international hydrogen developments. Public and private interests are aligned by an overarching strategy setting out the country’s hydrogen demand and the proportion that will be met by imports. Similarly to Japan, Germany is driven by insufficient domestic hydrogen production potential and the need to maintain its domestic industries and associated employment. The jury is out on how effective these measures have been.

In the Middle East and Latin America, the proactive approaches of some EU countries, the European Commission and Japan appear to have delivered some results. European and Japanese investors are more heavily involved than UK counterparts in the flagship projects that will be influential in defining the investment environment. In Africa, the industry is at an earlier stage and there is greater importance placed on development objectives. This means that it is not clear that diplomatic efforts by potential importers are yielding noticeably improved results compared with the UK approach.

Approaches to hydrogen development and expectations of international partners among producer countries vary, although they share some common ground. Gulf monarchies focus on direct engagement with consumer governments and state-owned companies to secure long-term agreements and facilitate trade and knowledge transfer, aligning with their view of energy security as a state responsibility. African policies prioritise attracting capital, mitigating social and political tensions, and securing demand for hydrogen abroad, often needing partner support to manage project risks. In Latin America, hydrogen policy often aims at achieving macroeconomic stability and increasing government revenue, with tax and regulatory measures that can complicate investment by multinational companies.

As the UK expects to produce sufficient hydrogen to meet its own demand, it has focused international engagements on building global market architecture, rather than security of supply. This leaves blind spots. As hydrogen supply is considered secure, the supply of critical materials produced using hydrogen is left to industrial policy and sector teams. The lack of a clear long-term industrial strategy to dovetail with domestic and international hydrogen work makes identifying potential international strategic partners, both corporate and governmental, very difficult. Because of this, UK international hydrogen engagements could in some cases not fully align with wider UK interests, including those linked to national security.

However, the UK is in a strong position to play a leading role in the global hydrogen industry. The country is effective in its multilateral engagements and has a clear vision for supporting the development of an openly traded global hydrogen market. Many private companies with the technical and financial capacity to play an important role in the hydrogen industry are listed or headquartered in the UK, and UK universities are centres of excellence in the field. The UK also has notable manufacturing capabilities for hydrogen technologies. The country has the development expertise and architecture to increase its influence in the sector should it choose to do so. Arm’s length entities such as Globeleq are already actively involved, and the UK hosts notable hydrogen supply chain strengths. With clearer objectives and closer coordination, the UK has many of the tools needed to ensure the security and competitiveness of its decarbonising industries through engagement with the regions most likely to be globally competitive in low-carbon hydrogen production.