As Europe seeks to balance decarbonisation, industrial competitiveness, and energy security, François Paquet, Managing Director of the Renewable Hydrogen Coalition, discusses the opportunities, challenges, and policy changes needed to unlock renewable hydrogen’s potential, overcome barriers, and strengthen the role of renewable hydrogen in the energy transition
Renewable HYDROGEN is produced by splitting water into hydrogen and oxygen using renewable electricity from sources like solar and wind. Unlike conventional hydrogen produced from fossil fuels, it generates no greenhouse gas emissions during production. While direct electrification remains the most efficient decarbonisation pathway for many applications, renewable hydrogen and derivatives such as ammonia and electrofuels (e-fuels) offer a solution where electrification is not possible. However, despite the high ambition and initiatives designed to promote the deployment of renewable hydrogen, including binding demand targets in Europe, substantial barriers still stand in the way of scale-up efforts.
The Renewable Hydrogen Coalition works with its members to address these challenges and promotes the critical role of renewable hydrogen in achieving Europe’s long-term decarbonisation goals. To learn more, Editor Georgie Purcell spoke to François Paquet.
What potential does renewable hydrogen have in the energy transition and a sustainable future?
Five years ago, many viewed hydrogen as a universal solution for decarbonisation, some calling it the ‘Swiss army knife’ of the energy transition. Today, the conversation has matured. Most people now have a clearer understanding of where hydrogen adds the greatest value. It is more widely understood that, whilst renewable hydrogen has a crucial role to play in the energy transition, it will not be used everywhere and become a universal replacement for fossil fuels. The high expectations that initially surrounded the sector and, in some cases, unrealistic assumptions about the pace at which this emerging industry could develop, generated considerable hype, creating disappointment when real deployment did not progress as quickly as anticipated. This is not a market failure but a reconciliation between ambitions, expectations, and physical realities. One should not confuse market consolidation with market decline.
Renewable hydrogen is a key solution to complement but also advance the electrification of our economy. For most sectors, direct electrification remains the fastest, most cost-effective and efficient route to decarbonisation and reducing dependence on imported fossil fuels. That is because the power sector is the sector which is decarbonising the fastest thanks to renewables. However, most of our energy consumption still relies on molecules, whether in the form of solid, liquid, or gaseous fuels, with electricity representing only 23% of our final energy consumption. Because renewable electricity can be produced domestically in Europe, it strengthens Europe’s energy security and reduces the region’s exposure to external energy shocks. Wind and solar are the fastest and easiest energy sources to deploy. This is particularly important given the geopolitical tensions and volatility experienced in energy markets in recent years.
For sectors which cannot be electrified, renewable hydrogen is not a plan B. It’s the only viable option. Renewable hydrogen enables renewable electricity to reach sectors that cannot run directly on electricity, extending the benefits of wind and solar to more sectors. Some sectors, such as fertiliser or chemical production, cannot ever be fully electrified because they require hydrogen as a feedstock in chemical processes. Similarly, sectors such as aviation and shipping are expected to rely on hydrogen-derived fuels (eFuels) to reduce their emissions. eFuels are synthetic, lower-carbon alternatives to conventional fossil fuels that are produced by using renewable hydrogen and combined with captured CO₂. Direct electrification with renewable electricity, complemented with renewable hydrogen, can help create an economy that is largely powered by home-grown energy, enabling deep decarbonisation while becoming more resilient and competitive.
As the European Commission considers revising its 2020 Hydrogen Strategy, the focus should be on delivery, not redesign. The initial Strategy vision and focus – prioritising renewable hydrogen in hard-to-electrify sectors and system integration to maximise renewables in the economy and decarbonisation in the most efficient way – were right and remain more relevant than ever. Today, the challenge is execution. We need stronger tools to deliver the ambition we set for ourselves.
What are the main benefits of renewable hydrogen?
The first key benefit of renewable hydrogen is deep decarbonisation. Steel production illustrates this best, accounting for around 7-9% of global CO₂ emissions. While steel production in Europe is comparatively cleaner, steelmaking still represents around 4% of all anthropogenic CO2 emissions. Looking at the impact of steel production from an environmental footprint perspective, producing 1 tonne of steel releases about 1.85 tonnes of CO2 on average. Replacing coal or natural gas used to produce steel with renewable hydrogen in direct reduced iron (DRI) processes can dramatically reduce emissions by up to 95%, generating around just 0.1 tonne of CO2 per tonne of steel produced. Whilst other steel production methods, including electric arc furnaces, will also play a crucial role, this example illustrates the disruptive decarbonisation potential that renewable hydrogen can deliver in a single industrial sector. The technologies required to achieve these reductions already exist. The challenge is no longer technological feasibility, but rather scaling deployment at the pace needed to meet Europe’s climate and industrial objectives.
Compared with other types of hydrogen, which are often referred to as low-carbon hydrogen or mistakenly called ‘clean’ hydrogen, renewable hydrogen is the only type of hydrogen that can be considered truly clean as it releases zero carbon emissions during the production phase. While low-carbon hydrogen reduces emissions compared with conventional fossil-based hydrogen, it is not carbon-free. It is typically produced from natural gas, with carbon capture and storage (CCS) used to capture a portion of the associated emissions. But residual emissions remain high. CCS has showed limited emissions capture rates of about 40-60%, and upstream natural gas extraction, processing, and transport continues to leak methane into the atmosphere. In comparison, renewable hydrogen offers a significant advantage from a lifecycle emissions perspective. When produced with electricity from wind, renewable hydrogen can have a carbon footprint of less than one tonne of CO2 per tonne of hydrogen produced. By comparison, unabated hydrogen made from natural gas generates between 12-14 tonnes of CO2 per tonne of hydrogen produced, while coal-based hydrogen (i.e., grey or black) hydrogen can exceed 19 tonnes of CO2 per tonne of hydrogen. Even if you add carbon capture and storage (CCS) to these production pathways, you only reduce this number by a maximum of five tonnes. The difference in environmental impact is stark, demonstrating why renewable hydrogen should be prioritised from a decarbonisation perspective. Beyond decarbonisation, renewable hydrogen will also strengthen our energy security. In 2025, Europeans spent €336.7bn on fossil fuel imports. Recent energy crises exposed Europe’s vulnerability to external supply shocks, driving up natural gas prices and food prices. This had a major impact on households and industry. Unlike fossil fuels which get burnt and need to be bought again, renewables produce continuous value once they start producing. Producing domestic renewable fuels and feedstocks such as fertilisers through a distributed network of production facilities can strengthen Europe’s resilience to geopolitical disruptions and reduce exposure to price shocks stemming from our over-dependence on imported fossil fuels.
In addition to reducing emissions and strengthening energy security, renewable hydrogen can provide valuable flexibility to future energy. As the share of renewable energy increases, periods of abundant renewable electricity generation do not always coincide with periods of high demand. This can create imbalances in the electricity system, leading to renewable energy curtailment and underutilisation of available generation capacity. We could do so much with this electricity we produce ourselves. Instead, we prefer to curtail and import fossil fuels. Here, renewable hydrogen can help address this challenge by acting as a flexible source of demand, complementing other sources of flexibility such as batteries. Electrolysers can increase hydrogen production when renewable electricity is abundant and prices are low, and reduce consumption when electricity is scarce or demand on the grid is high. In this way, renewable hydrogen can help balance the electricity system while making better use of domestically produced renewable energy, for what cannot directly serve electrification. By providing this flexibility service, renewable hydrogen can support greater integration of renewable energy into the grid, reduce curtailment and grid congestion, and potentially reduce its production costs by using low-cost renewable electricity.
Finally, hydrogen presents an opportunity for Europe to maintain leadership in clean technology manufacturing such as electrolysers. Yet Europe’s position is increasingly under pressure. China is on track to dominate the market, now clearly leading globally with 60% manufacturing capacity (60%) with Europe accounting for 20%. Europe still leads in terms of technology performance, with the new generation of electrolysers entering the market and delivering 40-60% cost reductions alongside lower energy consumption. However, having an innovation edge does not necessarily translate into market leadership. After a few years of rapid expansion, electrolyser manufacturing is now entering a consolidation phase. Lower-than-expected electrolyser deployment is not only limiting equipment reduction cost potential, it is also putting European manufacturers under great pressure. Maintaining a leadership position requires continued innovation, investment, and above all faster deployment of technologies. Without stronger action to support the uptake of European technologies, Europe risks losing its technological and industrial advantage in this strategically important sector. The stakes are high for Europe.
What are the major barriers preventing renewable hydrogen from becoming a commercial reality?
Overall, the past four years have been difficult for making investment. Geopolitical tensions, supply chain disruptions, and two fossil fuel crises sparked an increase in interest rates and made the cost of capital more expensive. This has impacted all sectors in the economy, but first-of-a-kind projects, which typically bear higher risks, have been hit the hardest. Several additional, more specific barriers and challenges have slowed down the market development.
The first barrier is cost. Renewable hydrogen currently costs between €5.3 – €13 per kilogram, depending on the location and type of project. By comparison, conventional grey hydrogen costs around €2.5 – €4.5 per kilogram. While today’s higher natural gas prices improve the cost competitiveness of renewable hydrogen in countries such as Spain, the overall cost gap remains significant. This makes it difficult for offtakers to absorb the additional expense, particularly in the face of fierce global competition.
Public financing has not fully managed to address the cost-gap issue, which is another challenge. For hydrogen, public support schemes have mostly focused on covering technology capital expenditure, research and innovation, whereas projects face high operational costs and a cost gap compared to incumbent fossil-based alternatives. Europe does not have an innovation challenge but a deployment problem. The design of support schemes must evolve to reflect these realities. The EU Hydrogen Bank, which ran its third auction earlier this year, has been a true innovation, for it can in theory cover up to 100% of the cost gap between production costs and what offtakers are ready to pay. However, the scheme has been underfunded to date, and EU and national public funding cannot be combined. As a result, it has not been able to meaningfully reduce the cost gap it was designed to reduce.
Another important barrier is regulatory certainty. Europe has developed the world’s most comprehensive regulatory framework for renewable hydrogen, including production criteria and offtake targets. While other regions are progressing more slowly in establishing comparable frameworks, this does not guarantee that Europe will maintain a competitive advantage. A key concern is that, in Europe, several regulations have recently come under pressure or faced the prospect of revision, including the Carbon Border Adjustment Mechanism, EU Trading Emissions Scheme, hydrogen production rules, and targets for e-fuel uptake in aviation under ReFuelEU Aviation – an EU regulation that requires aviation fuel suppliers to gradually increase the share of sustainable aviation fuels (SAF) used at European airports in order to reduce the climate impact of air transport. Every retreat to ‘soften’, ‘delay’, ‘not apply’, or ‘remove’ existing regulatory signals or legal targets erodes investor trust and deters investment.
Infrastructure remains another important barrier. The deployment of hydrogen pipelines and electricity grid upgrades have not kept pace with needs. Roughly 40% of electricity distribution grids in the EU are more than 40 years old. Substantial investment is needed to modernise and expand electricity networks, which is essential to enable access to low-cost renewable electricity – the most important driver for the cost-competitiveness of renewable hydrogen.
The most significant barrier remains the lack of demand. In 2023, the EU adopted ambitious targets for renewable hydrogen uptake in hard-to-electrify industry, aviation, and maritime sectors. Member States were given until May 2025 to implement them. However, progress has remained too slow and uneven. The 1% RFNBO target in transport by 2030 has shown the best progress, with about nine Member States having transposed it to date, with Spain, Germany, Finland, and Czechia having introduced financial penalties for fuel suppliers failing to meet the target. Regarding the EU requirement to consume 42% in industry by 2030, progress has been pending at national level. This is problematic because industrial hydrogen demand is where the current market truly sits. To date, Romania is the only Member State to have done so fully, i.e. imposing penalties. Without demand certainty, production projects will continue to stall.
Taken together, the high cost gap with fossil alternatives, regulatory uncertainty, infrastructure constraints, implementation gaps, and financing challenges all help explain why the sector has not yet developed at the pace many had anticipated.
How is the Coalition working to overcome these barriers and what are the Coalition’s key priorities for the near future?
Our work at the Renewable Hydrogen Coalition is centred on addressing the challenges facing the sector and creating the conditions needed for renewable hydrogen to scale. We focus on four key priorities:
- Creating demand incentives for renewable hydrogen and products made with it;
- Improving supply conditions by facilitating the deployment of renewable hydrogen production;
- Building the necessary infrastructure to deliver the volumes of renewable hydrogen needed for offtakers to decarbonise, secure a leading edge on the markets of the future, and meet the legal targets; and
- Developing financing mechanisms that are fit for market scale-up.
It is critical that these four areas are addressed simultaneously to reduce risk and unlock investment.
When it comes to the priority of creating demand, maintaining and implementing the legal targets already adopted at European level is crucial. The European Commission’s proposed Industrial Accelerator Act (IAA) will play an important role to help implement these targets by creating ‘lead markets’ for EU-made, low-carbon industrial products, such as steel, through public procurement and support schemes. Ensuring that these measures effectively incentivise products made with renewable hydrogen will be essential. In this connection, the proposed quota in public procurement should be set at 50%. It is also key that public funding supports more clearly electrolyser technologies made in Europe. If designed correctly, they could create the market pull needed to stimulate investment and industrial deployment across the whole European value chain.
Concerning the priority to boost supply, a key aspect is to reduce the cost of renewable hydrogen. As the largest contributor to production costs, enabling access to affordable renewable electricity is key. Policymakers should therefore examine all components of electricity costs, including taxation and network charges, to ensure that renewable electricity is not placed at a disadvantage compared to fossil energy sources. Taxation represents about 29% of the average electricity bills for households, and 18% for non-households. Electricity is taxed double than gas on average across the EU. Across parts of Central and Eastern Europe, in Germany, Italy, Belgium, it is taxed three to six times more. Being serious about electrification (both direct and indirect) requires addressing this incoherence without delay. Getting the revision of renewable hydrogen production rules delivered as quickly as possible is also crucial.
Infrastructure is another priority for the Coalition. The build-out of hydrogen networks, renewable generation, storage facilities, and electricity grids must accelerate considerably if Europe is to meet its energy, competitiveness, and climate objectives. Upgrading and expanding key energy infrastructure as a matter of overriding public interest is essential to provide greater certainty for investors and project developers. Having funds for anticipatory infrastructure investments is equally important to provide confidence that future supply and demand can be connected. It’s also crucial to improve infrastructure access conditions by giving priority access to shovel-ready and bankable projects (e.g., those that secured land, water access, environmental assessment, and FEED financing) and set targeted exemptions for connection charges, as already applied in some Member States, since these are not recurring payments for the use of networks and could, in principle, be addressed through public funding mechanisms.
Finally, on the financing priority, existing support schemes have helped launch the sector, but they are not yet sufficient to bridge the cost gap between renewable hydrogen and incumbent fossil-fuel alternatives. While support for innovation and capital investment remains important, policymakers must also address the operational costs faced by early projects. Combining European and national funding programmes, with support capped at 100% of the cost gap relative to incumbent technologies, would improve the effectiveness of public funding while ensuring that resources are directed where they can have the greatest impact. European and national authorities should also ensure that funding conditions do not create unnecessary risks for project developers. First-of-a-kind projects already face significant challenges related to financing, infrastructure, and regulatory complexity. Greater flexibility in completion deadlines would help prevent viable projects from being penalised (delayed or cancelled) due to factors beyond developers’ control.
Renewable hydrogen is no longer a question of technological readiness. The challenge now is creating the market conditions to make a business case so industry can invest and deployment is scaled. That means addressing demand, supply, infrastructure, and financing together rather than in isolation.
The role of renewable hydrogen in Europe’s energy transition is becoming increasingly clear. For sectors that can electrify, direct electrification is the most efficient pathway. But for hard-to-electrify industries, renewable hydrogen is indispensable. The question is no longer whether renewable hydrogen has a role to play; it is whether Europe can create the conditions needed for these sectors to succeed. If the right policy, investment, and market frameworks are put in place, renewable hydrogen can help deliver decarbonisation, strengthen industrial competitiveness, and improve Europe’s energy security. If not, Europe risks turning potential into a missed opportunity. Encouragingly, there is progress with more final investment decisions in installations with growing production capacities and in more countries. Yet progress is far too slow compared to Europe’s ambition. Much stronger execution tools are needed to deliver Europe’s goals and keep a competitive value chain in Europe. The next fossil crisis should not be what makes Europe take bolder measures. Let’s make this fossil fuel crisis Europe’s last.
Please note, this article will also appear in the 27th edition of our quarterly publication.
