European Commission to issue Carbon Contracts for Difference subsidies

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The European Commission (EC) is to issue Carbon Contracts for Difference (CCfD) subsidies to support green hydrogen production. The programme is intended “to support a full switch of the existing hydrogen production in industrial processes from natural gas to renewables and the transition to hydrogen-based production processes in new industrial sectors such as steel-making”.

The programme will be supported with cash from the EU’s Innovation Fund.

This will be part of the REPowerEU plan that has targeted production of 10 million tonnes of green hydrogen across the EU by 2030. A further 10 million tonnes will be imported.

Under the CCfD scheme, end users would be paid a guaranteed amount by governments for avoiding CO2 emissions. This would consist of savings made by not paying a carbon price under the ETS, plus a top-up subsidy to reach the ‘strike price’ agreed with the CCfD.

(The UK us due to introduce a slightly different Contracts for Difference scheme, which will offer a subsidy representing the different between the strike price and the market value of hydrogen.)

Essentially, these programmes will make green hydrogen (produced from water) available to the market at the same price as grey hydrogen (produced from natural gas).

Production of the H2 fuel will require 600 GW of new wind and solar power, together with 200 GW of electrolysers.

There are also plans to boost hydrogen production through state aid delivered through IPCEIs, or Important Projects of Common European Interest. An assessment is currently underway to double the number of H2 production hubs.

The EC said that it is “committing to finalising the regulatory framework for hydrogen”, and also publishing draft legislation “to define and boost the production and market development of renewable hydrogen within Europe”.

Plans are also being made to develop three major hydrogen import corridors, via the Mediterranean, the North Sea and (when possible) with Ukraine.

This will be backed by plans to develop infrastructure for fuel delivery. The EC stated: “Work should also accelerate with industry on technical hydrogen standards and expedition of authorisation procedures for hydrogen infrastructure.”