Almost 20 years ago, I was at the forefront of the rapidly emerging hydrogen economy. I was an engineering research fellow at the US Department of Energy, and my team was tasked with demonstrating low-carbon methods of producing the energy-dense gas suitable for large-scale production.
Those were heady days for hydrogen researchers. Climate awareness was rising — the Kyoto Protocol was signed just a few years earlier — and there was a sincere belief that soon, vast arrays of solar panels and fleets of nuclear power plants would be producing abundant, cheap hydrogen to power our cars, homes and offices. Indeed, it did not seem long before the entire energy economy would be transformed, with hydrogen as the new currency.
We now know the hydrogen craze in the early 2000s was more hype than reality, and the vision of a full-fledged hydrogen economy has receded, in no small part due to the phenomenal success of battery-powered electric cars.
Hydrogen is now enjoying renewed attention, driven by the climate emergency. But this time, our understanding of the scale of the challenge and the scope of the energy transformation required is much better.
The changing hydrogen landscape
In 2000, hydrogen — along with nuclear and renewables to generate it — was seen as a panacea to decarbonise the power and transportation sectors.
Today, we have firm evidence that power and transport account for roughly 40% of total greenhouse gas emissions. The balance comes from other sectors, such as industry and agriculture.
We know that to mitigate climate change, we must tackle all emissions across all sectors. This is the logic behind the growing chorus of countries and companies that have made 2050 #NetZero pledges.
For many sectors, however, achieving steep reductions in carbon dioxide (CO2) emissions is much more challenging than in cars or power generation. Batteries lack the density to carry jets across oceans. Electricity cannot provide the heat for steel, aluminium or plastic production.
Even the hydrogen produced today for industrial use — 75 million tons per year delivered to refineries and chemical plants — is derived from coal and natural gas, accounting for 2% of global CO2 emissions.
The appeal of hydrogen is clear. It offers the energy density and high combustion temperatures of fossil fuels, but with the potential for zero-carbon emissions. There are currently no viable alternatives, with challengers like advanced biofuels too expensive and lacking scale.
Hydrogen demand is expected to grow rapidly in the coming decades, with industry consortium the Hydrogen Council estimating demand will be 40% higher in 2030 than today, and almost 200% higher in 2040. Less enthusiastic forecasts from the International Renewable Energy Agency and the International Energy Agency see 100% growth by 2040, with the size of the hydrogen market measured in the hundreds of billions of dollars.
The challenge will be producing and delivering enough hydrogen to meet burgeoning demand, without any associated carbon emissions.
Two technologies have the potential to produce low-carbon hydrogen at scale. The first is carbon capture and storage (CCS), using fossil fuel facilities retrofitted to capture their CO2 emissions. Those emissions are then piped underground for long-term storage in stable geologic formations, which Southeast Asia has in abundance. Hydrogen produced with CCS is called “blue” hydrogen.
The second option utilises electrolysis power by renewable energy to split the constituent hydrogen and oxygen from water, creating “green” hydrogen.
Both technologies are demonstrated and in operation today around the world, but remain costly, roughly 2-4 times the cost of “grey hydrogen” derived from fossil fuels.
Blue hydrogen will become increasingly competitive over the next decade, as more countries put a price on carbon emissions, making grey hydrogen more expensive. The price of green hydrogen is dropping rapidly, driven largely by the declining cost of renewable power. Prices for solar electricity generation in Southeast Asia have declined 35% in the past five years and are expected to decline another 60%-70% in the coming decade.
Boston Consulting Group estimates that early in the next decade, blue and green hydrogen will be competitive with grey, with green hydrogen becoming the lowest-cost option thereafter.
Southeast Asia’s hydrogen opportunity
Growing demand for low-carbon hydrogen presents a massive opportunity in Southeast Asia. The region is a significant producer of grey hydrogen to support its large steel, refining and petrochemicals industries.
Retrofitting existing assets with carbon capture and storage would make Southeast Asia a leader in blue hydrogen, and provide strong foundations to scale up CCS, ultimately including emissions from coal and natural gas power plants.
Southeast Asia also has the potential to be one of the world’s most competitive producers of green hydrogen, thanks to high-quality renewable energy resources including solar, wind and hydropower.
Locally produced green hydrogen can be consumed in the region, supporting growing demand for low-carbon options in transport and power generation, or exported to high-demand countries like Japan and South Korea.
For the region to reach its full potential, stakeholders will need to work together to create a vibrant ecosystem that supports innovation and growth.
For policymakers, building legal and regulatory frameworks to incentivise and support investments in low-carbon energy is critical. This includes a price on CO2, either through tax, emissions trading schemes, or financial incentives for capture and storage.
Streamlining the permitting process for low-carbon energy projects will accelerate project timelines and reduce regulatory risk.
Support for R&D and pilot projects will help incubate new technologies, demonstrate commercial viability and stimulate demand in new sectors. For example, the Malaysian state of Sarawak launched a hydrogen-powered bus fleet in 2020, the first of its kind in Southeast Asia.
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Setting clear standards for construction and operation of low-carbon energy facilities will also provide the regulatory clarity businesses need to make long-term investment decisions.
Robust policy frameworks for hydrogen are starting to emerge in the EU, Japan, and South Korea. Southeast Asian countries looking to jump-start their own low-carbon energy sectors can attract investment in hydrogen by enacting similar policies.
The opportunities for industry are also multifaceted. Energy consumers enjoy a pathway to decarbonise operations. Oil and gas companies can leverage industry strengths to become competitive producers and distributors. Financial institutions have the potential for profitable investments in a booming green commodity market. Equipment, engineering and construction operators will enjoy new roles in an emerging industry.
After a false start 20 years ago, the lowcarbon hydrogen economy appears poised to take off. Now is the time for policymakers and energy industry leaders to set ambitious goals for hydrogen in the region and develop a strategy to achieve them. Only then can Southeast Asia claim its rightful role as a major producer and consumer of the fuel of the future.
Brendan Boyle is a project leader at Boston Consulting Group (BCG)