After the Heat Comes the Labour Dispute
Comment by Vivianne Rau
Insight by Raffaele Piria
With the Biden administration, Germany will be able to strengthen its energy transition cooperation with the USA. Based on a new study, Raffaele Piria of adelphi and Kirsten Westphal of the German Institute of International and Security Affairs (SWP) argue in an article for the German daily newspaper Tagesspiegel that green hydrogen offers Germany and the US the opportunity to develop a discourse on transatlantic energy trade that is compatible with their respective climate ambitions.
The US is facing a U-turn in climate policy. President-elect Joe Biden wants to return to the Paris Agreement on his first day in office, decarbonise the electricity sector by 2035, and achieve climate neutrality by 2050. In addition, 21 out of 50 states have set emission reduction targets between 80 and 100 percent by 2050.
We can expect intense debate on the implementation of climate neutrality in the USA in the coming years. This will bring more attention to hard to abate sectors – and, as a result, hydrogen. Renewable hydrogen is one of five priorities of the Biden-Harris transition team’s innovation strategy for climate protection.
With around 12 to 16 percent of production, the USA is the world's largest producer and consumer of hydrogen after China. More than half of the world's hydrogen pipelines and nearly 5000 kilometres of ammonia pipelines are located there. While battery vehicles are becoming increasingly popular, half of the fuel cell vehicles in the world are in the USA. As of yet, however, the hydrogen is almost exclusively grey.
However, the green hydrogen economy in the USA is likely to grow rapidly, particularly with increasing political support. This is because the USA has extensive, inexpensive solar and wind energy resources and, above all, land. In the best locations, large-scale electrolysis with renewable electricity could be close to competitiveness with blue hydrogen as early as 2030 if there is a significant price on greenhouse gas emissions.
Furthermore, the US fracking industry is under pressure due to the price drop in 2020 and the tightening of environmental regulations expected under Biden. The financial world is looking for new areas of investment.
Biden's support for renewable energy and green hydrogen are beyond dispute. His remarks on the future of the fossil fuel industry, however, remain ambivalent. With its extensive natural gas resources, a well-developed gas infrastructure, and a large potential for CO2 storage sites, the USA also has the ideal prerequisites for the production of blue hydrogen.
However, despite billions in public funding, carbon capture and storage (CCS) has only developed very modestly in the USA and suffered a setback in 2020 with the premature shutdown of the largest plant. Given the long payback periods for CCS investments and the possibility that green hydrogen will soon become competitive, investments in blue hydrogen may remain unattractive for investors. Ultimately, the increasing focus of the US debate on climate neutrality is not in line with a technology that, despite CCS, causes considerable methane emissions and residual CO2 emissions.
For strategic and military considerations, nuclear power in the USA might be subsidized even in the long term. Although concrete investment plans are not yet known, they could materialise, especially because electrolysers can compensate for the inflexibility of nuclear power plants. However, the high average age of the existing nuclear power plant, the immense costs for new projects, the unsolved problem of final storage, and the associated issues with acceptance suggest that green hydrogen will play a much greater role than hydrogen from nuclear energy in the USA.
By using a fraction of its renewable energy potential, the USA could fully cover its own energy needs and, moreover, export considerable amounts of green hydrogen to less well-endowed countries like Germany.
In the medium to long term, green hydrogen offers the USA the prospect of large-scale, climate neutral energy exports. In the USA, this could help to resolve the perceived conflict between climate protection, economic interests and foreign and security policy and, in this way, win over conservative circles with an energy policy agenda compatible with national security as well as with ambitious climate goals. In any case, these circles will have to reckon with the fact that the continuation of the US LNG export strategy is no longer plausible in the long term, as a growing number of potential import countries is committing to climate neutrality.
The recognition of the export potential for green hydrogen is not yet established in the USA. This potential for trade could be a subject for discussion within the energy policy dialogue between the USA, Germany and the EU. Green hydrogen offers the German-American relationship the opportunity to develop a discourse on transatlantic energy trade compatible with their respective climate ambitions.
The Biden administration, Germany and the EU share liberal values and a commitment to multilateralism. This creates a critical opportunity to build a long-term energy partnership geared towards climate neutrality and a successful energy transition on both sides of the Atlantic.
Germany and the USA should set the course for future transatlantic trade in climate neutral hydrogen. Notably, the stated reason of the US sanctions against Nord Stream 2 is to protect European energy security. As an alternative to Nord Stream 2, there is a debate on both sides of the Atlantic about building LNG import terminals in Germany. However, both Nord Stream 2 and those LNG terminals are questionable, in particular in ecological and political terms. Unlike these fossil based options, a transatlantic trade in climate neutral hydrogen could lay a solid foundation for sustainable energy security in Europe.
To this end, Germany and the EU should spell out in more detail their roadmap to a climate neutral gas sector and make it more clear to the USA. This would also create an additional incentive for the US to move forward on sustainable energy.
A number of opportunities speak in favour of cooperation on green hydrogen between Germany, the EU and the Biden administration: joint scaling of the technology markets, joint development and testing of technologies for ship transport, coordination of research projects, feasibility studies on the value chain, concepts for hydrogen export hubs and exchange on the further development of technical standards and certification procedures.
Regarding sustainability criteria for hydrogen, Germany and the EU could search for a partnership with US states with similar interests – for example, California and the north-eastern states, which have ambitious climate targets and less vested interests in natural gas extraction than other US states.
However, hydrogen is not the first, but rather the last necessary element of the energy transition and should therefore not be ‘overhyped’: Energy efficiency, the expansion of renewable energies, and the electrification of transport and heat supply should remain at the centre of energy policy on both sides of the Atlantic.
This in adapted translation of an article published by the Berlin daily newspaper Tagesspiegel on 6th January 2021. We are publishing this text with their kind permission. The text is based on our study “Hydrogen in the USA: Potential, Debate, Politics and Transatlantic Cooperation” available here (in German only).
piriaadelphi [dot] de (Raffaele Piria) is Senior Advisor and Co-Lead Energy at adelphi.
Kirsten Westphal has led the ‘Energy Transition and Geopolitics’ project at the German Institute of International and Security Affairs (SWP).