[Commentary] Charting policy reforms for building a hydrogen economy in India

India’s energy system is expected to undergo significant transformation on its journey to its goal of net-zero greenhouse gas emissions by 2070. One key change anticipated is the increased use of hydrogen and its derivative energy carriers. The Intergovernmental Panel on Climate Change’s Sixth Assessment Report projects that hydrogen will constitute 2-8% of the global energy consumption in the industry sector by 2050. This may be somewhat higher if energy carriers derived from hydrogen, such as ammonia and methanol, are considered in the mix. As per the International Energy Agency (IEA), hydrogen contributed to an equivalent of 2.5% of the final energy consumption in 2021. Almost all of this supply comes from unabated fossil fuels, also known as gray hydrogen.

For hydrogen to be a component in decarbonisation, it would need to be sourced from renewable electricity (green hydrogen), fossil fuels with carbon capture (blue hydrogen), biomass, or nuclear. Irrespective of the fuel mix, there is an emerging consensus that hydrogen will be critical for some end-uses, such as steel production and trucking. As visualised, this ecosystem of sources, end-uses and associated infrastructure has come to be referred to as the “hydrogen economy.”

India’s push for green hydrogen

Is India considering the hydrogen economy seriously? All indications point to an emphatic yes. The Government of India has pledged investments of $2.5 billion into the production of green hydrogen and is aiming at an additional $8 trillion in private sector investments. That said, the stipulations around these funds could be made more flexible to enhance parity across fuel sources. In developing a hydrogen economy, India would need to chart its course based on national circumstances and priorities. Of course, there may be lessons derived from the experience of other economies.

The Government of India recently released guidelines for the National Green Hydrogen Mission. The current norms for green hydrogen incentives extend to hydrogen produced from renewable electricity and biomass, with life-cycle carbon intensity below two kg of carbon dioxide equivalent per kg of hydrogen (kgCO2 eq/per kg) of hydrogen produced. The source of the hydrogen in this case, i.e., renewable electricity and biomass, is consistent with India’s goal of non-fossil electricity generation capacity reaching 50%. Biomass could also serve as an important source of hydrogen while producing biochar from a variety of feedstock such as agricultural wastes, forest residues, and bamboo stalks.

Proposed reforms to green hydrogen policy

The current emission threshold could be seen as too restrictive. India has historically low emissions, so this threshold could be set in a phased manner. Thus, an emission threshold of around 3-4 kgCO2e per kg hydrogen could be viable in this decade while reaching near-zero levels by 2070. Having a more realistic target could help account for initial uncertainties. Hydrogen storage, transport and distribution are energy-intensive processes.

Hydrogen is also prone to leakage. These factors are still not well understood in Indian field conditions and may countermand life-cycle benefits in other parts of the supply chain, thus cancelling the overall emission reduction benefits. Carbon market mechanisms worldwide are still zeroing in on the most appropriate accounting methodology for hydrogen supply chains. Thus, flexibility in the emission threshold can allow more technologies to scale up and identify hotspots where emission reductions could occur over the next several decades.

Another issue is the constraining of hydrogen sources to renewable electricity and biomass. This could risk disincentivising Indian technologies. For instance, the ONGC Energy Centre has achieved breakthroughs in high-temperature electrolysers that can produce clean hydrogen from nuclear energy. Hydrogen production from coal gasification could also have a strong business proposition for Indian coals when their associated CO2 emissions are captured. The Ministry of Coal has set a target to gasify 100 million tonnes of coal (by the end of this decade), which produces hydrogen or its derivative energy carriers. Coal gasification produces carbon at a relatively high purity, which can be readily integrated with carbon capture. Providing flexibility around sourcing could enable upscaling the hydrogen economy in states without the ready availability of renewables or biomass. An international precedent exists here as well. The Germany government tried out A green hydrogen policy in 2020, focusing primarily on renewables. This year, however, it was updated to include blue hydrogen, considering the vast deficit between availability and long-term demand.

Look beyond sources and toward broad infrastructural issues

There has been a lot of focus, and rightly so, on where hydrogen is sourced from. It is also imperative to look beyond sources to prioritise certain end-uses for hydrogen, i.e., where this hydrogen is utilised. For instance, research from the Homi Bhabha National Institute, Mumbai shows that 490-570 million tonnes of CO2 could be abated annually if hydrogen displaces the current source of energy in several sectors. This corresponds to 15% of India’s present-day CO2 emissions.

The steel sector presents the clearest example. The steel sector along with iron, accounts for 39% of India’s CO2 emissions from the manufacturing and industry sector. The European Union (EU) has hinted at instituting a Carbon Border Adjustment Mechanism, or CBAM, which could tax embodied emissions in steel. Over a fifth of India’s steel production is exported to the EU. The Government of India is already considering several options as a countermeasure. At the same time, India is one of the largest producers of direct reduced iron (DRI), which uses hydrogen instead of coking coal as a reductant, a facilitator in chemical reactions. If the incentives for clean hydrogen are linked to DRI, it could avoid the large penalties from CBAM and reduce India’s coking coal imports, providing a win-win situation.

When we mention the underlying infrastructure, it refers to physical infrastructure (e.g., pipelines, storage sites) and financial infrastructure. In our study prepared under India’s G20 Presidency in 2023, we have recommended that there is a strong imperative to create an ecosystem that supports attracting foreign capital for climate financing.

International finance coming to India from various financial institutions is centrally regulated under the International Financial Services Centres Authority. Such a structure could be leveraged or extended to low-carbon infrastructure such as green hydrogen plants and pipelines. The G20 New Delhi Leaders’ Declaration aims to support resilient global markets for low-carbon hydrogen. To operationalise this, it is imperative that hydrogen and its derivative energy carriers receive broad acceptability in key markets and also have minimal taxes imposed on its trade.

Udayan Singh is an Adjunct Associate Professor at the Northwestern University and a Principal Researcher in the ESN Project at the Indian Institute of Management Ahmedabad. Amit Garg is currently the NIIF Chair Professor in ESG at the Indian Institute of Management Ahmedabad.

Banner Image: (Representational Image) Helmond hydrogen fueling station. Photo by Green Energy Futures/Flickr