Is green hydrogen a net zero game-changer?

Is green hydrogen a net zero game-changer?

Introduction

The global race to net zero emissions by 2050 is driving investment into a rapidly growing pipeline of green hydrogen projects. Large-scale demand is firming up, and that’s just the beginning.

Imagine a future where cars don’t emit toxic fumes, but instead release steam into the atmosphere. That may sound far-fetched, but that is exactly what harnessing hydrogen energy means. Applying this energy source across industries could prove to be a game-changer in achieving net zero by 2050.

The great energy transition

In 2021 alone, global investment into the low-carbon energy transition totalled US$755 billion, which was an increase of more than 25% from the previous year.1

While most of this investment was directed toward renewable energy and electrified transport, there is growing investment going into green hydrogen, which may prove to be the next step in the journey to net zero.

The many shades of hydrogen

While we’ve all heard about the different colours, one can be excused for not knowing which is which. The colours assigned to hydrogen are based on the carbon intensity of their production processes – the main ones are:

  • Black/Brown Hydrogen: Produced from burning coal or lignite (aka brown coal). It is estimated that for every tonne of brown hydrogen, around 10-12 tonnes of CO2 are produced. This is the most carbon intensive process available.
  • Grey Hydrogen: The majority of industrial hydrogen is made using this process, which combines natural gas with water vapour to create hydrogen gas. Large volumes of CO2 are produced and released into the atmosphere, but as hydrogen replaces carbon-intensive energy alternatives, the net emissions can still be positive.
  • Blue Hydrogen: This is produced in the same way as grey hydrogen, but the emissions are captured and stored. Blue hydrogen could also play an important role in achieving net zero by 2050, particularly as governments are increasing taxes on carbon emissions or paying credits for reductions, helping to make blue hydrogen and carbon capture, utilisation and storage (CCUS) more economically viable industries.
  • Green Hydrogen: This is produced by electrolysis, a technique which splits water molecules into hydrogen and oxygen. While electrolysis uses vast amounts of electricity, the electricity is generated from renewable sources such as solar and wind, and therefore releases no emissions.

Green hydrogen only makes up a fraction of the energy mix, but it is expected to play a significant role in the future, with demand from heavy industries expected to multiply, including for rail, marine and heavy road transportation.

Chart 1: Forecast global hydrogen sector demand in sustainable development scenario 2019-2070

Source: iea.org. September 2020. No forecasts can be guaranteed.

Renewables growth vital for green hydrogen

Vital to the scaling up of green hydrogen production as its power source, renewable energy generation has dramatically accelerated, while the cost per gigawatt has continued to decline. In less than a decade, renewables have grown from supplying less than one per cent of energy in Europe to 15 per cent. As this trend continues, this will support the growth of green hydrogen production.

Unlimited investment potential spanning multiple industries

Today, more than 75 governments have announced hydrogen policies and goals compared with 2019, when only France, Japan and Korea out of the G20 nations had national strategies.2

The outlook is undeniably promising because hydrogen has the potential to transform the carbon footprint of entire energy-intensive industries, from manufacturing to transportation. As the world rushes to reach net zero emissions by 2050, green hydrogen sits at the centre of this megatrend.

Invest in the transition to net zero

Our new active ETF, the Janus Henderson Net Zero Transition Resources Active ETF (Managed Fund) (ASX:JZRO) offers access to this multi-trillion dollar investment thematic. It can invest in companies worldwide that are enabling the transition to a net zero carbon emission future, including both blue and green hydrogen.

1. Energy Transition Investment Trends 2022, BloombergNEF
2. Global Hydrogen Review, 2021 - International Energy Agency

For important product information and disclosures such as PDS and TMD, please visit: https://www.janushenderson.com/en-au/investor/product/net-zero-transition-resources-fund/

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