Sat. Nov 27th, 2021

Environmentalists such as former US Vice President Al Gore praise “the magic of markets” as a way to cut green costs. There are efforts to establish a tradable market in hydrogen, the fuel that is expected to play a major role in decarbonization. A hydrogen price index proposed by Deutsche Börse’s power and gas exchange EEX is an indication of rising interest.

Details are few. But the reported goal is to publish a price of hydrogen that will reflect the over-the-counter market and bilateral trade in import and export agreements.

A lot of data already exists. S&P Global Platts assesses hydrogen production costs in different regions. The most important variable is the cost of natural gas, which is currently used in more than 95 percent of world production. A large gap has emerged between the cost of hydrogen in countries that import gas and those with abundant supplies such as the US Gulf Coast.

Platts’ hydrogen prices are therefore based on input costs. Creating an index based on actual prices paid for hydrogen is more of a piece. There is still little trade in the gas. According to Hydrogen Europe, in 2020, EU countries – to other member states and externally – exported less than 0.2 percent of total hydrogen consumption. The little hydrogen trade tends to be subject to long-term contracts.

Even the debate over how to best transport hydrogen is at an early stage. Australia will soon export its first liquid hydrogen cargo to Japan. But it could very well be cheaper to build pipelines instead or send hydrogen-bearing ammonia. Regulations must also be agreed. It would make sense to certify the carbon intensity of hydrogen, as with the “guarantee of origin” certificates for renewable energy.

A lot needs to happen before a publicly traded index can become a reality. But it’s a commendable ambition. Hydrogen plays a crucial role in tackling sectors that are difficult to decarbonise. Price signals should help target limited supplies and encourage hydrogen production in low-cost countries. Greater price transparency can make a difficult transition more effective.

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