The cost structure of green hydrogen production can be made more competitive by rationalising taxes (GST and custom duties) levied at different stages in the value chain.

Why green hydrogen can play a pivotal role in India’s decarbonisation journey

Initial estimates indicate that by 2050, the cumulative value of the green hydrogen market in India will reach $340 billion

Accelerated decarbonisation is pivotal to the achievement of India’s target of net-zero emissions by 2070. In its revised Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC), India has proposed to reduce the emissions intensity of its GDP by 45% by 2030, from 2005 levels and create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030. To this end, it is facilitating the adoption of renewable energy technologies such as solar and wind, the uptake of energy efficiency measures and inclusion of circular economy principles in production and supply chains, the development of mass rapid transit systems, and commercialisation of alternative fuels. To sustain this transition in the new energy paradigm, however, it needs rapid development and deployment of state-of-the-art industrial technologies to reduce carbon emissions substantially, particularly in hard-to-abate sectors such as steel manufacturing, refining, fertilisers, heavy-duty trucking, marine shipping, and aviation. In enabling this deep decarbonisation, green hydrogen can play a critical role. 

A fuel for the future

The production of green hydrogen is based on the electrolysis of water, powered by electricity generated from renewable sources of energy. The economics of this process is influenced by the cost of electrolyzer technology, levelized cost of electricity, transmission and distribution costs, and taxes (GST). Besides, the transportation and storage of hydrogen involves a complex and cost-intensive supply chain due to its peculiar characteristics, such as flammability, low density, ease of dispersion, and embrittlement. This makes production of green hydrogen less competitive in the current scenario vis-à-vis natural gas-based blue hydrogen and coal-based grey hydrogen. 

Despite these challenges, the realisation of India’s green hydrogen opportunity is instrumental to accelerate the decarbonisation of hard-to-abate sectors and further India’s net-zero journey. This is because initial estimates indicate that by 2050, the cumulative value of the green hydrogen market in India will reach $340 billion. This could yield a net energy import savings of $246-358 billion for the country and help in the abatement of 3.6 gigatonnes of carbon dioxide from the atmosphere. Furthermore, due to its favourable geographical conditions for renewable energy generation and the target of 500 GW of installed capacity by 2030, it is uniquely positioned to take the early mover advantage in the global green hydrogen economy. 

The current global demand for hydrogen is 70 million metric tonnes per year, more than three fourth of which is being produced from natural gas. Green hydrogen accounts for less than 2% of the total production. India’s own hydrogen demand stood at 6 million metric tonnes in 2020, used largely as a feedstock in fertiliser, refining, and chemical industries. The aftermath of the Covid-19 pandemic and the fluctuation in energy prices due to the ongoing tension between Ukraine and Russia have reiterated the need to strengthen national energy security. India’s energy vulnerability is amplified by its high dependence on imports of fossil fuels. Therefore, a robust policy framework, requisite financial support, and an enabling ecosystem for technology development are essential to displace the country’s conventional fuel mix with green hydrogen and enhance its industrial competitiveness in an increasingly decarbonizing world.

Towards hydrogen economy

India is set to achieve renewable energy capacity of 500 GW by 2030. With the current installed total renewable energy capacity of 118 GW, it already has one of the most competitive solar and wind tariffs in the world. Besides, the domestic electrolyzer market is projected to reach approximately $5 billion by 2030 and $31 billion by 2050. The introduction of the Green Hydrogen Policy is a welcome endorsement of India’s commitment on climate action. The policy contains many enabling provisions, such as the waiver of inter-state transmission charges for green hydrogen projects and a single window for all statutory clearances and permissions required for manufacture of hydrogen, transportation, storage in bunkers near ports, and distribution. It is likely to improve the near-term economics of green hydrogen production and shape its demand outlook in the country. 

To spur the development of a competitive market for green hydrogen, however, there is a need to move beyond the “specific strategy for the short term and broad strokes principles for long term.” A demonstration of green hydrogen in niche applications like long-haul freight, fuel cells in aviation and early-stage commercialisation of technologies that reduce the cost of delivery and dispensing is necessary to foster demand creation and inspire investor confidence. Heavy-duty vehicles, for instance, produce 60% of India’s road-freight carbon emissions. Electrification of diesel-fueled trucks can abate as much as 2 gigatonnes of carbon emissions by 2050 besides reducing shipping and logistics costs. 

The cost structure of green hydrogen production can be made more competitive by rationalising taxes (GST and custom duties) levied at different stages in the value chain. Furthermore, mobilising long-term financial resources is central to technology development and commercialisation. Due to high economic costs, long gestation periods, and uncertainty associated with new technology, public finance institutions are best placed to address early-stage risk investment shortfall and crowd in private investment through interventions like providing grant support and long-term debt on concessional terms. For this, the government can leverage multilateral finance institutions, such as the World Bank, to deploy risk-sharing facilities and set up credit guarantee mechanisms. In later stages, it can harness private capital through blended financing approaches to widen the pool of available funds. 

Another financial innovation to attract long-term foreign capital could be to use dollar-linked tariffs while hedging the risk of unexpected rupee depreciation. To ensure that the capital mobilised for green hydrogen is used for the intended purpose of project development, the government can direct the Petroleum and Explosives Safety Organization (PESO) to develop standards to harmonise the carbon intensity definitions of different types of hydrogen. This will also prevent the potential risk of greenwashing the hydrogen produced and delivered in the market, both domestic as well as international.

The COP27 summit in Egypt saw many countries moving from strategy to implementation to deliver on the collective ambition of realising a net-zero, climate resilient, and prosperous world by mid-century. The Joint Statement on Green Hydrogen and Green Shipping, for instance, is a welcome initiative towards decarbonisation of the maritime shipping sector. India, too, can leverage such global best practices to strengthen its current domestic policy framework and complement it with a robust multi-stakeholder approach for finance and technology transfer to accelerate decarbonisation of hard-to-abate sectors.

Shreyans Jain is a sustainability consulting practitioner with Accenture. The views expressed are personal.

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