Hydrogen 101

Of course, there's been green and blue hydrogen, but what about pink, yellow, or gray? I could keep going, but you get the idea. Martin recently wrote a research note titled Hydrogen for Beginners, Everything you Need to Know, where he breaks down this hydrogen primer into history, physics, and economics in order to see the future of this clean burning molecule and to understand how it might fit with some of the hard to abate sectors. We're going to

start with the fundamentals. For Bloomberg subscribers who want to read this or see some of the charts that Martin made, you'll be able to find it on the Bloomberg terminal at B NF Go at b enof dot com or on our mobile app. As a reminder, B andF does not provide investment or strategy advice, and we've got a complete disclaimer at the end of the show. But now let's talk about hydrogen. Martin, thank you for joining today.

Thank you. So we're here to talk about hydrogen. We've done a few hydrogen podcasts in the past, and they were on very specific topics. But today we're going to try something different. We're going to zoom way out and we're going to talk about We'll try to in one show explain the basics of hydrogen and how this market works. Because there's so much buzz around it at the moment, Can you explain to everybody why you ended up writing a primary research report when we have historically gone much

deeper on topics. So I think that's exactly the reason why we have historically gone very deep on topics with let's say an assumption that the average B and EF either would understand most of the basics, and then we had a couple of conversations, you know, with our clients, even internally with our colleagues, there turns out to be a pretty wide range of people in terms of how well they understand hydrogen for obvious reasons, and so we thought that writing a report that helps everybody be on

the same page, and after they've read it, then they can read any other b NF report on hydrogen and feel like they can understand it, feel that they get the context. So that was really the purpose of the report. What I realized today when preparing for our discussion was that there are certain colors in the hydrogen wheel. You may like referred to as a wheel of different colors. There's certain colors within hydrogen that I understand much better than others, and we will come to that and discuss

what each of those is. But let's take another giant step back and let's start with history. So I think many of us associate hydrogen with Zeppelin's. You know, this is a natural resource that has been around for some time, So let's talk about when it kind of first came on the radar and where hydrogen has been in the past, so that we can talk about the potential in the future.

The idea of using hydrogen is absolutely not new. It goes back to at least the eighteen hundreds, when in eighteen seventy four French writer, as you'll learn, wrote a book in which he said that one day hydrogen will provide an inexhaustible source of heat and light. That's kind of how it's translates. Have you read this book. I have not read this book. I've just I've just from it. But you know what, it's on my reading list. I definitely want to read it. Jewels were in the visionary.

I will add it to my book club reading. Absolutely. So that's the idea of using hydrogen for energy, right. Hydrogen is a very energy dense molecule, which is something that I think we'll talk about later as well. But then the idea of using hygen for energy, you know, there have been a couple couple of waves in the middle. You know, you mentioned the Zeppelins. Then they have been you know, the US and the Soviets. Apparently we're testing planes that would fly on hydrogen in the nineteen fifties,

which hasn't exactly worked out. But then a hundred years later, in nineteen seventy four, the roadent Track magazine in the US published on its cover this thing that said hydrogen new and clean fuel for the future. And the reason they did it was because Back then, there was this idea of using hydrogen as a fuel for cars because it was in the middle of the oil crisis. Oil was scarce or was expensive. People are looking for ways to feel their that their vehicles without having to rely

on oil. But then all crisis finished, you know, hydrogen cars didn't really go anywhere, and then we've got a couple more of these waves throughout history. You know, George bush Into in two thousand and three said that the first car driven by a child born today could be powered by hydrogen. So now if you fast forward to today, there are about thirty thou cars globally that have been sold that run on hydrogen. So maybe there's a a child somewhere whose first card happens to be a totemm

ME RAI. But it's definitely more like the exception than the rules. So there have been a lot of a lot of waves of interest, but much less in terms of actually following up on those waves with action in terms of using hydrogen for energy. So they're definitely have been these points where, oh, maybe hydrogen will be really great for transport, and it is used in some spaces.

It is you know, you have hydrogen ferries being developed, and you have different vehicles, land vehicles being using hydrogen. We're seeing a few of them out there, but then not quite yet beaten out certainly the internal combustion engine or really batteries which seem to be taking off. So the story of hydrogen is one where there just seems to be this fever pitch of excitement in the industry and then seeing whether or not it's actually going to

take hold. So let's talk a little bit about the physical properties or the physics of hydrogen so that we can understand kind of what we're dealing with before we think about the future potential that it has and maybe why there is all of this buzz. So with hydrogen, where should we start? Should we start with the transport or let's start with where we get it from? How does one find or create hydrogen currently? That's a really good question, So there's at least two two ways to

answer this. It turns out that hydrogen is by far the most abundant element in the universe, and I imagine that many people listening to this podcast will have probably heard that somewhere. But about three quarters of all the chemical elements or you know, the particles in the universe are hydrogen particles, but on Earth hydrogen does not appear

in its pure form in the Union. In the rest of the universe, hydrogen is basically what makes up stars together with helium, but on Earth we've got no stars. Hydrogen is locked in other chemicals because it's a very reactive gas, so it's either locked in water, so that's H two oh. Familiar with that one, Yeah, yeah, drink

that every day. And hydrocarbons, which basically is another word for fossil fuels, So example would be methane H four another more complex hydrocarbon molecules from which then we can extract hydrogen. So if we were to extract hygen from water, then you need to use this process called electrolysis, which means you pass electricity through water in a device that's called an electrolyzer. On one end, hydrogen comes out. On another end, oxygen comes out, so the H two and

the oh to come on on separate ends. If you were to extract hydrogen from hydrocarbons such as methane, and that's how we extract the vast majority of hydrogen today, then for methane you could use this technology gold steam methane reforming, which means you're bombarding methane molecules with very hot steam and unlocking the hydrogen that way. But what that does mean is that given that methane is the hydrocarbon c H four, you've got the carbon molecules attaching

to oxygen and leaving a CEO to gas. So then the hydrogen that we use today, and we use a lot of hydrogen today something we can talk about as well, not for energy, we're using it for the chemistry of it. We're using a lot of it that's very corton intensive, So let's go into that. So that we're talking about this hydrogen as a potentially clean burning fuel, but the way that we're producing it today, it's not there yet. And you were mentioning that there are uses today where

the chemical properties are critically important. So it's not being used as a source of energy, it's being used for something else. Where are we currently using hydrogen where is it critical? There are really three sectors today that use the majority of the hydrogen that we produce. That is oil refining or hydrogen is used for sulfur removal. Then it's ammonia, which is used for fertilizers. So ammonia is n H three, so it's one nitrogen and three hydrogen molecules,

so you cannot produce ammonia without hydrogen. And then there's a methanol which is c H three oh h. Again it's a chemical that's used for many different things. Cannot produce it physically without hydrogen because it contains hydrogen. So that's really the three biggest sectors that use hydrogen today.

But then hydrogen is produced from mostly steam methane reforming releasing that CEO two, and therefore it's not a solution for the carbonization, which is how hydrogen is being presented a lot today, but it's actually part of the problem that will itself need to be solved. So there's the uses today and then the potential for tomorrow. About how much hydrogen, you're saying, there's quite a bit of it.

How much hydrogen are we already using today? So if you sum up the hydrogen that we use as pure hydrogen nos H two and the hydrogen we use mixed in with with other gases like sing gas, for example, we're using about a hundred and twenty million tons of hydrogen per year. Now when I heard this number for the first time, I just thought, what what does that mean? HydroD and twenty million tons sounds like a lot. But but how do you even quantify? Is how do you

visualize it? And so I ransom calculations. In terms of the amount of energy that that this hydrogen contains, it's about half of the amount of energy that the US consumes every year in the form of natural gas. So it's a lot. And if you were to fit that hydrogen into a volume, it would be about one thousand, three hundred cubic kilometers, which is roughly the equivalent of about eleven dead seas. So it's a heck of a lot of hydrogen that we're already using today eleven dead

seas like that. So okay, so we've got hydrogen that we need to create. How about the naturally occurring hydrogen. I was at a conference last week or somebody at this sudden they said, Oh, there might be hydrogen that we don't actually have to produce and that we can just naturally extract. Is this actually the case is? There's

got a lot of potential. So if you serve around the internet, you will find that even you you will find even academic papers that talk about having discovered the accumulations of natural hydrogen so H two in its pure form. Some of them even claimed to be using that hydrogen in in some form or shape for energy. But they're very small examples for the moment. So as far as we can tell right now, most hydrogen on Earth is

locked into water or hydrocarbons. There might be some deposits of pure hydrogen, we just haven't found them to be large enough to really be economically viable. Of course, if we do, should that happen, then that could, you know, change the game quite quite significantly. But for the moment, it would appear that these are more kind of an anecdotal piece of evidence rather than a sign of something bigger. Okay, so we're gonna have to make it, and we're gonna

get back into that in a second. But let's let's talk a little bit about the potential of what it is that we want to use it for. So you brought up transport in the past, and then you're talking about chemical processes, but the real potential here has to do with some of the hard to abate sectors, and simply put, the hard to abate sectors and the ones where we are having a hard time figuring out how

to decarbonize them. Which are these There's a lot of them, to be honest, Uh, pretty much every sector is hard to abate when when you think about it, really we could talk about transport, especially planes and ships. Not getting

back the carbonized is going to be a challenge. We could talk about power generation if you're being a research which show that if you want to decarbonize your electricity grid with just solar, wind and batteries, then you can only get up to maybe carbon free, but then you kind of gets stuck and you need some other technology to get you all the way to carbon free, and hydrogen could potentially be that, but there are other candidates too.

Then you could be using hydrogen as a source of heat because it burns, and it burns very very hot, So you could use it for steel production, cement production, aluminum production, you could use it to heat buildings the ones that we that that we live in or working.

And then of course hydrogen itself already works, already exists as a feedstock for all those uh, sectors I've already talked about, like all of refining, like fertilizers, some plastics and these sectors well also need to be decarbonized with clean hydrogen. So I have a friend who is involved in developing hydrogen ferries at the moment, and I referenced to the very big ending of the show the Zeppelin, which is probably one of the most common things that

we know about. It's a very flammable gas. Was that one of the main barriers that is standing in the way of application in some of these industries or does it have much more to do with the economics. I would say it's mostly in most sectors, it's going to be the economics more than it is the flammability. But there certainly are some challenges when it comes to hydrogen safety. It's not like we're not using flammable gases right now.

Natural gas which you probably use at home to to heat your water and cook my porridge this morning, with very flammable gas itself, but not not as flammable or

you know, it just has different properties. Hydrogen as different properties from natural gas, just to put it simply, And there have been a couple of studies that try to compare the safety of hydrogen versus natural gas, and most of them will tell you that the hydrogen would tend to you know, holding every every other variable constant would tend to cause more injuries or more explosions than natural gas. So that's certainly something that will need to consider where

we're going to use this hydrogence. So if you're going to be using your home for heating and for cooking, of course taking this into account is going to be absolutely essential you're going to be using that safely. I mean, that makes a lot of sense. So may within these hard to abate sectors may end up lending itself better to some than others. But let's talk a little bit about the emissions or lack thereof, associated with hydrogen for the hard to abate sectors. So this question that needs

to be answered as it's currently produced. It's not a net zero option. What needs to happen in order for it to be made without emitting CEO two. So today I've already said it. Most hydrogen is produced from methane using steam methane reforming. Basically, methane is natural gas that releases quite a lot of c O two. So for every kilogram of hydrogen you produce, you get about nine kilograms of c O two. If you're producing this hydrogen the standard way, which is what's called gray hydrogen from

steam methane reforming. Now, the first thing you can do, and that's the thing that a lot of companies who happen to own these production facilities for gray hydrogen are thinking about, is you could put a CCS carbon capture and storage functionality on your on your gray hydrogen production, then you could try to capture and store that carbon. Now, you're unlikely to ever be able to capture of the carbon. We tend to assume that typically six of your emissions

would be captured. Now, there have been some discussions recently after a paper was published by academics from Cornell and Stanford Universities that the emissions of blue hydrogen with CCS might be a lot higher than we had originally thought, but regardless, they would probably blue hydrogen would probably result in in a less emissions than gray. But the whole point in a lot of countries these days is getting

down to net zero. So you know, blue hydrogen capturing of emissions emissions is still not gonna get you there. So then your other options would be to use electrolysis that's powered with electricity. That's uh that doesn't release any emissions, so of course that could be grain hydrogen produced from electrolysis with renewables. It could be hydrogen produced from electrolysis with nuclear power, for example, So those would be your

options for carbon free hygen. There are other technologies that could produce hydrogen. Okay, so you started to get into the Crayola box of colors on hydrogen. So let's just spell that out for everybody, given that those listening today want to know the basics of this industry. So green is the one that I'm most familiar with. Green is the renewable electricity produced hydrogen. But let's let's go around

the wheel, so turquoise is next. Yeah, well, I would take a step back first and just make it very clear that hydrogen itself is a colorless gas. So hydrogen has absolutely no color in the first place, and these colors are only used as a shorthand to identify how the hydrogen was produced. Some irony here in the color wheel for hydrogen. It's completely colorless, yet we want to

use colors to explain it exactly. So you're right, And the other colors that are out there include turquoise hydrogen, which is a no, not not a standard way to produce hydrogen today. It's quite uh, you know, it's quite a nascent, quite a new technology where basically it's methane pyrolysis. What you end up with is a hydrogen black carbon powder. So that's kind of interesting that you end up with carbon not as carbon dioxide, but as as a solid.

Then there's blue hydrogen, which we've already talked about, So that's hydrogen from fossil fuels, the same may we produce it today, but with carbon capture and storage. Okay. And then there's the gray, which you also referred to, which includes ccs. What else goes into the gray category? So great gray is hydrogen that is produced from fossil fuels waited out carbon capture and storage. That's it. It's just made made without any real abatement technology associated with it.

So that's probably the most polluting and that's how we produce most of our hydrogen today. And then we've moved up to well, red is the color often associated sometimes with nuclear so is that the color that's associated with hydrogen there? This is really where it starts getting a bit hazy. I wonder if hazy is a color too but it is is the color that B and e F likes to use to show nuclear in our reports. But typically people who talk about hygiene from nuclear would

use the color pink. Oh okay, so we need to we need to think about our colors slightly differently. And then what about yellow and purple? And I mean, we're got more colors to get through. There's all these different colors. So, for example, purple and orange are both sometimes used as colors to say that you're using you're producing hydrogen from biomass gasification, which technically could also be another way of producing CEO two free hydrogen if you've got a sustainable

source of biomass. No, I like, I'm saying, these colors they get hazier and hazier. You know, why does it have to be orange and purple? In are we are we burning orange? Peel and lavender? Or you know? Is it for every every different color of feats on the burning we're getting a different we're getting We're using a

different color. So you know, at B and EF we prefer to away from using colors and just say no hydrogen produced from bringewable electricity even better, hydrogen produced from solar PV electricity, which is obviously more accurate than brain hydrogen, So we prefer to use the you know, the more accurate term of nif. That does lead me slightly less confused when we do that, or when others in the industry call it out, because otherwise it feels a little

bit too like a you know, session with barbaras and painting. Okay, so here we go. Let's talk about the properties of hydrogen. So let's bring that down into simple parts. You mentioned that it's invisible, it's also odorless. What are the other properties of hydrogen that we should know about. There's a whole lot of them. It's not naturally occurring, so that's something we've already discussed. On Earth, you have to extract

it from from something. It's very light. So one of the things that you might that a lot of proponents of hydrogen might tell you, or that you know, if you read a random article online, you might might read that hydrogen is the most energy dense element in the universe or on Earth, which is pretty much true per kilogram. So if you if you take all the elements and you you look at the per kilogram, which one has the most energy, then hydrogen is definitely at the top.

But the challenge is that if you want to fit that kilogram into a reasonable amount of space, that's where you really run into problems. So hydrogen takes up about three to four times the space compared to natural gas to store the same amount of energy, so that really causes some challenges when it comes to storing and moving

hydrogen around in in the tank. The hydrogen is a low boiling point, so one of the ideas to shrink the volume of hydrogen is to liquefy it by cooling it down, the same way you do with natural gas to form l n G. But natural gas cools down that it becomes a liquid that minus one sixty two degrees hydrogen becomes a liquid that minus two hundred and fifty three degrees celsius. Wow, that is a level of

cold I am not even considered. Yeah, it turns out that the lowest temperature that you can physically achieve is only about twenty degrees celsius below that, so we're talking super extreme code and therefore it takes a lot of energy to actually reach that kind of temperature. Takes about the energy and the hydrogen itself just to liquefy it. So there's a lot of inefficiencies that are associated with hydrogen if you want to liquify it or if you

just want to produce hydrogen. Just a simple production of hydrogen, you need about fifty three two fifty seven kilovered hours of electricity to produce a kilogram of hydrogen, and that kilogram of hydrogen called obtains depending on how you count it, thirty three to thirty nine point four kilo with hours of energy, So you already end up with with with a pretty significant of thirty two percent loss at least

with just producing hydrogen from electricity. And then if you were to take this electricity dec I didn't make electricity from it again, which is the idea in some places, you have another fifty loss, So then you basically end up with just thirty percent of the energy that you started with back in the form of electricity. So that's

a pretty inefficient way of of of using energy. So you mentioned low efficiency, and we talked a little bit earlier about how combustible it is, and it's not the only combustible thing we use currently, so that's one thing. And then also you mentioned that it's reactive, so their

chemical reactions. But when you were explaining just now several of these parts of this gas that we're now kind of getting a better picture of what its properties are, you started going into various units, not something that you can also explain. So how do we given the it's gas or you can also be a liquid and also has an energy intensity that we need to consider? How do people talk about hydrogen when they talk about what

units are used to apply to it? Yeah, this is really tricky because you know, at BNF, we're at least most of us would be used to the units used for electricity, which typically would be kilo with hours, but hydrogen is a is a bit more complicated than that. So there are at least three ways in which you could talk about hydrogen and or express hydrogen in different units. So you could talk about hydrogen in terms of the weight.

So I talked about a kilogram of hydrogen, So that's one way in which you can talk about I mentioned be used one hundred seventeen million tons or one D twenty million tons per year of hydrogen, so that's kilograms tons units of weight. You could also talk about hydrogen and in terms of the volumes I mentioned those hundred and twenty million tons take up the volume roughly equivalent

to the two eleven dead seas. Now things get a bit more complicated there though, because hydrogen is a gas, and because it's a gas, how much volume it takes up actually differs based on the pressure and the temperature. So then you need to define if you're talking about hydrogen in terms of its volume, you need to define what pressure and temperature you're talking about at in order

to define the volume accurately. So then the volumetric units used for hydrogen would be not cubic meters but normal cubic meters, which would be one cubic meter of hydrogen at zero degrees celsius and one atmospheric pressure. If you want to be even confused even more, there's this other unit called standard cubic meter of hydrogen, which is cubic meter of hydrogen at one atmospheric pressure. That's the same,

but fifteen degrees celsius. So that means you've got a bit less hydrogen in that cubic meter because it's warmer. And then finally you could talk about hydrogen in terms of its energy content. So I talked about one kilogram of hydrogen containing thirty three kilo hours of energy if you're talking at the low heating value, just a whole a whole other kind of worms that probably not even open at this point, or thirty nine point four kilo

what hours at the high heating value. So so you can talk about that kilogram of hydrogen having an energy content. So then when you burn that energy, burn that hydrogen or process it's saying the fuel sell, then you can end up with with the energy from that that that hydrogen happens to contain. So there's these three different ways. Of course, energy units would be kiloed hours or the most basic units of course is the jewel for energy. Okay, there's a lot of different ways to measure this, so

basically look it up when you're when you're measuring hydrogen. Okay, So we're talking about differ friend properties that hydrogen has and also how we measure it, which I imagine inter relates very much with one of the challenges that you highlighted early on, which is transporting it, so not just storing it, transporting and given it takes up so much space, how is it currently transported? What are our what are our options? So there's different ways in which you can

transport hydrogen. They're pretty similar to the ways in which you can transport any other gas, like natural gas. So hydrogen today typically is transported either using trucks, So then you would need to compress it in that pressurized container. Assuming you've got the same pressure, same temperature, you need about three to four compressed hydrogen trucks compared to one truck with compressed natural gas to transport the same amount

of energy. So that means, of course transporting hydrogen costs more money than transporting natural gas. Very need of energy transported. The same applies if you were to transport hydend by ship, which is not done a lot today, unlike natural gas, which is transport is energy quite quite commonly. You tend to produce it and then ship it kind of within the same continent today, yes, and of course then you

can pipe it. You can send it via pipeline. That is by far the most efficient, the cheapest way if you have a large volume of hydrogen to transport. So they're about four thousand or five thousand kilometers of hydrogen pipelines around the world today, that's several orders of magnitude less than the natural gas pipeline network, So it's it's very, very very tiny compared to natural gas. Now we're talking

about these natural gas pipelines. One of the things that are in some of our forecasts is that the natural gas industry will need to decrease some if we're actually going to meet some of these emissions targets that many countries have outlined. Is it even useful and economic to think about the natural gas infrastructure as a potential solution for hydrogen? I think it depends on the and use of the hydrogen, so on the economic viability of hydrogen

in different sectors. If you ask companies that today transport natural gas, say in European natural gas transmission operators, especially if they happen to be in countries with net zero targets. So again, European natural gas operate pipeline operators, they are pretty keen on converting their pipelines to carry hydrogen. It can be done. It costs some money, but it costs less money than if you were to build a new

pipeline altogether. But of course the question is, once you're transporting hydrogen instead of natural gas, who's buying that hydrogen? So are you using that pipeline to to to its full extent, and that really depends on the economics of the final users. So if you're using it for industrial purposes or some of those sectors that I've already said are using hydrogen today already, then that might make sense.

But if you want to pipe that hydrogen to you know, every gasoline station in the world because you think that there's going to be a large demand for for hydrogen cars in the future, for hydrogen from cars in the future, then that might not works as well. So it really depends on the final use. Now for a very short break, stay with us. Let's get into the economics of hydrogen, and this is something that we have been really do

like to spend some time doing. We've got several hydrogen relevant pathways and our New Energy Outlook, and for the uninitiated, this is a report that goes out to the year where we look at the different possible scenarios for the future of the energy and the energy transition. So within this there are several variables that may impact the cost of hydrogen. You mentioned before that in some circumstances you're only you're getting much less energy out although you can

store it. Then what you put into it, Where does this become economically viable? And what are the different inputs, how they sit now and for the future. And I guess let's start. Let's start with renewable electricity, because that I think is the space where B and E. F maybe first got extremely interested in this space. Let's start with with gray hydrogen because that's the one that we're

using today the most. So gray hydrogen today, if you were to produce it from relatively cheap natural gas, would cost you around a dollar per kilograph. So that's really a benchmark that the low carbon or zero carbon hydrogen like hydrogen from renewables is going to have to undercut in order to outcompete this, uh, gray hydrogen that we

use today. So a key question that we keep asking ourselves is when will green hydrogen from renewable be able to outcompete hydrogen from fossil fuels with and without common capture and storage and telling the future is difficult, but I think you've probably got a good guess. Yeah, So there are really three factors in our view. I mean, there's there's an infinite amount of factors, but really three key factors that determine the cost of hydrogen from renewables.

The most important one of them is the cost of the renewable electricity that you're using to produce the hydrogen. Then there's the cost of the electrolyzer, which is that device that takes water and electricity and produces hydrogen oxygen. And then it's the capacity factor off that electrolyzer. So how many hours in a year is that electual electrolyzer operating, which of course does not have to be all the

time if you're powering it from renewab electricity. So starting with renewable electricity, those costs, of course, that's something that the ANF has been following since we started back into a thousand four. Costs of PB have fallen so much that by now it's the cheapest source of electricity if you are to build a new power plant in most of the world, and we expect these costs to continue

falling so roughly. For ever redoubling in the cumulative installed capacity of solar PV modules, we would expect about reduction in their cost. For onshore wind the story is very similar. The cost reduction curve is the experienced curve is not as steep as for solar, but the cost are set to continue falling, so renewable costs definitely coming down, and already pretty cheap electorallyzer costs. There's a really that's a

really interesting story. In China today electorallyzes cost about less than what they cost in Europe and in North America, which kind of shows us. Now, if you're producing alcohol and electualized, so there's a simplest technology for for hydrogen production. Forellectualizes at scale, you've got large customers and cheap production. You can already get this low. So it's scale that's making this so much cheaper. It's the scale. It's cheaper labor.

Of course in China. China, the same way that China today produces the cheapest alkaline electualizes also produces the cheapest solar channels. That's why it's producing eighty percent of all solar solar modules in the world. So those costs that we're seeing in China are not yet necessarily available in the rest of the world. But we're expecting these costs

to converge one way or another. Either we're going to see Chinese companies take over the world the same way they did with solar selling it to everyone yep, exactly, or we could see Western companies managing to reduce their costs enough to be able to compete with with Chinese companies. That we're starting to see signs of both of this

happening at the same time. So it's definitely we're still not not being not able to say which one of these possible scenarios might happen, but electrolyzing costs definitely coming down. Even those costs that we're seeing today in China still have room to fall even further. And then finally you've got those capacity factors, So how many percent of the year, how many hours in the year is that electrolyzer running, which of course most importantly depends on what is powering it.

So if you're if you've got a one hundred megawat electoralizer connected to a one hundred mega what solar p D plant, then that electrolyzing is going to be running in exactly the same hours as that pp plan, So it might be running twenty of the time if you're if you're say in Japan we're based today, could be a bit more. If you're in sunnier places, could be a bit less. If you're in less sunny places. But you could optimize this further. You could combine your solar

with wind. You could build a bigger solar factor of the solar generated. Then you've got your electroalizer, and then you're increasing your capacity factors. Of said it's an optimization exercise. The bigger your generated, the higher your capital expenses. But then the more you hyd the more hydrogen you also produce. So the question is, you know, what's the relative size of your power plants to your electrolyze, But that can definitely be optimized. So then you could breach capacity factors

upwards of safe fifty percent for renewable hydrogen. And is this in the near term or is this sort of fifteen years in the future. You think that these technologies and cost clients could be optimized. Well, so this optimization

it's already being done. A lot of the projects that are being announced today there already planning to use solar and wind, which conveniently, in many locations, wind tends to blow more at night than during the day, So then when your solar plant is shut down because it's dark,

your wind plant is generating a bit more. And then some are planning to add batteries as well, and of course, the cost of all of this is coming coming down, which means that oversizing your renewables facility compared to your electoralizer is going to become become the standard. In in our opinion, it's already happening. When we're looking at the color wheel of hydrogen and we're thinking about what the

future cost of clients are. We've talked about the gray hydrogen or the without any sort of carbon debatement, and then we've talked about the green and the renewable energy focused hydrogen. What some of the potential is there? What about other areas? Are there cost declients for nuclear and this pink red, whatever color you want to call it, for some of the other areas that are given. There's so many different ways to make hydrogen, so that's something

that we're looking at right now. Nuclear hydrogen produced from nuclear would have the advantage of running pretty much constantly, so you're electoralizer would be running, you know, if not one of the time, then it would have very little downtime compared to if it's running on on renewables. Because nuclear powers producing constantly, but nuclear power is pretty expensive, so in our view, and we're just writing a report on this, so I can't really go into too much

depth until we've published it. For for hydrogen from fossil fuels, the most important factor is the cost of the fossil fuel. So if fossil fuels get really really cheap for some reason, then hydrogen from fossil fuels with or without ccs could get cheaper. But of course more likely than not, we're like, we're going to see some form of carbon pricing, etcetera. So if anything, hygroen from fossil fuels is probably going

to get more expensive rather than cheaper over time. So when you when you sum it all up, we've got hydrogen from renewables, which today is by far more expensive than producing hagron from fossil fuels. That's why we're producing it from fossil fuels today. But by twenty thirty, in most countries that we've modeled, or really all the countries that we've modeled, it will we think it will be possible to produce hasian from renewables cheaper than hydrogen from

fossil fuels with common capture and storage. And soon after that, and certainly before we think that one dollar per kilogram, which it costs today in the cheapest, cheapest countries, cheapest places to produce gray hydrogen, we'll we'll see green hydrogen cheaper than that in a lot of a lot of countries. So every country of Model twenty countries and all of them, it will be cheaper to produce hydron from renewable stent

from fossil fuels. So, Martin, you mentioned carbon prices, and we've just discussed the economics of the production side of things. But within the carbon prices space that one and what other mechanimsidence may exist over on the policymaker side to try and accelerate the adoption of hydrogen should we believe that this is an important part of decarbonization for the hard to abad sectors. So carbon prices are absolutely essential. Without carbon pricing, but we're not going to see hydrogen

demand a cup in most places. And there aren't many countries today with very high carbon prices or many markets the the EU, the UK, and the u e t S. We we've seen some record prices this year, you know, fifty sixty dollars per ton, potentially rising even further by twenty thirty. They could they could get above a hundred

hundred dollars per ton in Canada. They could get above a hundred dollars per ton by twenty thirty, assuming that the current government stays in power as an election in Canada. I don't know if it's going to happen before or after this UH this UH podcast is out, but it will determine the economics of hydrogen as well, because without the carbon price of at least I would say a hundred dollars per ton c O two, it's unlikely that we would see hydrogen from renewables or any hydrogen being

competitive against existing fossil fuels. That's why we're using fossil fuels today in most of these sectors, and that's why they're had to abate, so carbon prices will be essential, and there aren't that many markets today that are on track to have carbon prices high enough for hydrogen to be competitive. Okay, So Martin, you identify seven signposts that we should be monitoring as we are looking at hydrogen development and the potential that it could have in the future.

And there are three that you specifically called out as areas where we have made some progress. So why don't we go into those in more details. So the three that I've pulled out are not necessarily the most critical ones, so they're the ones that we've seen progress on. So when we published our first market outlook on hydrogen in March,

we concluded that this time is different for hydrogen. So you know, I talked at the beginning about this, these different waves throughout history of of use, of interest in using hydrogen for sake cars or for its energy, and how they never really deialized, and we concluded in this time is different, but we're not yet there, and to get there, we would need these seven signposts that we would need to achieve these seven signposts in order for

to maximize the use of hydrogen. And what really surprised us is that since March when we published that Market outlook, three of these signposts have seen significant progress. And the first one are net zero climate targets. So by now, are as of June of this year, seventy of global emissions were covered by some form of net zero either legislative target or at least under official discussions to legislate

some net zero target. So that's that's a lot of a lot of emissions that are already under under a netzero target. Now, why isn't it real important as opposed to say reduction which I'm based out of Japan. Japan had an eighty percent emissions reduction target before it announced the net zero target at the end of last year.

Because we mentioned at the beginning, or you mentioned in the beginning, hydrogen is really could really have potential in those hard to abate sectors, the hardest to abate ones. So if you reduce your emissions by eight then guests which once you would not be touching it would be exactly those that have the highest potential for hydrogen. So if you're moving from eight percent reduction to a hundred percent reduction and emissions, that's where really the potential for

hydrogen is multiplied quite quite significant. And as we head into Cup in November in Glasgow, this really does take center stage because, as you pointed out, an increasing number of countries and I don't think we've probably seen the finish line on this. We definitely wouldn't get to the goals of the IPCC has if we've reached the finish line. So let's um, let's see what happens. Okay, So then the other signs of life that you've seen here. So another one we said is that countries would need to

set up We called it targets with investment mechanisms. Really what we meant by that was a country with a clear plan for what it's going to use hydrogen four and why, and enough money to subsidize that hydrogen so that it can eventually be be competitive or or enough enough policies to to make it competitive. And now we have over forty countries that have a hydrogen strategy or roadmap,

or you know, they call it differently. India calls it the Hydrogen National Mission, and the US calls it the Hydrogen Earth Shot, but you know, we call it hydrogen strategies.

There's more than forty countries now that either already have one or are developing one, and some of them are putting some pretty significant funds too to back up there were It's not not all of them, but now we're seeing the UK recently having announced strategy with some pretty significant funding, the some some European countries of pretty strong funding.

And if the bill that's being discussed in the US right now passes, then the US could have some pretty strong incentives for the production of clean hydrogen if if that passes, and then the last one you've seen signs of life is industrial decarbonization incentives are being put in place.

So why industrial decorganization incentives because a lot of the sectors where we expect hydrogen to have to to be economical in the future with carbon pricing, of course, would be industrial sectors including methanol, ammonia and steel production, aluminum production, cement production for example. So if you have policies to decarbonize the sectors and those are the hard to abate sectors, then you're more likely to see high use of hydrogen

here they are again hard to abate sectors. That yeah, there you go, the how to abate sectors and these are that That's why industrial policies, industrial decomganization policies really we could say dec organization policies for how to abate sacties. It's it's pretty much one and the same thing really,

But right now there isn't all that much progress. So we did a study being AFTED a study in in February of this year where we ranked the G twenty countries on a whole different number of indicators, including progress on industrial decomganization policies and none of those countries, not no G twenty countries called scored the best score that

we've had. So so that's the strong score where you know they would have more than sixty six percent of of of the um of the milestones that we that we think they should hit that they have that, so no country has actually achieved that. By the UK and Germany are two countries that got very close and they've been strengthening their policies to the comgonized industry, so that's

where we might see a lot of progress. And that's exactly also the kind of countries where we're seeing the most projects being announced on the industrial side to to use to use, to use hydrogen industry. So there is a correlation between carbon pricing, between net zero targets, between industrial recoganization policies, between funding and where projects are actually being announced today. So let's talk more about the future

and where we see hydrogen going. We've we've figured out what well, no, we haven't figured it out, but we have an idea of how it's currently produced, how it could be produced, where some of the cost of clients are coming from. What is the potential demand to be using this in the future, and where do you see as a hydrogen analyst, where do you see this industry going? How much hydrogen we you is really going to depend on two factors, and that's whether and how we decide

to de carbonized. So first, starting with the question of whether or the extent to which we decided to de carbonize, I've already talked about if we do reach net zero, then we're more likely to use more hydrogen than if we don't reach net zero. So net zero is absolutely essential. So now let's say that if we assume that that we do reach net zero, then there's still different ways in which we could reach reach that goal. It could be with lots of renewab electricity and the h and

the green hydrogen. It could be with lots of nuclear electricity. You know, if if the world decides to build a lot of nuclear No, right now, it doesn't seem like a likely option, but it might happen. Or it could be with a lot of ccs for example, carbon capture and storage while continuing to use existing fossil fuels, or a combination of these scenarios. So in our work in the New Energy Outlook twenty one, which we published earlier

in the year. We have these three scenarios for hydrogen use in the future, and in the most optimistic scenario for hydrogen with this one that we call the green scenario, we use about eleven times as much hydrogen in twenty fifty as we use today. So I talked about eleven dead seas full of hydrogen or they being used today, we'd be using one twenty one dead seas full of hydrogen. By We're gonna have to pick a different ocean I think, or difference. Yeah, maybe maybe one of the Great Lakes

would would fit better for that. So so definitely a lot of hydrogen we could be using if that's the method in which we choose to recognized. Now, how do we choose to recognized? It's a really really important, uh and good question because hydrogen is not only going to have to outcompete fossil fuels, it's also going to have to outcompete all the other technologies that could be there

to help us decarbonize. So it's really going to be very sector dependent in my in my view, so for example, in UM some of the sectors, hydrogen is going to be pretty much unavoidable. We're not going to be able to go on without using green hydrogen in those sectors, and those are the ones that we that where hydrogen is being used today, right, So that's ammonia production, methanol production,

for example. There are others where the potential for hygen is pretty high because the carbon price needed is pretty load for it to be competitive. Plus all the other options are either than early stage or more expensive today. So that's things like steel production, aluminum production. And then you've got the other end of the spectrum where be Any keeps saying this, uh, but we really don't see passenger cars running on hydrogen be in something very big

going forward. Talked about the idea of using hygroen for cars being there since at least nineteen seventies. By now we've got thirty thousand cars that run on hydrogen globally. That's nothing compared that to twelve million cars that run on batteries. And those cars that run on batteries are much cheaper both the fuel because of course, if the fuel is produced from electricity using electricity directly, whereas if you're producing hydrogen from electricity, you've got all those losses

that I talked about earlier. So the fuel and the car are cheaper, and you've got more charging points, and you've got refueling stations as about six d refueling stations around the world compared to millions of charging points, So it's a very very different UH situation. So there are sectors where we expect hydrogen to be high potential unavoidable, other sectors where it's really not going to be competitive

against other options. But overall, we could potentially be seeing anywhere between a doubling of hydrogen used from today if we UH in the low scenario, to not that eleven times growth in that very high scenario more likely where somewhere we gonna end up somewhere in the middle. So I'm unlikely to get picked up in my hydrogen fueled

uber in the future. UM, but I should keep a very close eye on carbon prices because that could change the game for many other industries that could utilize hydrogen. Is that it is that a good assertion? Yes, there might be some anecdotal evidence, you know, anecdotal examples where you might get even picked up by a hydrogen field uber. You know some cities are trying that, but more more likely than not, it's going to be in about battery

electric one. So so that's kind of the point that you know, battery electric is just going to see a lot much larger sales than than hyrogen. But yes, I would agree with your with your assessment. Okay, we will see. So Martin, it was really great to have you today. I'm really glad that we got to take a look backward towards history. We got to talk about the color wheel and hopefully makes some sense of that for people, how we make hydrogen in the properties that it has,

and then also looking towards the future of hydrogen. So for those listening, keep watching that carbon price and Martin, hopefully we will have you back on again soon for some more media detail on what is happening in the hydrogen market. Thank you Data. Today's episode of Switched On was edited by Rex Warner the Grace Stoke Media. Bloomberginna is a service provided by Bloomberg Finance LP and its affiliate.

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