Bi-weekly Newsletter

20 November 2023

Bi-weekly Newsletter

20 November 2023

Beyond the H2ype: why the World Bank should be cautious on green hydrogen

It is time for cautious and well-governed advances in green hydrogen financing from the World Bank and other multilateral funders, not profligate acceleration based on unfounded hype.

Alison Doig Maia Seeger November 20 2023

Green hydrogen is being promoted as a fuel that will turn our industry, transport and electricity green. Several Latin American, African and Asian countries have been identified as potential low-cost producers of this burgeoning export commodity and its derivatives such as ammonia. In December, COP28 president Sultan Al Jaber will ask governments to support a target to double hydrogen production by 2030.

The World Bank is a cheerleader for green hydrogen, responding to market predictions of huge expansions and claiming that hydrogen will account for 10% of total energy consumption by 2050. The World Bank Hydrogen for Development (H4D) Partnership is helping to catalyse financing for investments in countries such as Chile, South Africa, Namibia and India to produce cheap hydrogen for the world market – but green hydrogen seems just a little too good to be true.

There are four reasons for the World Bank and other multilateral banks to be cautious and considered in their green hydrogen strategies.

First, green hydrogen exports are a distraction from delivering national energy transitions and achieving the 2030 Sustainable Development Goal of universal energy access. With World Bank funding, Chile is gearing up to use vast quantities of renewable electricity to produce and export green hydrogen. However, while 54% of Chile’s electricity generation is already renewable, its total national energy consumption, including transport and industry, is still 70% reliant on fossil fuels. Would the money not be better spent on Chile’s own renewable energy ambitions? Similarly, Namibia’s renewable electricity has been earmarked for green hydrogen exports to Europe, with multilateral banks looking to provide finance, but in Namibia, 45% of the population have no access to electricity at all.

Second, green hydrogen production could damage local communities and nature in many countries. There is an assumption that many developing countries have vast quantities of land to site the large renewable generation capacity needed to produce green hydrogen. However, in many cases this could lead to the displacement of local communities whose land is being designated for solar or wind farms to power hydrogen production. Additionally, a significant quantity of fresh water is consumed by electrolysis to produce hydrogen, which may compete with local water needs. In areas where freshwater is scarce, large desalination plants could be needed, with a huge potential impact on coastal ecosystems when salt brine is returned to the sea.

By 2030, Chile plans to be the world’s leading producer of green hydrogen, with massive developments foreseen in the Antofagasta and Magallanes, both ecologically sensitive regions with traditional populations. A World Bank study categorised hydrogen projects in Chile as having substantial environmental and social risks. Despite these concerns, the Chilean Government has signed an agreement with the World Bank to access a credit line of up to $350m (310.51bn pesos) for green hydrogen development.

Third, a lot of the current market predictions are based on highly speculative assumptions and uncertain technological innovations. There is an assumption that investment now will bring down the cost of green hydrogen production to levels competitive with traditional ‘grey’ hydrogen (made from natural gas) over the next decade, and that the developing world will export ‘cheap’ hydrogen and ammonia.

However, IRENA predicts that by 2050 three quarters of green hydrogen will be domestically produced and consumed, and only a quarter will be exported, mostly by pipeline. The EU has regulations in place aiming for green hydrogen to displace about one-third of grey hydrogen in industry by 2030. There is a good chance this increase in demand can largely be met with domestic supply from countries such as Finland and Spain. In the US, the Inflation Reduction Act plans to use tax credits to advance domestic production of clean hydrogen.

The International Energy Agency says that the contribution of hydrogen to net zero in the coming decades will be significantly lower than the contribution of renewable power, direct electrification and behavioural change. Hydrogen is not efficient or cost effective for many proposed applications such as cars or home heating, while other applications – such as in aviation or shipping – are still at the research and development or pilot stage. There are technical uncertainties that will limit hydrogen consumption this decade.

When considering any green hydrogen investment in the Global South, the World Bank and other multilateral banks need to consider the risk of stranded assets and public debt if there is no guaranteed offtaker, or if the cost of green hydrogen production and transport is not as cheap as market enthusiasts anticipate.

Fourth and finally, the loudest promoter of hydrogen is the fossil fuel industry and countries with vested interests in keeping their fossil fuel infrastructure active. Exxonmobil, Shell and BP have spent millions of dollars in recent years lobbying for pro-hydrogen legislation in the EU and US.

Japan is an active promoter of using ammonia derived from low-carbon hydrogen to co-fire up to 20% in coal power plants. The Asian International Infrastructure Bank is funding the construction of the Unique Meghnaghat gas plant in Bangladesh, saying it is aligned with the Paris Agreement because it is “hydrogen ready”, but without clarity on when, how or at what cost the transition to hydrogen might happen.

Without a doubt, green hydrogen has a role in the global energy transition, and markets will emerge for some industrial applications and potentially for some heavy transport. Where there is good evidence for green hydrogen making a real difference it should be supported, while ensuring it meets high environmental, human rights and social standards.

Instead of promoting a profligate expansion of green hydrogen based on market speculation, the World Bank should first focus its public finance on helping countries meet their own energy needs, through national and local renewable energy transitions.

Editor’s note: Dr Alison Doig is senior advisor to the non-profit Recourse, specialising in policy and advocacy at the intersection of energy, the environment and international development. Her work has included advocating for climate justice at the UNFCCC climate negotiations, including at COP21 in Paris, and a shifting multilateral investment towards low-carbon energy for all. Maia Seeger is the executive director at Sustentarse, a Chilean-based NGO focused on promoting human rights in development and supporting local communities affected by public development banks. She specialises in sustainable development, prevention of socio-environmental conflicts and accountability. She has more than 20 years of experience in different Latin American countries. 

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