Europe Reassesses Hydrogen's Role in Economic Policy

The Policy Debate

The European hydrogen reassessment is not a simple binary between support and abandonment. Instead, it is a nuanced debate about scope, timing, and priorities that cuts across multiple policy domains.

The Industrial Policy Angle

For European industrial policy, hydrogen is intertwined with the continent's ambitions to maintain a world-class manufacturing base while meeting its climate targets. The EU's major industrial economies — Germany, France, the Netherlands, and Italy — all have significant heavy industry sectors that cannot be easily electrified. Steel, chemicals, glass, and ceramics production all involve processes where hydrogen could play a decisive role.

Scaling back hydrogen support in these sectors would effectively mean accepting either continued fossil fuel use or the relocation of heavy industry to regions with cheaper energy and less stringent environmental regulation. Neither outcome is acceptable to European policymakers, which is why industrial hydrogen remains a core priority even as other applications are deprioritized.

The Energy Security Dimension

The Russian invasion of Ukraine in 2022 transformed European energy policy overnight, and hydrogen was a beneficiary of the subsequent push for energy independence. The REPowerEU plan envisioned hydrogen as a partial replacement for Russian natural gas, with massive imports from North Africa, the Middle East, and other regions diversifying Europe's energy supply.

However, the urgency of the energy security crisis has since eased. European gas storage facilities are full, LNG import capacity has been massively expanded, and electricity from renewables continues to grow. The immediate pressure to find alternatives to Russian gas has diminished, and with it some of the political urgency behind hydrogen deployment.

The Climate Policy Perspective

From a pure climate perspective, the question is not whether hydrogen can reduce emissions — it can — but whether it represents the most cost-effective use of limited renewable energy resources. Every megawatt-hour of renewable electricity used to produce hydrogen is a megawatt-hour that could have been used to directly power an electric vehicle, a heat pump, or an industrial process through electrification.

Studies by the European Commission's own Joint Research Centre and by independent think tanks including the Regulatory Assistance Project and Agora Energiewende have consistently found that direct electrification delivers two to five times more emissions reduction per unit of renewable energy than the hydrogen pathway, in applications where both options are technically feasible.

This does not mean hydrogen has no role, but it does mean that policy should direct hydrogen toward applications where electrification is not feasible, rather than competing with electrification in sectors where both are options.

What a Recalibrated European Hydrogen Strategy Looks Like

The emerging consensus among European policymakers and industry leaders points toward a more focused hydrogen strategy with several key elements:

• Priority sectors: Concentrating hydrogen support on steel, chemicals, refining, maritime shipping, and aviation — sectors with few or no electrification alternatives
• Realistic targets: Revising the 2030 electrolyzer targets downward to reflect actual deployment trajectories, while setting more ambitious but achievable targets for 2035 and 2040
• Import infrastructure: Accelerating the development of hydrogen import terminals and pipelines, acknowledging that Europe will be a net hydrogen importer
• Simplified regulation: Reforming the RFNBO framework to reduce compliance costs and remove barriers to investment, while maintaining environmental integrity
• Technology neutrality: Allowing blue hydrogen (produced from natural gas with carbon capture) to play a transitional role while green hydrogen scales up, a position that remains controversial but is gaining traction

The Geopolitical Stakes

Europe's hydrogen reassessment does not occur in a vacuum. The United States, through the Inflation Reduction Act, is offering enormous subsidies for hydrogen production — up to $3 per kilogram for green hydrogen — that threaten to attract investment away from Europe. China is building electrolyzer manufacturing capacity at a scale that dwarfs European efforts. And countries across the Middle East, Africa, and Latin America are positioning themselves as future hydrogen exporters.

If Europe retreats too far from its hydrogen ambitions, it risks being left behind in what could become one of the century's most important energy markets. If it pushes forward without recalibrating, it risks wasting tens of billions of euros on applications where hydrogen is not the best solution.

Finding the Right Balance

The challenge for European policymakers is finding the sweet spot between ambition and realism. The hydrogen economy is coming — the only questions are how big it will be, how fast it will grow, and who will lead it. Europe has the industrial base, the engineering expertise, and the policy framework to be a leader. What it needs now is the strategic clarity to invest where hydrogen truly matters and the courage to acknowledge where it does not.

The next 18 months of policy development in Brussels, Berlin, Paris, and The Hague will be decisive. The choices made during this period will determine whether Europe's hydrogen investments deliver transformative decarbonization or become a cautionary tale about the dangers of technological hype. The stakes, for both the climate and the economy, could hardly be higher.

This article is based on reporting by Electrek. Read the original article.