Blue hydrogen can be produced for as little as $1/kg in the US, but this is still twice the cost of grey hydrogen, meaning government intervention will be vital to spur production of the cleaner fuel, according to various speakers at conferences this week.

Blue hydrogen will always cost more to produce than grey hydrogen because of the additional carbon capture and storage processes required, Richard Mew, director at consultancy Koyos Resources, told the First Element conference.

“The general consensus is that you need a cost of producing hydrogen at $1.5/kg in order for significant carbon abatement to occur,” he said, noting this was possible only in jurisdictions with low gas prices.

$1/kg – Approximated cost of US blue hydrogen production

“With blue hydrogen that is almost achievable in the US and possibly the Middle East—but in Europe, Russia and China there will need to be [government intervention] brought into the equation.”

There are two key forms of intervention: grants and government-backed loans as incentives for blue hydrogen production; and financial penalties, such as carbon pricing, as disincentives for more carbon-intensive hydrogen production. 

“Quite often it is a mixture of the two,” said Mew. “With the renewable obligations certificates (ROCs) that were given to green producers of electricity they could sell them on to more polluting producers.”

ROCs for hydrogen have been promoted as a desired policy incentive by various reports from industry-aligned groups.

Currently, the differential between green and blue hydrogen costs is even greater than that for blue and grey, according to Al Cook, executive vice president for exploration and production at Norwegian energy company Equinor, speaking at the Offshore Europe conference.

“Green hydrogen is probably two to three times more expensive than blue, so in terms of like-for-like we see blue hydrogen as having quite a large advantage at the moment,” he said.

Equinor is nevertheless pursuing green hydrogen projects—most notably the NortH2 project in the Netherlands—alongside its blue hydrogen developments in the UK, Germany and the US because it sees green hydrogen as the ultimate fuel for the hydrogen economy.

“With blue hydrogen you can open up the pipelines, the consumers, the users of hydrogen as a fuel, and then as the prices of green hydrogen come down so green hydrogen can replace it,” he said.

Switching incentives

The International Renewable Energy Agency believes the switch from blue to green could happen as soon as 2030 with the right government incentives, according to deputy director Roland Roesch.

“The general consensus is that you need a cost of producing hydrogen at $1.5/kg in order for significant carbon abatement to occur” Mew, Koyos Resources

“Electrolyser costs have fallen 60pc since 2010, and our work finds that they can become 40pc cheaper in the short term and 80pc cheaper in the long term, with the deployment foreseen in national strategies bringing costs down below $2/kg,” he said.

This would still be more than the production costs of blue hydrogen in some jurisdictions, but if countries were to introduce further incentives—such as contracts for difference—then that cost gap could be bridged.

The EU’s hydrogen strategy has focused largely on green hydrogen, but the US and UK are putting a greater focus on near-term blue hydrogen development.

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Author: Tom Young