China must ramp up its use of clean hydrogen exponentially to about 16pc of its final energy demand to meet its 2060 net-zero goal, according to a scenario set out this week by European oil major Shell.

Hydrogen demand scales up from negligible levels today to more than 17EJ/yr by 2060—equal to 580mn t of coal equivalent—under Shell’s scenario. Demand reaches nearly 5EJ/yr by 2030, accounting for about 5pc of the energy system, as China reaches peak carbon emissions.

Shell’s 2060 net-zero scenario appears more bullish on China’s deployment of hydrogen than an IEA report in September last year, which put the fuel’s share of final energy demand in China at 6pc in 2060.

Hydrogen produced by renewables and nuclear dominate the sector, with an 85pc share, pushing up electricity demand by 25pc by 2060, according to Shell’s scenario.

“Hydrogen molecules, in particular, will play an important role in meeting the energy needs of these hard-to-electrify sectors” Shell

“This scale of deployment by 2060 will mean significant investment is needed to commercialise green hydrogen over the next two decades,” Shell says.

The major estimates that achieving carbon-neutrality by 2060 will require around $12.5tn of investment in infrastructure between 2020 and 2060, with more than half being required over the next two decades.

Recognising the importance of hydrogen, both as a low-carbon energy source and as a global growth industry, China’s 14th Five-Year Plan (2021-25) names hydrogen as one of six industries of the future, Shell notes.

Hydrogen will be primarily used in heavy industry, agricultural machinery, heavy-duty road transport, short-haul aviation and shipping, according to the scenario.  

“Hydrogen molecules, in particular, will play an important role in meeting the energy needs of these hard-to-electrify sectors,” Shell says.

Biofuels

Shell is less bullish on the outlook for biofuels. Demand increases from relatively modest levels today to almost 5EJ in 2040. But it peaks in 2045 and then declines as increased electrification reduces the need for blending biofuels with liquid fossil fuels in passenger road transport, and as hydrogen use in heavy-duty road and rail transport increases.

By 2060, biofuel demand moderates to less than 3EJ/yr, with demand increasingly met by advanced biofuels, minimising the impact on food production and the wider environment, Shell says.

Rising carbon price

Rising carbon prices will be crucial to the reallocation of capital from fossil fuels to clean technologies. Under Shell’s scenario, the carbon price—including implicit regulatory costs— rises to RMB300/t ($47/t) by 2030 and RMB1,300/t by 2060.

China’s national emissions trading scheme, which launched in July last year, is focused on the power sector and accounts for more than 4bn t CO₂. As the largest emissions trading system in the world, it covers around 40pc of China’s carbon emissions.

---

Author: Stuart Penson