The move to a sustainable net-zero economy has become top of the agenda for both politicians and industry amidst a backdrop of a rapidly increasing focus on the impact of climate change from governments, regulators, investors and the general public.

Good progress has been made in decarbonising power generation; however there has been limited success in reducing emissions from the heating, transport and industrial sectors. Although electrification (using low carbon technologies) was expected to provide substantial carbon reduction in these sectors, it is increasingly clear that to meet net-zero targets, molecules as well as electrons will need to be decarbonised. As a result, industry and financiers must start embracing new and disruptive technologies to support this transition to a net zero economy.

Moving to a net-zero economy will require a fundamental change to our energy systems and hydrogen has been feted as the key technological solution which could provide a carbon-free source of energy across sectors. However, moving from an exciting idea to large scale deployment of the level required, in the timescale required, will require the support not just of government and industry but also of commercial financing. This report examines the potential applications of hydrogen as an energy source and the economic models which would support commercial bank financing.

Hydrogen Production

Hydrogen can be produced using a number of methods which are typically identified using the following colours.

Today, 96% of all hydrogen production is classified as grey, with most of the grey hydrogen produced used for the manufacture of ammonia, for use in oil refineries and other industrial processes. If hydrogen is to support the transition to, and play a key part in, the net zero carbon economy, the production and use of grey hydrogen must be phased out and replaced with hydrogen from more sustainable production methods. Although the natural end point in a zero carbon economy is to transition fully to use of green hydrogen, to drive the transition away from grey hydrogen and support the roll-out of hydrogen as a key energy source, making use of blue (or even brown) hydrogen during a transition period will be required to roll out the relevant infrastructure at sufficient scale.

Production Methods
Green Produced using electrolysis to split hydrogen from the oxygen in water. Electrolysis must be powered by renewables for this to be considered 'green'.
Blue Hydrogen can be extracted from natural gas using methods such as steam methane reformation (SMR). The waste CO2 is dealt with using carbon capture storage technology (CCS), meaning the overall process does not release CO2 into the atmosphere.
Brown A variation of blue hydrogen is brown hydrogen. The differentiation comes in the primary inputs as hydrogen is stripped out of more carbon dense fossil fuels such as lignite coal. Coal gasification coupled with CCUS is one example.
Grey Hydrogen is derived from hydrocarbons via the same methods as blue or brown hydrogen, but without the use of CCS. No measures are taken to prevent carbon dioxide being released directly into the atmosphere.

Applications for Hydrogen in a net-zero economy

For a further analysis of hydrogen's application in different sectors, please follow these links or download the report (PDF):

Power | Transport | Gas Networks and Heating

Our Outlook

Hydrogen has huge potential to support significant decarbonisation across key carbon emitting sectors. This potential has led to great excitement in the finance world and industry as all parties are under increasing pressure to support the transition to a low carbon world. However, there are few financial models at this stage that would support commercial bank financing, and government support across all sectors is absolutely crucial for the low carbon hydrogen sector to really take off.

Having said this, multiple governments globally are beginning to provide incentives or financial support for hydrogen projects, either through grants for prototype projects or research. It is increasingly likely in some countries that additional government support may be available in some technology areas, such as the potential for UK government support for CCUS technology. Commercial bank financing, once achievable, will certainly be the key to the large-scale roll out of hydrogen technology required, as can be evidenced by the success of the renewables industry globally. At MUFG we are following the hydrogen market closely as we believe that it will become an important element of the energy mix globally.