Growing the Global Hydrogen Market: Interview with Shearman & Sterling

Global law firm Shearman & Sterling LLP believes that more incentives are needed to develop a strong business case for hydrogen made from low or zero carbon energy sources. OPIS interviewed Mona Dajani, Shearman & Sterling’s global head of renewables, hydrogen and ammonia, and global co-head of energy and infrastructure, on the state of current regulations and the need for greater collaboration in the industry.

OPIS: How are current regulations such as the U.S. Inflation Reduction Act (IRA) and the European Net Zero Industry Act (NZIA) shaping the global hydrogen market?

Mona DajaniMona Dajani: The IRA is a real game changer; it promises a $370 billion in tax credits for clean energy projects and this adds another source of capital to sponsor these projects. We see that foreign companies are coming to the U.S. to build projects and plants, creating new jobs.

In the six months since the IRA came into law, almost $90 billion has been invested and more than 100,000 clean energy jobs created, data from the World Economic Forum show. The Net Zero Industry Act aims to make Europe a leader in decarbonization and clean energy technology development. Whether Europe is successful or not in competing with the U.S., this is already a win for the energy transition process. Competition has always been a driver of innovation, which is exactly what the world needs right now.

The Net Zero Industry Act is not as robust as the IRA, but it is a step in the right direction and it will stop some of the bleeding to the U.S.

OPIS: What is needed for the hydrogen market to take off?

Dajani: Hydrogen and ammonia have been around for more than 80 years, but there have never been incentives to make a clear business case. We see that companies want to lower their emissions; they wish to have a higher ranking in the Environmental-Social-Governance (ESG) ratings and to be able to attract public and private investors. Better ESG ratings mean getting more capital with better financial terms.

Today we still see incentives for fossil fuel industries: without incentives such as taxes, credits and legislation, we cannot make the business case for clean hydrogen.

OPIS: What is the current situation on certification schemes for the hydrogen sector?

Dajani: We noticed that there are countries that offer great incentives for hydrogen and they are attracting a lot of new projects. There is no universal accepted certification scheme on hydrogen, so we will probably see certifications by industry, such as steel, aviation and shipping. Global certification will not happen any time soon.

OPIS: When will we see potential trade?

Dajani: Big companies in different industries are looking at production providers who offer security of supply. We see a lot of projects based on close partnerships between hydrogen producers and off-takers. The oil and gas companies are other important players for hydrogen trade, as they have existing infrastructure and a skilled workforce; they will be the biggest beneficiaries.

The cost price aspect is another important driver for trading. The $370 billion IRA budget will play an active role in clean technology development over the next ten years. We expect that by 2030, the different technologies will be so advanced that the costs will come down. This will affect globally the bankability and business cases for investors, and will allow new initiatives to come online.

Tags: Renewables