Green Hydrogen: From Additionality to Sustainability

In early September, the European Parliament moved to scrap a key provision in the EU’s approach to defining green (renewable) hydrogen. Some industry representatives celebrated. Others were dismayed and a number of NGOs dismissed the move as greenwashing. Further discussions and negotiations are planned. In the meantime, the regulatory outlook is uncertain, undermining Europe’s ambitious targets for green hydrogen production and imports.

The controversy focuses on renewable electricity “additionality”, an issue that will surely receive greater attention in other regions as the green hydrogen industry grows. In this article we explain the principle of additionality and its relevance to the green hydrogen industry. We then explain how the Green Hydrogen Organisation (GH2) is addressing additionality through the Green Hydrogen Standard launched in May. A new approach to additionality is needed, and the Standard offers a way forward. It emphasizes the industry’s responsibility to demonstrate that their projects conform to the highest standards on emissions, ESG performance and the sustainable development goals. It shifts the focus from a narrow debate on additionality to a wider consideration of sustainability and development, leveraging broad based stakeholder consultation and engagement.

What is additionality and why does it matter?

Green hydrogen is hydrogen produced through the electrolysis of water with 100% or near 100% renewable energy with close to zero greenhouse gas emissions. Some green hydrogen projects are “off-grid”, i.e., they have their own dedicated supply of renewable electricity. However, a substantial proportion of green hydrogen projects are “on-grid”, adding to the demand for electricity, often in cases where renewable energy supplies are limited. The concern is that the additional demand from green hydrogen production will reduce renewable energy consumption in other sectors (which can use renewable energy more efficiently) delaying the overall greening of the grid and raising prices for consumers, whilst driving up total emissions. “Additionality” for grid-connected green hydrogen means production is accompanied by an additional source of renewable energy capacity, and the degree to which this additional capacity needs to be matched in space (geographical correlation) and time (temporal correlation).

Civil society organisations, especially in Europe, have been particularly active in campaigning for additionality requirements. In late 2021, a group of NGOs wrote to EU President von der Leyen:

Only if hydrogen is used in hard-to-abate sectors and produced from additional renewable electricity, can it play a genuine role in limiting temperature increase to 1.5°C, and only as such it can be avoided that increasing renewable electricity demand for renewable hydrogen production will compete with renewable electricity that should go into direct electrification processes across the economy.

Some green hydrogen companies and industry associations have endorsed the principle of additionality (in some cases, with caveats calling for flexibility and/or greater industry assistance). Others have countered that additionality requirements are unnecessary and discriminatory, as they don’t apply to other users of renewable electricity. They also note that tightly-defined additionality with very strict temporal matching will substantially increase costs, stifling the development of an essential industry that, for the next few years, will only have a marginal impact on total energy demand.

Some governments are considering regulations that would require green hydrogen producers to demonstrate that they are building new (additional) renewable electricity capacity and/or limiting production to periods of curtailment (when renewable electricity supply exceeds demand). For example, the EU’s Renewable Energy Directive II (RED II) mandated additionality. In May, the European Commission proposed a regulation based on it that would only allow grid-sourced electricity when it could be offset with dedicated renewable electricity supply within the same market and hour (see here). Last week, the European Parliament voted by a narrow margin to remove the additionality provision from the updated version of RED II (RED III) –  leading to a vociferous backlash. The additionality debate in Europe has not been resolved, as the European Parliament and Council (Member States) need to agree on the final version of RED III. Further consultations and negotiations are now planned, including on how these requirements should apply to green hydrogen imports.

Outside of Europe, the debate on additionality is absent, or at least much less aminated. Additionality is not a major concern in energy markets that already have a high share of renewable electricity and/or where renewable electricity is the cheapest option for adding new generation capacity. In a well-functioning energy market, greater demand for renewable energy from green hydrogen producers (or any other consumer) sends a market signal to develop more renewable energy capacity. This signal is particularly effective in energy markets that have a credible system for renewable energy certification / guarantees of origin. The challenge is that energy markets and renewable energy certification schemes are not always well functioning. Moreover, markets are often distorted by subsidies for fossil fuel-based energy and/or by bottlenecks that can delay and increase the cost of new renewable energy capacity. The additionality debate isn’t going away any time soon. Nor should it. But we can’t allow this debate to slow the energy transition. A new approach is needed.

How does the Green Hydrogen Standard address additionality?

GH2 was established because challenges like this require global solutions that leverage the capacities of government, industry and civil society. Green hydrogen producers and consumers need clarity and consistency in order to plan for the long term, including to secure offtake agreements, financing (equity, debt, insurance and investment guarantees) and to obtain government and community approval. Clear global standards support policy and project development, lower costs for producers and consumers, and help build support and confidence in the market for green hydrogen.

When developing the Green Hydrogen Standard, in broad based consultation with stakeholders, there was general agreement that a highly specific additionality requirement would not be feasible or appropriate. Indeed, it would be counterproductive in some settings. Instead, the Standard puts the burden of proof on green hydrogen producers to demonstrate their sustainability credentials, taking the wider context of the project and stakeholder views into account.

The Standard requires that the project operator undertakes an evaluation of the project’s utilisation of electricity and the impact on the energy market including, where applicable, the impact on pricing, grid stability, network congestion and the impact of their operations on the greenhouse gas emissions from the electricity grid. Crucially, this goes beyond emissions and also looks at wider issues related to energy access and energy security. The project developer must consult stakeholders and consider “technically feasible and cost-effective measures”.

The Standard allows green hydrogen producers to count electricity taken from the grid as fully renewable if they have concluded one or more power purchase agreements (PPAs) and make use of credible guarantee of origin certification schemes (or similar proofs) where these are available. It states:

PPAs should make use of credible guarantee of origin certification schemes (or similar proofs) where available. There is an expectation that the project operator has addressed temporal correlation (ensuring that the electrolysers’ demand matches the renewable power generation) as well as a geographical correlation (ensuring that the electrolyser and the renewable power generation covered by the PPA are located in the same power market). The granularity of the information in PPAs and guarantee of origin certificates should be aligned with the electricity market where the PPA and guarantee of origin certificates are issued.

And in cases where the hosting government has established additionality requirements, these must be respected.

Who decides what is credible?

GH2’s certification process is based on an independent assessment, applying international assurance standards, in a procedure that emphasises transparency and stakeholder consultation. Project operators are required to engage an independent assurance provider (at their own cost) to fully assess adherence to the Green Hydrogen Standard. The Independent Assurance Provider consults the project operator and other stakeholders. A draft report is made available for public comment. The final report from the Independent Assurance Provider is then submitted to GH2’s Accreditation Body, which takes the final decision. The Standard itself also includes provisions addressing governance, transparency and accountability.

What next?

The Green Hydrogen Standards offers a way forward for addressing additionality that is garnering growing support from government and industry. For the green hydrogen industry, proactively engaging and building trust with key communities and stakeholders is its own reward outside of certification. It builds the social licence to operate, enhances the positive impacts of the project, and helps mitigate any negative externalities. GH2 is now piloting this approach with leading green hydrogen companies in over a dozen major projects around the world. We are also working with governments to embed this approach in their oversight mechanisms for the green hydrogen industry.

If you are an emerging green hydrogen producer or a government regulator committed to the clean energy transition, reach out to us here at GH2. We should not let perfection be the enemy of the good. Let’s work together and build an assurance system that everyone can get behind.