Published 14 February 2023
Green hydrogen is produced by separating water (H2O) into its constituent compounds (H2 and O), using an electrolyzer powered by renewable energy. It is viewed by many as critical to avoiding the worst of global warming.
There are several barriers to the development of a robust global green hydrogen market, including technical and legal barriers and the nascent electrolyzer market, which combine to make production more expensive than the market currently will bear. However, solutions to these challenges are being developed quickly. Optimizing electrolyzer operating expenses by securing access to cheap, abundant renewable energy and water that can be dedicated to green hydrogen production will end up being the most critical piece of the green hydrogen puzzle.
As the market develops, this unique combination of inputs - cheap, abundant, and dedicated renewable energy and water - will develop a value to, and within, the production chain. The very fact that a given country can produce large quantities of cheap renewable energy that can be dedicated to green hydrogen production is a distinct input to green hydrogen production. For many countries with this combination of green hydrogen production inputs, green hydrogen is a potential source of government revenue and economic growth.
Even though the global green hydrogen market is nascent, it could be on the verge of exponential growth. For the countries whose unique resources are necessary to fueling that market growth, the time to think about a fiscal regime for green hydrogen is now. This paper explores how governments might fashion a fiscal regime that balances attractiveness to private investment, given the current state of the market, and value to the government.