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The Role of Public Policies in shaping Green Hydrogen-economy



 

Authors: Roberto Antônio Fortuna Carneiro and Paulo Roberto Brito Guimarães

Energy Review, Vol 4. Issue 9. 2022


For more than a century, hydrogen (H2) has been used by the chemical industry, mainly from natural gas. Currently, Green Hydrogen (H2V), also known as Renewable Hydrogen, with low or zero carbon, is produced from renewable sources such as wind and solar power, via water electrolysis, or by pyrolysis, gasification or anaerobic biodigestion of biomass or liquid biofuels such as ethanol, with CCUS (carbon capture, utilization and sequestration). This is strategic for the defossilization of industries and to achieve carbon neutrality by 2050, as proposed by the Paris Agreement. As a result, new markets can be developed in segments that are difficult to defossilize, such as heavy transport, aviation, waterway, steel, and industrial processes, among others. According to projections made by the International Agency for Renewable Energy - IRENA, hydrogen could represent 18% of all energy consumed globally before 2025, as H2V produced from renewable sources becomes competitive in relation to fossil fuel sources. Nevertheless, there are still technological challenges that require further studies to expand H2V applications, transport and storage, and specific regulatory and tax frameworks, among others.


It is in this scenario of opportunities and challenges that this article aims to address the following questions: What are the challenges, in the context of energy transition and international agreements, for nation states to adopt renewable hydrogen as a decarbonization instrument? How can public policies structure an economy based on renewable hydrogen? To address these questions, a qualitative approach has been used, i.e., bibliographic, documentary, exploratory and descriptive research, which analyzed the role played by the state, in particular, that of the State of Bahia.


The state is responsible for formulating and implementing public policies, which have repercussions on society, thanks to the interrelationships between the state, politics, economy, society, and the environment. The impacts generated by these policies on the economy and society must also consider the processes involved in its formulation, implementation and management.


Public Policies can have distributive and redistributive functions as well as meet specific demands, such as energy generation, promotion of economic and social development, environmental protection, infrastructure, regulation, subsidies, financing, R&D support, and direct investment, among others. It appears, therefore, that policies are courses of action, and strategies of public action resulting from a decision-making process composed of numerous and complex interests, conflicts, and objectives. As a result, Strategic Public Management (SPM) determining the legal frameworks (Constitution, Laws, Decrees, etc.) established within the scope of the state and public policies and its key processes of formulation, implementation and evaluation, gains importance.


However, there are restrictions that may result in the amendment or non-implementation of the proposals formulated. Examples are the time elapsed between the decision, formulation, and impact assessment; lack of quality data and information; changes in the values and political vision of governments (elections) and inequality between interest groups in terms of their ability to influence decision-makers and control resources.


For a policy to be implemented, the role of public organizations is essential, since they are responsible for the decision-making process that leads to their formulation and implementation. This evaluation process considers the goals, the products generated, and their impact on the economy and the society including both the planned and unwanted ones.


In face of the above, how to formulate public policies for H2V and its potential products? The first step is to recognize that they are produced in a production chain, a system organized in consecutive stages and integrated throughout a value-added process, which begins with the entry of the various inputs and their transformation into goods or services that will be distributed and marketed to the consumer. Actions exogenous to the chain occur in the institutional environment (laws, taxes, customs barriers, environmental and labor laws, physical, sanitary, and environmental quality standards) and in the organizational environment (environmental, inspection, research, credit, universities, among others). Studying a chain makes it possible to identify its operation, potentialities, limitations, and the public policies that influence each stage, business strategies and institutional arrangements.


The support given by a public policy is essential to ensure the competitiveness of the economy, which is why several countries have been developing government strategies and policies since 2018. The United States, for example, expanded its strategy in 2020 with The Department of Energy Hydrogen Program Plan, which targets to make hydrogen and its technologies competitive by 2050. Japan, in 2019, changed its Technology Map for Fuel Cells and Hydrogen, with quantitative cost targets. Australia launched its Hydrogen Strategy in 2020. In 2019, South Korea announced its Hydrogen Technological Map and the goal of producing 6.3 million hydrogen-powered electric vehicles. In 2018, France launched the Hydrogen Development Plan for the Energy Transition, with targets of 20% to 40% use of low-carbon hydrogen in industrial applications, and a reduction in the cost of electrolysis between 2 to 3 euros/kg H2 by 2028. Finally, Germany consolidated its National Hydrogen Strategy in 2020, with funding of more than €1 billion to be applied by the German Decarbonization Program between 2020 and 2023, €7 billion to accelerate the development of the German market and € 2 billion to support international partnerships.


In Brazil, where there is a local experience in the production and use of hydrogen, in 2002 the Ministry of Science and Technology launched the “Brazilian Program for Hydrogen and Fuel Cell Systems”, which in 2005 was renamed the Science, Technology Program and Innovation for the Hydrogen Economy - PROH2. There are several research groups at universities developing R&D activities, companies operating in this market and ABH2, an association bringing together interested parties. The Brazil-Germany Energy Partnership with the Sectorial Mapping Study of Green Hydrogen can also be mentioned in this regard. ABNT has been discussing the regulation of hydrogen technologies, from production to end use, within the scope of the Special Study Commission on Hydrogen Technologies. The National Hydrogen Program and the Management Committee of the National Hydrogen Program have been established by Presidential Order No. 63 of 08/04/2022 and CNPE Resolution No. 06 of 06/23/2022.


Examples of actions for structuring the H2V Production Chain in Bahia


In the State of Bahia, the adopted model establishes that the State implements a public policy for a renewable hydrogen economy aiming at its production as well as its potential products. The process involved several structured stages. The first stage evaluated the context, marked by the socio-environmental problems caused by fossil fuels and the efforts of interest groups to promote a transition to renewable energy sources, which generates both opportunities and restrictions. The second stage involved the selection of public policies through an analysis and decision-making process.


In the third stage, a diagnosis of the potential for Renewable Hydrogen in Bahia has been carried out, besides a mapping of the H2V production and value chain, taking into account the infrastructure in terms of gas transport logistics and power transmission; availability of fresh water from rivers and aquifers, electricity from wind, solar and biomass sources, ports for exports, universities, technical schools, research, and innovation centres, as well as a consumer market formed by the Chemical, Fuel, Heavy Transport, Mining and Agribusiness sectors. This environment leads to the possibility of implementing centralized and decentralized production.


The fourth stage involved the formation of the political agenda, while the fifth and last stage included the formulation and institution of the policies, based on the different stages of the value chain. Finally, a government decree established the policies and created a special commission for its implementation (in progress).


All these government actions consisted of holding meetings (in person and on-line) with companies and associations; international missions; publication of Decree No. 21.200 of 3rd February 2022 instituting the State Plan for the Green Hydrogen Economy (PLEH₂V) and the Special Commission for the Implementation of the Green Hydrogen Economy in Bahia; Decree No. 20.970/2021, granting exemption from ICMS (State tax) on the purchase of electricity generated from renewable sources intended for the production of hydrogen, green ammonia and other products; Signing of a Memorandum of Understanding with UNIGEL for the installation of the first industrial size H2V and green ammonia unit in Brazil, to go on-line in 2023; Signing of Memoranda of Understanding with several companies and Universities; Signing of a contract with SENAI-CIMATEC for the development of a study of the potential of a H2V economy in Bahia and mathematical modeling of a georeferenced decision support system for H2V production location.

It is expected that all these policies and actions lead to the implementation of both, centralized hubs in the Camaçari-Aratu Industrial areas, and decentralized hubs in the agribusiness and mining areas, with electrolysers and reformers installed close to its consuming markets, a strategy that will contribute to the process of decarbonization of the state economy.


(Roberto Antônio Fortuna Carneiro is Coordinator of Promotion for the Development of Renewable Energy at the Economic Development Department of the State of Bahia and is a PhD candidate at the Graduate Program in Sciences Applied to Energy and Environment at UFBA. Paulo Roberto Brito Guimarães is Superintendent of Attracting Investments and Fostering Economic Development and a PhD in Chemical Engineering from The University of Leeds (UK).) ■□■