Global Green Hydrogen Policy: China, A Giant Biding Its Time

As the world's largest manufacturer, China also holds the title for the largest hydrogen producer, responsible for one third of global hydrogen production. In 2020, China produced 33 million tons of hydrogen, the majority of which was derived from fossil fuels. 62% of the hydrogen production came from coal, while natural gas accounted for 19%. In 2020, only 1% of China's hydrogen production was generated through renewable energy-based electrolysis, similarly to most countries. China must decarbonize its economy for the world to achieve carbon neutrality, in particular its industrial sectors, which account for 36% of its greenhouse gas emissions. Green hydrogen could become a crucial player in decarbonizing the industrial sectors where China currently leads, including steel, chemicals and cement. Furthermore, hydrogen and its storage potential is increasingly considered as a solution for China to help decarbonize its electricity grid. However, China has yet to flesh out a coherent green hydrogen strategy.

The present Chinese hydrogen policy is not a green hydrogen policy but this does not mean China is doing nothing on renewable hydrogen development. With its sky-rocketing renewable energy sector - more than a 40% of the global capacity installed in 2022 - coupled with its growing demand and electrolyzer industry, China has the potential to become a major player in the global renewable hydrogen sector. The Chinese central government has set a production target of 100,000 to 200,000 tons of renewable hydrogen per year by 2025 (a fairly modest objective compared to European ones - 10 million tons in 2030, with an additional 10 million tons imported). According to the China Hydrogen Alliance, the share of renewable electricity-based hydrogen could increase to approximately 15% by 2030. Based on current projections, renewable-based hydrogen could account for 80% of China's hydrogen supply by 2060 - the Chinese carbon neutrality target - the rest being met with Carbon Capture and Storage (CCS), while the EU expects its hydrogen supply to be totally green well before 2050.

The price of green hydrogen is determined by four factors. Firstly, the cost of electrolysers plays a significant role (capex). On average, Chinese electrolysers are less expensive than their European counterparts, although the balance of plant is more expensive. Secondly, the efficiency of the electrolyser is crucial. European PEM electrolysers outperform Chinese Alkaline electrolysers in this regard. The third element is the load of the electrolyser, which depends on the availability of renewable energy. China excels in this aspect compared to any European country, thanks to excellent synergy between wind (~5500h/y) and solar power in key regions such as Inner Mongolia. Lastly, the price of renewable installations, much lower in China compared to European countries.

Despite being a major cleantech actor in the world, China's green hydrogen technologies development lags behind that of Europe, Japan, and the USA. China however is a massive investor in manufacturing capacity, focusing on the Alkaline electrolyzer market it dominates (50% of the global manufacturing capacity). It still lags behind in proton exchange membrane (PEM) technologies, particularly important to handle renewable intermittence, that are currently mostly mastered by European actors. Some Chinese actors like SPIC are currently trying to develop it. The country continues to rely on technology imports for several critical areas, including core fuel cell elements, hydrogen refueling stations (compressors) and storage (carbon fiber, provided globally by Japanese and Korean companies). Major companies that are providing China with such technologies include Norway’s HydrogenPro, France Plastic Omnium and Faurecia, and Germany’s Bosch for storage-related technologies. ,For electrolysers, Belgium’s John Cockerill, Germany’s Siemens, and US Cummins are also in the Chinese market. China's dependence on technology imports could slow down its green hydrogen development, especially if growing geopolitical tensions give way to new policy measures aimed at restricting technology transfer - like potential US export restrictions. Together, these problems explain why China has been slower than other countries to develop green hydrogen demand policies and why it has prioritized the development of domestic supply technologies instead.

Although China is gradually implementing policies and strategies to promote green hydrogen, it has not fully embraced it as a critical tool for decarbonization. Firstly, the highly criticized Chinese Draft Energy Law, a critical piece of legislation that has been under discussion for several years, fails to distinguish between different types of hydrogen depending on how it is produced. Secondly, China's hydrogen policies, whether at the national or the local level, primarily focus on the transport sector, such as fuel cells and refueling stations, and less on green hydrogen production, liquid hydrogen storage and transport capacity, and its use for industrial decarbonization. While hydrogen pipelines exist at a regional level, they still need to be developed on a larger scale to promote the connection between renewable energy-rich regions (primarily in the west and north) and industrial centers on the coast.

The main driver behind China’s hydrogen policy is largely the automotive industry lobby, particularly at the local level, and the need to prioritize investment in both electric vehicles and fuel cell vehicles to ensure the dominance of Chinese cars in the future global automotive industry. Furthermore, the nation has not yet taken significant strides towards achieving the decarbonization of its industry and integrating the use of green hydrogen within it. This is particularly true for renewable hydrogen transport within the country, a crucial dimension for the Chinese hydrogen policy.

The hydrogen energy industry in China is characterized by dependencies in technical capacities and infrastructure. Consequently, China’s hydrogen strategy is designed to advance incrementally, through a partially decentralized approach that gives considerable authority to provincial governments. In order to accelerate the progress of green hydrogen, the Chinese central and local administrations have initiated policy measures aimed at fostering the emergence of a resilient hydrogen infrastructure with a focus on “hydrogen safety”: to ensure supply, the mastering of core technologies in a safe manner and only later, to drive the shift from fossil fuels to renewable hydrogen.

From the early stages of China's hydrogen development, local governments have played a crucial role in designing hydrogen development plans in accordance with their regional specificities. Some provinces are more ahead than national legislation is on green hydrogen. Four regional clusters (see below) including Guangdong, located in the Pearl River Delta region, and Inner Mongolia have been at the forefront of provincial hydrogen policies. Most focus on using hydrogen for fuel cell vehicles and associated infrastructure, like refueling stations. These plans include targets - which are more ambitious than the national ones - for expanding renewable hydrogen production and scaling up conventional hydrogen production in the chemical sector, based on the province's resource endowment in coal or renewables (for example in the Hebei province). Several local governments have taken an active approach to set up industrial funds to finance hydrogen projects. However, similarly to the national level, green hydrogen targets are not tied to carbon peaking or the decarbonization of industrial sectors. Provincial governments still prioritize industrial output over industrial decarbonization.

At the national governmental level, China's hydrogen strategy is part of the State Council’s Five-Year Plans. The National Development and Reform Commission (NDRC), operating through the National Energy Administration (NEA), is the primary institution responsible for overseeing China's hydrogen policy and deployment. However, various other national and local institutions also contribute to this process, asChina's hydrogen policy is mostly a decentralized issue.

In practice, China's hydrogen policy is primarily designed to support fuel cell vehicles and related infrastructure to position them as a potential alternative to battery electric vehicles. However, the Chinese authorities have also recently recognized the role of hydrogen in decarbonizing critical industrial sectors. This shift in focus is reflected in new pieces of legislation that came into effect from the 14th Five-Year Plan (2021-2025).

The Chinese government's objective is to encourage the reduction of greenhouse gas emissions and prioritize energy security. However, if authorities believe that hydrogen could play a role in improving energy security, this has yet to be reflected concretely in China's policy. In reality, many Chinese policies emphasize the necessity of transitioning to a completely renewable hydrogen supply in the future. Nonetheless, specific goals for the demand side of industrial processes are still lacking in these documents.

The China Hydrogen Alliance was established in 2018 as a collaborative platform between prominent institutional actors and state-owned enterprises (SOEs) to discuss hydrogen. In 2020, this institution issued a non-official policy document called the Standard and Evaluation of Low-carbon Hydrogen, Clean Hydrogen, and Renewable Hydrogen. This document is expected to shape the future of hydrogen projects in China and sets standards for hydrogen production, serving as a benchmark for industry. The Chinese standard does not impose any restrictions on production processes allowing for hydrogen to be produced from any source. Instead, similarly to the US approach, it qualifies different types of hydrogen according to their production process and their CO2 emissions:

• Low-carbon hydrogen: ≤ 14,51 Kg CO2 emissions per kilogram of hydrogen, higher than the average estimate of gas produced H2 (around 9 Kg for Gas, 22 Kg for Coal)
• Renewable hydrogen: ≤ 4,9 Kg CO2 emissions per kilogram of hydrogen, max 3,4 Kg CO2 emissions per kilogram of hydrogen in European standard

The Mid-and-Long-Term Hydrogen Industrial Development Plan (2021-2035) is China's most comprehensive hydrogen strategy to date. Although it is not solely focused on green hydrogen, the plan sets a modest target for renewable hydrogen production (100,000 to 200,000 tons annually) by 2025 in its supply-side aspect. The plan also declares that developing the hydrogen economy should not increase carbon emissions. It aims to enhance the efficiency of hydrogen production based on renewable energy sources and reduce foreign dependencies by scaling up and increasing the productivity of related Chinese production equipment by 2030, facilitated by "supportive electricity prices" and the establishment of technical standards. Moreover, the plan acknowledges that hydrogen energy storage technologies are critical to decarbonize the Chinese grid and presents a potential bottleneck for hydrogen development in China. Ultimately, the plan seeks to establish a multi-functional hydrogen power application system by 2035.

The demand side of China's hydrogen policy aims to incentivize the purchase of fuel cell vehicles and includes targets for fuel cells, initially for heavy-duty vehicles and eventually for passenger vehicles (with a target of 50,000 fuel cell vehicles by 2025). The National Hydrogen Development Plan is also the first to recognize the role of hydrogen in decarbonizing industrial sectors such as steel and chemicals. To achieve this, it seeks to promote the use of renewable hydrogen as a source of industrial heat and to replace fossil fuels in ammonia and methanol production, as well as in the refinery sector. The National Development and Reform Commission and the National Energy Administration are driving this initiative to support the coupling of the coal-chemical industry and green hydrogen development while promoting the use of renewable hydrogen as raw materials in chemical production. Furthermore, the Implementation Plan of Carbon Peaking of Industry (2022) also supports the role of hydrogen in decarbonizing the cement sector.

Although Chinese official texts have acknowledged the importance of green hydrogen, their strategy still lacks any defined targets that link the development of green hydrogen to industrial decarbonization and reaching peak emissions. However, China has started to test hydrogen in some industrial processes, for example for steel production in late 2022.

It is not entirely clear how much public funding (including SOEs) has been allocated to hydrogen projects in China, including to green hydrogen initiatives. More accurately, according to a Chinese consultant firm, approximately 71.2 billion yuan (US$10.33 billion) is invested annually in hydrogen projects. Although a significant portion of the funding for green hydrogen is directed towards New Energy Vehicles (NEVs) and fuel cells technologies, various projects are eligible for funding, such as clean hydrogen production, hydrogen refueling stations, hydrogen storage facilities and gaseous hydrogen blending into gas pipelines. National and local policies also provide various funding instruments for green hydrogen projects.

However, there isn’t a multilevel funding system favoring green hydrogen over carbonized hydrogen in China.

The hydrogen energy industry in China faces several challenges in terms of commercialization, profitability, production cost and industrial chain scale. Most project financing methods are based on equity financing, which limits capital investment in the industry, leading to a mismatch between supply and demand. Additionally, the green hydrogen technology development and hydrogen energy application areas are not currently included in the Green Bond Support Catalogue and Green Industry Guidance Catalogue, which limits the financial support available (see below) and narrows the financing channel for the hydrogen energy industry.

The Chinese green hydrogen policy encounters similar challenges as the general chinese energy transition policy whereby supply and demand are geographically separated, with supply being located in Western and Northern China and demand in coastal and Southern China. That’s why national policies are calling for the development of hydrogen trade between provinces. To facilitate this, the government wants new hydrogen pipelines to improve the limited existing infrastructure. Additionally, it aims to develop "Chinese" storage technologies, with an emphasis on gaseous form and long-term R&D in liquid form. However, it is up to provincial governments to concretely solve these issues, especially regarding intra-China green hydrogen trade, which trigger competition between provinces to attract national subsidies.

It is true that China's hydrogen development is primarily a local affair, with its focus on four major clusters (city alliance) situated in heavily industrialized regions with renewable potential: the Hebei Region, Beijing, the Shanghai/Yangtze River Delta, the Pearl River Delta, and the Henan. Additionally, the Inner Mongolia province, with its rich renewable endowment, is clearly taking a lead in green hydrogen development. While new projects are emerging in other parts of the country, they are predominantly supported by prominent Chinese SOEs.

Beyond local and national public investments, the Chinese hydrogen development policy gives specific roles to SOEs, private companies and even foreign companies. Chinese SOEs play a major role in large-scale and capital-intensive hydrogen projects. They are subsidy-dependent and rely on existing petrol and gas assets for hydrogen investments that are not always profitable. They are mainly involved in the construction of hydrogen refueling stations and pipelines. Private companies play a role in establishing the green hydrogen value chain and are investing in less capital-intensive hydrogen projects such as equipment manufacturing (electrolysers), R&D of specific hydrogen technologies (innovation for storage and transport) and play a central role in R&D in liquid hydrogen development.

China has some world-leading green hydrogen sector companies such as LONGi (hydrogen equipment), ALLY HI-TECH (hydrogen producer), and Ningxia Baofeng Energy (the chemical company responsible for the world's largest green hydrogen project implemented). Some of these companies have investment capacity multiple times greater than their Western competitors. Finally, due to technological dependencies, the Chinese government grants a role to foreign companies. They are encouraged to manufacture hydrogen-related technology and equipment in China and they receive "preferential treatment" to develop these projects. These, of course, are joint ventures with Chinese companies and this strategy echoes a need to develop capacity and technological breakthroughs in China. The main foreign companies involved in China’s hydrogen economies involve Toyota, Hyundai and Bosch for FCEVs, Air Liquide, Siemens, and Ballard for hydrogen processing. 

China's current hydrogen strategy does not seem to be primarily motivated by hydrogen geopolitics. China has enough renewable potential and industrial demand not to be vulnerable to the nascent international hydrogen market. The debate about whether China should import or export hydrogen does not play a prominent role in Chinese policy efforts. If it were not for its remaining technological dependencies,  China would have a sense of complete autonomy in the hydrogen sector. Resolving these dependencies would, in fact, be an opportunity for the country to reduce its energy dependence in the future while potentially gaining crucial technological advantages. Although China is beginning to recognize the importance of hydrogen for industry decarbonization and the potential technological benefits, it brings to bear less pressure to deploy green hydrogen as quickly as other developed countries, such as the EU, Japan or the USA.

However, there are nonetheless three international dimensions to Chinese hydrogen policies:

• First to establish the necessary conditions to bridge the technology gap by enticing foreign companies to manufacture these technologies in China, driven by the opportunity to earn considerable profits catering to the country's potentially substantial demand.
• Second, by collaborating in the elaboration of international technical standards, particularly for fuel cells.
• Third, by becoming a manufacturer of cheap hydrogen process technologies to supply the future hydrogen market. China could supply electrolyzers at the lowest cost to countries that intend to become hydrogen hubs, such as Australia and the Gulf countries, as well as to importer countries for their domestic production. In this regard, China is in direct competition with European electrolyzer manufacturers and could greatly benefit from the development of hydrogen as a "new commodity" exchanged in the global market.

The Chinese government intends to promote Chinese technologies for export, starting with fuel cells, through the Belt and Road Initiative. However, this is still relatively modest in scope.

When it comes to their hydrogen strategies, the EU  and China adopt significantly different approaches.

For starters, China lacks industrial decarbonization targets compared to the EU. It has a carbon neutrality objective for 2060 ( compared to 2050 for the EU) and a completely different position in the future green hydrogen market. Europe is technologically a bit more advanced, despite a higher cost in Europe for manufacturing electrolyzers. Given it has fewer renewable endowment, the EU will need to import some of its carbon-free hydrogen. Without access to a cheap supply from renewable-rich countries, the EU will hardly remain competitive. China, on the other hand, has already significantly reduced the cost of early generation electrolyzers compared to its Western competitors and is working to bridge the technological gap. China's delay in setting industrial peak targets gives it time to catch up with its technological gap with Western competitors. Finally, unlike the EU, China does not need to import green hydrogen for its decarbonization as it has enough renewable resources to produce domestically. Instead, its challenge is domestic: connecting producer and consumer regions.

While the EU has a clear green hydrogen strategy that includes an industrial decarbonization policy, strict quantitative targets and hourly provisions to ensure grid safety, China does not yet have one. Chinese policies do not include binding rules for green hydrogen production, nor do they have concrete quantitative targets or stringent policies to regulate the carbon content of renewable and low-carbon hydrogen. Instead, China is biding its time, by waiting for two things. First, learning from others, such as the EU and Japan to learn from their experience with green hydrogen policies. Second, and more importantly, by waiting for its own market players to be ready to compete with equal level technologies on the global market.

Renewable hydrogen is the next big thing in China and the country is aiming to take its share of the hydrogen technology market. The size of its green hydrogen market is potentially so big that it cannot afford to let it be dominated by foreign technologies. As a result, China is postponing the implementation of binding targets for renewable hydrogen production until the opportune moment arises. Rather than aspiring to be the international hydrogen supply market, China is focusing on gaining technologies it lacks from other countries in order to lower costs dramatically to gain market dominance and energy independence.

For the hydrogen transport, liquefaction, storage, distribution market, competition will probably be open for the time being. However, in the electrolyzer market, once China gains technology parity, this will have consequences for European actors and the European hydrogen policy. Since China is particularly good in cost reduction through economies of scale, driven by a growing domestic and global demand, Chinese manufacturers could take a significant role in reducing green hydrogen production cost globally. This, however, could be detrimental to the incumbent European players, who would face stiff competition, particularly in third markets. Chinese hydrogen actors will however encounter similar obstacles to their Japanese and European counterparts when it comes to constructing large-scale electrolyzer projects that demand expertise and proficiency in complex integration processes. Consequently, international collaboration will continue to be imperative, even for China, particularly in areas where there are synergies with other nations.

The author acknowledges that the RIFS report “China’s emerging hydrogen economy“  and the OIS report “China’s hydrogen development: A tale of three cities” were significant sources used for this analysis. The author also thanks Mr. Mickael Naouri from Air Liquide China for his review of this paper.

Copyright Image : Alex HALADA / AFP