The Role of Fossil Fuels in a Hydrogen Economy

The world of energy is transitioning from one based on fossil-fuels to one based on renewable energies and hydrogen as an energy carrier. At present, only 11% of the world's final energy consumption and less than 1% of industrial hydrogen come from renewable energies. Our analysis shows that this energy transition will take several decades because of two factors. First, renewable energies give more CO₂ savings in replacing fossil fuels in the power sector than producing hydrogen for heat generation in the industry sector. Therefore, significant quantities of green hydrogen will not be available until renewable energies have replaced fossil fuels in power generation. This will take at least two decades for advanced economies and twice as long for developing economies. Second, even if blue hydrogen produced by fossil fuels with carbon capture and storage (CCS) is available in large quantities, it is still more expensive than blue fossil fuels which is also decarbonized by CCS. Consequently, fossil fuels and CCS will continue to play a key role in this energy transition. To accelerate this energy transition, governments should introduce a significant carbon tax or carbon credit to incentivize companies to implement large-scale CCS projects. Nations whose governments adopt such policies will go through this energy transition faster and benefit from the associated job creation and economic opportunities.