A framework for considering novel decarbonisation risks for hydrogen and ammonia energy supply chains in first-mover markets

Hydrogen and ammonia have been touted as clean, low carbon fuels with potential to accelerate decarbonisation in major economies, particularly in sectors that may prove difficult to electrify. More than 95% of all hydrogen and ammonia is currently produced from fossil fuels. Industry and governments have announced intentions to use blue hydrogen (natural gas with carbon capture) and green hydrogen (produced through renewably-powered electrolysis), with the same colour classifications applied to ammonia. Yet carbon capture systems have not been widely deployed for hydrogen or ammonia production, due to cost competitiveness concerns. Likewise, the cost of green hydrogen and ammonia relies on the cost of renewable electricity and electrolysers; thus, green production remains costlier than conventional fossil production methods. Despite this, since 2018, major economies including Japan, Korea, and Germany have announced decarbonisation plans that incorporate hydrogen and ammonia as replacements for fossil energy sources. These plans include an intent to import most of the required hydrogen and ammonia from overseas production partners. This will entail developing new supply chains, partnerships and procurement pathways. But developing the infrastructure, transportation networks, and end-use technologies to enable the large-scale use of hydrogen and ammonia in energy systems will entail significant risks. Existing literature has focused on the economic, technical, and environmental risks associated with hydrogen and ammonia infrastructure and transport. Yet political, social, and legal risks remain under-explored. In addition, there is a significant gap in understanding the risks of betting on still-immature hydrogen and ammonia technologies as core tenants of national decarbonisation strategies. Not planning for such risks could raise the risk of failed investments, supply disruptions, and compromised climate benefits. This paper, therefore, presents a method for assessing the decarbonisation risks of different hydrogen and ammonia production pathways and end uses. We define “decarbonisation risks” as any vulnerability, uncertainty, disruption, or hazard presented by a proposed technology, resource, or end use to national-scale decarbonisation efforts. We conduct a targeted literature review using SCOPUS and Web of Science from 2010-2022, synthesising descriptions of diverse risks with relevance to the realisation of ammonia and hydrogen supply chains into an analytical framework. This holistically encompasses Political, Economic, Social, Technical, Environmental and Legal (PESTEL) risks associated with three production methods (steam methane reforming, coal gasification, and renewably-powered electrolysis) and three end uses (power generation, fuel cell vehicles, industrial heat). We also examine intermediate transportation and conversion infrastructure. Key risks apparent in these pathways include failure to reduce lifecycle carbon emissions in CCS-reliant pathways, carbon lock-in, underperforming technologies that curtail market growth, industrial labour market disruption due to low demand from weak market formation, stranded assets, and exposure to unpredictable disruptions to international shipping (political unrest, infrastructure damage, terrorism, etc.). Our framework provides a practical tool for investors and policymakers to anticipate such risks and plan coping strategies, thereby assuring that efforts to realise new low-carbon energy markets are not thwarted by unforeseen circumstances.