The Policy Design for Low Carbon Hydrogen Production and Import of the European Union

Hydrogen will play a crucial role in the European Union to decarbonize sectors that are hard to electrify. The European Union is developing a regulatory framework to foster the market ramp-up with a focus on hydrogen produced by renewable energy. As the production of renewable hydrogen is still in its initial phase, low carbon hydrogen produced from fossil fuels with subsequent carbon capture and storage or utilization, as well as the production with nuclear energy is considered by some actors as a way of accelerating the market ramp-up, paving the way for a renewable hydrogen economy. But there are significant risks associated with the use of low carbon hydrogen, such as insufficient GHG emission reductions and fossil lock-ins, as well as challenges to provide a level playing field with renewable hydrogen. The goal of the analysis is to identify and assess, how the European Union is addressing these risks and challenges in its policy design for the production and import of low carbon hydrogen. The research framework is based on policy design literature and provides a comprehensive approach to analyze the EU hydrogen policy mix. Accordingly, the analysis covers policy design characteristics, the applied governance modes and highlights the challenges for horizontal and vertical coordination, as well as the implications for implementation. To analyze the policy design, it is central to first identify the overarching policy objectives and how they are translated into policy programs (EU Hydrogen Strategy, REPowerEU, European Hydrogen Bank). On this basis, the role of low carbon hydrogen in implementing the policy programs is examined. Furthermore, the analysis addresses measures and instruments concerning low carbon hydrogen production and import in the EU regulatory framework, namely the Gas and Hydrogen Markets Directive, the Methane Regulation, the CCS Directive and the third Renewable Energy Directive. In addition to the general framework and target architecture of hydrogen policy, the analysis is going into the details of three different types of low carbon hydrogen production (gas-based hydrogen with CCS; gas-based hydrogen with CCU, hydrogen based on nuclear electricity). In addition to the analysis of substantial parts of the legislation, the analysis of policy design characteristics (instrument type, level, temporality) and embeddedness in the existing policy framework (policy layering), as well as the applied governance modes will provide insights into the functioning of the policy mix. Furthermore, the implications for the implementation of the measures and instruments in the multi-level system are analyzed to assess, if the risks and challenges can be adequately managed within the existing policy design. The results and policy recommendations are discussed in the concluding section.