Industrial Quota: Opportunities and Risks for the Hydrogen Ramp-up

The industrial quota set out in the EU’s RED III Directive stipulates that 42 percent of industrial hydrogen demand should be met by green hydrogen by 2030. This obligation applies at the member state level, and meeting it requires further regulatory incentives for companies, as the industry’s willingness to pay for green hydrogen currently falls short of the cost of supply. Regulatory complexity and the additional costs for individual companies can be reduced if policy instruments focus on measurable and already regulated end products. This is demonstrated by the analysis “Implementation of RED III in German Industry” by the Förderinitiative Wasserstoff of the Gesellschaft zur Förderung des Energiewirtschaftlichen Instituts an der Universität zu Köln e.V..

The analysis shows that when defining mandatory quotas, there is a fundamental challenge in terms of whether to base them on products manufactured or sold. An industry quota applied to companies manufacturing in Germany could put German production sites at a competitive disadvantage. “In that case, primary, intermediate, or end products could be imported in greater quantities, especially if there are no comparable requirements in these sectors abroad,” says Dr.-Ing. Ann-Kathrin Klaas, Head of Research Area at the EWI, who conducted the analysis with Michaele Diehl and Jan Hendrik Kopp. “If the standards apply to products placed on the market in Germany, this does not necessarily lead to hydrogen demand in Germany. Green products that meet the standards could be imported.”

Impact of an Industrial Quota: The Examples of Ammonia and Steel

This analysis examines the cost implications of using green hydrogen based on two selected value chains. Ammonia production in Germany is one of the sectors that currently already uses gray hydrogen and would therefore fall directly under the industrial quota. The use of green hydrogen leads to significant additional costs at the ammonia production stage of the value chain. While these costs are reduced in the downstream value chains of fertilizer production and agricultural production, the contribution margin for these products also decreases, in some cases significantly. Furthermore, the diverse product range leads to a high degree of complexity when requirements for the use of green hydrogen apply to end products.

In steel production, hydrogen can be used in the future if production is shifted from the blast furnace route to direct reduction plants. If crude steel is produced using green hydrogen and used in automobile manufacturing after processing, the production cost of a car increases only slightly, by approximately 130 EUR. Furthermore, the use of hydrogen is easier to track due to a narrower product range. In 2025, 4.1 million cars were produced in Germany. If only green steel had been used here, approximately 4 TWh of green hydrogen would have been required.

The different steps of the value chain at which an industry quota is applied

If a mandatory industry quota for green hydrogen is applied at the first stage of the value chain – where the hydrogen is actually used – it sends clear investment signals and allows for simple regulation involving few stakeholders and measurable hydrogen usage. “However, additional costs for green hydrogen often cannot be passed on (in full) because downstream stages of the value chain are not incentivized to use green products. This can lead to the first stage of the value chain being relocated abroad,” says Klaas. If a mandatory industry quota is applied at a downstream stage of the value chain, this creates demand for green intermediate products at the upstream stages. The additional costs can thus be passed on (at least) up to the stage where the industry quota applies. However, regulatory implementation, verification, and allocation are becoming increasingly complex.