The industrial target in the European Renewable Energy Directive III (RED III) stipulates that 42% of hydrogen used in industry must be green hydrogen by 2030 and 60% by 2035. The quota is defined at the member state level. This raises the question for national implementation of which regulatory instruments can be used to incentivize the use of green hydrogen in industry and what cost implications this will have along industrial value chains.
This study examines the cost implications of using green hydrogen across two selected value chains. The first focuses on ammonia production and its subsequent use in nitrogen fertilizers within agricultural product pathways. The second analyzes hydrogen-based primary steel production and its subsequent use in the automotive industry. The analysis highlights a conflict of objectives in the design of additional instruments to meet the industry quota. A regulatory approach at the first stage of the value chain—that is, where hydrogen is used—is comparatively straightforward: there are few actors, standardized products, and a well-measurable hydrogen input. At the same time, the additional costs initially affect upstream players, who often face international competition and have only limited opportunities to pass on costs. An approach at later, market-oriented stages can facilitate the passing on of additional costs and better address potential willingness to pay. At the same time, the requirements for verification, allocation, and regulatory implementation increase significantly at these stages.
