Whereas america pursues a imaginative and prescient of power dominance that facilities on hydrocarbons, China is inching towards dominating one more future power provide chain. Key applied sciences to provide low-emission hydrogen are rapidly turning into one of many newest frontiers for geoeconomic competitors, and america might but once more fall behind.
Also known as the “Swiss Military knife” of the power transition, hydrogen is uniquely versatile. It may be produced from varied sorts of assets, together with pure fuel and renewables. One among hydrogen’s greatest worth propositions is that it might assist decarbonize the “onerous to abate” sectors that lack cost-effective clear options and are tough to impress. These embrace essential industrial base sectors, similar to petrochemical refining and steelmaking, in addition to progressive clear fuels for the maritime and aviation sectors. What’s extra, hydrogen can act as a retailer of power over lengthy durations, which means that it may be used to boost power system integration, resilience, and reliability.
Whereas america pursues a imaginative and prescient of power dominance that facilities on hydrocarbons, China is inching towards dominating one more future power provide chain. Key applied sciences to provide low-emission hydrogen are rapidly turning into one of many newest frontiers for geoeconomic competitors, and america might but once more fall behind.
Also known as the “Swiss Military knife” of the power transition, hydrogen is uniquely versatile. It may be produced from varied sorts of assets, together with pure fuel and renewables. One among hydrogen’s greatest worth propositions is that it might assist decarbonize the “onerous to abate” sectors that lack cost-effective clear options and are tough to impress. These embrace essential industrial base sectors, similar to petrochemical refining and steelmaking, in addition to progressive clear fuels for the maritime and aviation sectors. What’s extra, hydrogen can act as a retailer of power over lengthy durations, which means that it may be used to boost power system integration, resilience, and reliability.
In brief, hydrogen use may give U.S. industries a aggressive edge on the worldwide stage whereas creating new export alternatives and buttressing the nation’s energy system.
The priority now could be that we may witness a repeat of the story the place america and its allies lead in innovation however fall behind in manufacturing and value reductions. The end result can be a worldwide provide chain that lacks resilience and robustness towards provide disruptions. China has already dominated the worldwide provide chains for photo voltaic photovoltaics and electrical automobile batteries. Now, it’s ramping up its efforts to do the identical for electrolyzers, the essential machines that use electrical energy to separate water into hydrogen and oxygen. Plus, additionally it is closely investing in creating superior electrolyzer applied sciences—with a watch towards export alternatives world wide.
There aren’t sufficient superlatives to explain China’s hydrogen endeavors, however a couple of headlines stand out. Before everything, China is the world’s largest producer and shopper of hydrogen, in addition to the nation with the most important put in electrolyzer capability. Furthermore, at about 60 p.c of worldwide capability, China leads the world within the manufacturing of alkaline-based (ALK) electrolyzers. China’s newest focus is to increase its experience past ALK and to grasp proton alternate membrane (PEM) electrolyzer know-how—the kind that’s extra versatile and appropriate with renewable power sources.
But it will be misguided to imagine that China is pursuing hydrogen solely for its local weather advantages. Sure, China’s efforts to advance clear hydrogen applied sciences will undoubtedly assist with lowering its personal emissions whereas additionally facilitating the worldwide power transition. Along with being the world’s largest emitter of greenhouse gases, China can be the world’s high producer of metal and cement—two of essentially the most carbon-intensive supplies. Hydrogen may assist it produce cleaner supplies that adjust to rising emissions-based tariff regimes. However China sees clear hydrogen as vital in lots of different methods past its use in decreasing emissions. It hyperlinks the clear molecule to efforts surrounding energy sector resilience and power independence, too.
The excellent news is that the race shouldn’t be but over. The USA and Europe have been the early innovators and producers of PEM electrolyzers and their sub-technologies similar to membranes. For instance, U.S.-based chemical corporations have been manufacturing what are extensively thought-about the trade commonplace of PEM membranes, all of the whereas progressing technological developments within the discipline.
However in what might be an indication of issues to come back, Europe is beginning to sound the alarm for a possible tsunami of low cost Chinese language electrolyzers flooding its home markets. A world-leading innovator in each ALK and PEM electrolyzer applied sciences, Europe is stepping up its efforts to avert a repeat of the manufacturing demise seen in its photo voltaic and EV battery sectors. Amongst different measures, the European Hydrogen Financial institution has launched stringent “resilience necessities” in its auctions to bolster Europe’s home electrolyzer manufacturing after discovering a powerful Chinese language presence among the many winners of its first public sale. One of many key necessities is that initiatives receiving subsidies from the financial institution should be sure that not more than 25 p.c of their electrolyzer stack capability originates from China.
As vital as manufacturing competitiveness is, it additionally goes with out saying that continued investments in innovation will stay essential to a sturdy and diversified provide chain. Between 2005 and 2020, america, Germany, and Japan accounted for almost two-thirds of electrolyzer-related worldwide patent submitting by high 10 international locations. Throughout this era, solely 3 p.c of China’s patents have been worldwide, as Chinese language efforts have been centered on its huge home market. The image, nevertheless, is quick altering. As of 2022, China reportedly emerged because the world’s high patent holder in hydrogen-related applied sciences, significantly in these for hydrogen manufacturing. China has but to grasp complicated stack design and engineering or the manufacturing of stack assemblies and compressors for PEM electrolyzers. However it might be solely a matter of time earlier than China surpasses the West in innovation, too.
In the meantime, the hydrogen financial system in america is at an inflection level. The motivation buildings for scaling electrolyzer manufacturing and deployment beneath the Infrastructure Funding and Jobs Act (IIJA), in addition to the prospect for a sturdy clear hydrogen manufacturing ecosystem as spurred by the Inflation Discount Act, are in limbo. The IIJA’s $1.5 billion in assist for analysis, improvement, demonstration, and deployment for electrolyzer manufacturing and recycling—which was an instrumental enabler for america to stay globally aggressive—has been struck by the latest wave of undertaking cancellations. Coupling the funding cuts with a bleak outlook for electrolysis-based home hydrogen initiatives leaves the U.S. electrolyzer sector dealing with a dangerous future.
To make issues worse, time shouldn’t be on america’ facet. China strives to beat technological challenges and set up PEM know-how provide chains by 2035—a key objective beneath the nation’s Hydrogen Trade Growth Plan. In response to an August 2024 report within the state-owned China Day by day, China is now “on the point of embracing one more main potential export product within the realm of latest power merchandise—hydrogen electrolyzers.” The article factors to a number of Chinese language corporations within the midst of increasing manufacturing capability to fulfill abroad demand, together with the case of Beijing’s PERIC Hydrogen Applied sciences Co., whose income from electrolyzer exports roughly doubled yearly since 2021. Chinese language electrolyzer producers are beginning to provide in a number of areas, together with Asia, Europe, Latin America, and the Center East.
Being aggressive towards China requires a strategic function by authorities, particularly in a sector as nascent but promising as hydrogen applied sciences. Though U.S. hydrogen and electrolyzer demand could also be sluggish to materialize, international markets are rising as a number of international locations see future financial and power alternatives from the rising worth chains.
To fulfill the second, america want a dual-pronged method. First, the nation ought to pragmatically scale clear hydrogen manufacturing for the few sectors the place demand is each actual and sturdy, similar to petrochemicals and metal. Focused deployment of such anchor initiatives would serve to jump-start home electrolyzer manufacturing whereas increasing the U.S. hydrogen provide to fulfill rising international demand. European demand may unlock export alternatives equal to how a lot america at the moment consumes, whereas Japan and South Korea additionally plan to import far more by 2050.
Second, america ought to place itself as a know-how chief and supplier of alternative for allies pursuing their very own hydrogen ambitions. Meaning focused investments in manufacturing capability to export cutting-edge, U.S.-made electrolyzers and associated gear. Leveraging monetary establishments such because the Worldwide Growth Finance Corp. to succeed in rising economies might be one technique to broaden international alternatives for U.S. electrolyzer makers. The identical geopolitical agility showcased by america throughout its high-level go to to the Arabian Peninsula this 12 months—the place it secured trillions of {dollars}’ price of investments and business partnerships—ought to now lengthen to the subsequent frontier of power applied sciences. In spite of everything, there’s no cause why a U.S. firm shouldn’t be supplying the electrolyzers that will energy the area’s hydrogen aspirations—as exemplified by Saudi Arabia’s landmark NEOM inexperienced hydrogen undertaking, the most important on the planet.
Solely by nurturing innovation, incentivizing home manufacturing, and selling their merchandise in rising markets can america and the West understand a worldwide provide chain that’s sturdy and clear, reaping each the power safety and emissions discount advantages of fresh hydrogen.
