Can developing countries seize emerging windows of opportunity in the green hydrogen economy?

Hydrogen will play a crucial role in the mounting global efforts to decarbonize our economic systems in the coming decades. Many developing countries have the potential to influence the hydrogen economy,  which may provide one-fifth of total energy demand by 2050, especially in those areas that are difficult to electrify. This opens green windows of opportunity for economic development and diversification. Green hydrogen could decarbonize sectors of the economy and promote equitable growth, notably for developing countries that seize the green window of opportunity.

A recent event, organised by UNU-MERIT and UNCTAD at the UN STI Forum 2022 on Green Hydrogen Windows of Opportunity for Developing Countries, discovered five key takeaway points:

1. Developing countries are well-positioned to take advantage of the significant demand window, which is expected to emerge globally over the next 15 years.

Green hydrogen is a key technology for energy and industrial systems of the future and will allow for the greening of hard-to-abate sectors such as steel, cement, aluminium, chemicals, long-haul transportation, aviation, etc. However, green hydrogen is generally expensive, usually more so than grey hydrogen (produced with fossil fuels), although at this moment, it is cheaper in Europe, the Middle East and China due to the fossil fuel price spike caused by the Ukraine war. IRENA, the International Renewable Energy Agency, expects that green hydrogen will reach general price parity with blue hydrogen, fossil fuels hydrogen with carbon and capture and storage, gradually over the next 10 to 15 years. This is because the cost of renewables is decreasing, and carbon taxes will further raise the price of fossil fuels. IRENA predicts that hydrogen from low-cost wind and solar will reach price parity at 2.5 a kilo within a few years. Competitive prices will speed up the formation of hydrogen economies and increase global demand.

One key question is on the source of supply of green hydrogen costs of green hydrogen are much lower in the Global South than in the Global North, which presents a significant opportunity for many developing countries. The ability of different regions to produce large volumes of low-cost green hydrogen varies according to their renewable resources. Africa and the Middle East have the highest technical potential to produce cheap green hydrogen whilst there is potential in Asia and Latin America – including in Chile and Brazil. Wind and solar are important, but also geothermal and hydropower.

Green hydrogen is thus an important opportunity stemming from the expected development of a significant demand window and factor endowments with enormous potential for renewables in large parts of the Global South. There is a clear opportunity for many developing countries with large renewable resources to become net exporters. This opportunity could be supported by further scaling-up developments fuelled by technological improvements and innovations in the value chain, better transportation and longer storage time.

2. Green hydrogen can unlock a wealth of opportunities in the green economy

Green hydrogen occupies a dynamic product space with many linkages to other sectors of the green economy and to decarbonization processes within the overall economy. It represents an augmented window of opportunity due to its potential dynamic effects. In simple terms, opportunities are present in backward links to other industries, the green hydrogen sector itself and forwarding links to ‘user’ sectors.

In terms of backward links, green hydrogen comes from renewables. The opportunity is to invest in such renewables and their supply chains. When transformed to green hydrogen, renewable energy output can be exported in circumstances where domestic supply exceeds domestic demand and provided the requisite infrastructure is in place. In terms of the core green hydrogen technology, the opportunity is to invest in technology to transform electricity energy outputs to hydrogen and further to derivative feedstocks such as ammonia and methanol. This requires investment in electrolysers and infrastructures such as pipelines and ports, and technology to transform hydrogen into fuels and fertilizers, which can be more easily transported and traded. There are different political strategies for managing this. One is to rely on foreign investors and technology suppliers. Another is to encourage investment in local technological capabilities and innovation systems. Over time, this can lead to the capacity to export electrolyser and conversion technology in foreign markets. In terms of forwarding linkages, a substantial green hydrogen capacity opens new opportunities in other sectors across industry, transport and agriculture including in the production of hydrogen-based outputs such as low-carbon steel and low-carbon cement which generates opportunities for competitiveness in decarbonized production.

3. Policymakers in the Global South need to make important strategic choices about their position in green hydrogen value chains and invest in coordination capability

Because of the deep interconnections with other industries, green hydrogen could become a strategic platform for developing countries and diversification in other sectors. At the same time, the deployment and the deepening of related industrial development can unfold over several stages associated with the core technology and its forward and backward linkages as described above. These can be seen as ‘waves’, each with the potential to either directly or indirectly spur industrial development.

The basis of the system is the renewable energy sector (wind, solar, geothermal, hydro), which should be in place for green hydrogen. The second wave is associated with industries transforming renewable energy into green hydrogen. These are related to electrolysers, feedstock industries (ammonia, methanol, and liquid organic hydrogen carriers), and infrastructure (pipelines, ports, tank ships and desalination plants). The third wave of industries that use the feedstocks, such as iron and steel, chemicals and transport (synthetic aviation fuels, fuel cells). The fourth wave is with downstream sectors such as auto, fertilizers and pharmaceuticals.

The initial waves are very capital intensive, have limited opportunities for indigenous technological learning and tacit knowledge spillovers, and do not generate substantial employment, although productivity is high. The final waves could create more and better-paid jobs. Foreign investment will follow these waves, starting with investments in renewables.

This requires strategic thinking and coordination capacity to capitalize on favourable preconditions and associated opportunities and connect the green hydrogen initiative via backward linkages to renewables, and forward linkages to industry, transport and agriculture.

4. Developing countries are currently preparing for the hydrogen economy by adopting ambitious mission-style approaches

Several developing countries are already taking action to exploit green hydrogen. They seek to bring together a large array of stakeholders with mission-oriented programmes for the hydrogen economy. The strong inter-industrial linkages, where green hydrogen is at the core of the industrial web, creates an enormous demand for cross-sector coordination. Joint design of policies for relevant sectoral production and innovation systems are needed as forward and backward linkages connect to highly different domains.

For example, South Africa launched the Hydrogen Society Roadmap involving stakeholders across the public and private sectors and organized civil society. The roadmap foresees dedicated interventions to increase the STI-orientated foreign investment secured by South Africa and it seeks to align more effectively such investment with national priorities as part of the overall effort by the government to promote South Africa as a preferred foreign investment destination.

In Ceará, Brazil, the start government has prioritized green hydrogen in its long-term state plan, Ceará 2050, along with a commitment to a fair energy transition. Characterized by good location, Ceará positions itself as a Green Hydrogen Hub, with strong conditions for renewable energy production, water supply, and a growing green hydrogen value chain. The State government expects to bring value to society, improve production chains, and increase human capital.

5. Further technological advances and support are needed to spread the industrial gains of the green hydrogen transformation

Green hydrogen is still an immature technology that is undergoing a fast-paced change with considerable uncertainty. The initial elements of the technological ecosystem of green hydrogen are capital intensive and developing countries will therefore benefit (or even require) collaboration with R&D and technology centres to deploy the technology. There are still big uncertainties about technologies and markets, and a significant challenge is currently the global tradability of green hydrogen in sea vessels which requires further technical development. Investments in water salination facilities are another core challenge.

There is an urgent need to form South-South networks of collaboration and collective action and North-South networks addressing technological and investment hurdles and, more widely, spreading the gains of the green transformation. As an example of the latter, the EU, UK and USA have developed a USD 8.5 billion Just Energy Transition Partnership with South Africa.

As highlighted recently by UN Secretary-General António Guterres, there is a need to treat renewable energy technologies as essential global public goods. It is essential to promote knowledge-sharing and technological transfer and remove intellectual property constraints. Intellectual property and global value chains for renewable energy technology are concentrated in a handful of advanced countries, and more international efforts are needed to globalize and speed up the transformation directly and spread the industrial development gains. This is a crucial step in ensuring global legitimacy and support for the great green transformation that is essential to present and future generations.

The UNCTAD Technology and Innovation Report 2023 will distil the lessons learned from low carbon initiatives such as green hydrogen in the Global South and help developing countries see this window of opportunity. As part of a pre-publication consultation process, UNCTAD, in collaboration with the Global Solutions Summit (GSS), the UNU-MERIT and the University of Pavia, held a side event at the 2022 STI Forum. The theme was “Green hydrogen windows of opportunity for developing countries” and the programme comprised opening remarks, a presentation, and a panel.