The heightened interest in this renewable energy is no hype. Learn how it can bolster energy supplies while cutting harmful emissions around the world.
IF YOU HAVEN’T YET HEARD ABOUT GREEN HYDROGEN, you’re about to—in a big way. The universe’s most abundant element is among the hotter topics in the halls of industry and government from Australia to Saudi Arabia, along with a number of Asian, American and European nations. By many accounts, we will soon see green hydrogen—green because it’s produced with renewables—become a new multi-trillion-dollar commodity sector, transform the energy industry and play a big role in fighting climate change.
“The transition to green hydrogen could provide $11 trillion of infrastructure investment opportunities over the next 30 years.”2—Haim Israel, head of Thematic Investing Strategy at
BofA Global Research
We’ve heard enthusiasm for hydrogen more than once in the last few decades, but according to Haim Israel, head of Thematic Investing Strategy at
BofA Global Research and lead author of its 103-page primer on hydrogen, this time the excitement is justified. “We think we’re reaching an inflection point where green hydrogen could supply our energy needs, fuel our cars, heat our homes and be used in industries that have no economically viable alternative to fossil fuels,” he says. “Together with renewable electricity, green hydrogen gives us a shot at attaining a zero-carbon-emission global economy by 2050.”
That 2050 target date for zero carbon emissions is one that increasing numbers of countries are legally binding themselves to—based on the recognition that if we haven’t kept global temperatures from rising more than 1.5 degrees Celsius by then1, “we could reach the point of no return,” says Israel.
“We have a long road ahead of us, but this is an energy revolution that’s happening because it must,” Israel adds. “Green hydrogen could provide up to 24% of our energy needs by 2050, helping to cut emissions by around a third. In doing so, the transition to green hydrogen could provide $11 trillion of infrastructure investment opportunities over the next 30 years2 and direct annual revenues of $2.5 trillion.”3
We spoke with Israel about why so many people are charged up about hydrogen, and how it might change our lives if the predictions for it prove out.
Question: What makes green hydrogen so different?
Haim Israel: Hydrogen is the lightest and most common of the elements. It comprises 90% of the universe.4 It’s already being used in a number of industrial applications in the form of “gray” or “blue” hydrogen, both of which are created by fossil fuels.
What makes hydrogen a big deal is the diversity of its potential uses. Green hydrogen—produced by splitting water into hydrogen and oxygen in an electrolyzer, using renewable-powered electricity—can exponentially expand the use of solar and wind power. Right now, renewables can be used to pump the grid, but that’s almost it. You can’t put solar or wind power into your car or a plane. However, green hydrogen created by solar and wind power has the potential to do that.
Green hydrogen isn’t a stand-alone solution—it would be used along with electrification to head toward net zero carbon emissions by 2050.5 But what it does do is to provide a green alternative for "hard-to-abate" industries that can’t adapt to electrification.
Q: What’s changed to give the green hydrogen revolution the potential to become a reality?
A: The key reason green hydrogen hasn’t scaled is cost. Right now it costs $3 to $7 per kilogram to produce, compared with $1 per kilogram when made with fossil fuels. But three critical factors have aligned in the last year to make it possible to bring that production cost down to between $1 and $2 by 2050.6
First, the cost of electrolyzers used to create hydrogen has dropped 50% in the last five years, and it is expected to fall at least another 60% to 90% by 2030, which can start to make green hydrogen competitive to the gray hydrogen used in industries today.7
Second, we’re seeing technological advances that should further reduce costs by increasing production efficiency and the flexibility of green hydrogen use in fuel cells.8
“Over the coming decades, you could see green hydrogen playing a role in heating our homes and powering fuel cells for our cars, trains, ships and planes.”—Haim Israel, head of Thematic Investing Strategy at
BofA Global Research
Third—and this is possibly the most critical incentive for a green hydrogen economy—governments are buying into it. In July we saw the European Union make its European Hydrogen Strategy the centerpiece of its Green Deal, which in turn was folded into its fiscal stimulus response to the pandemic.
The Green Deal is tremendously ambitious and provides an instant source of demand, which is bound to be a catalyst for further innovation and cost reduction, not to mention enormous infrastructure development. Europe isn’t the only place thinking along these lines. Australia, Japan, China, the UK and Korea all have green hydrogen strategies and/or targets.
Apart from spurring demand for green hydrogen and infrastructure development, government policy can be critical in lowering the cost of green hydrogen and non-renewables for certain industries, in the form of incentives like carbon pricing, as well as subsidies. At their outsets, solar and wind projects also needed government subsidies, and their cost competitiveness was improved over time by efficiencies and new technologies.
Q: When will individuals see their lives change because of green hydrocarbon?
A: Gray hydrogen could potentially transition over to green hydrogen by the end of this decade. At that point, green hydrogen will play its biggest role in infrastructure and industries like steel and industrial gases.
But it won’t be long before it is working to improve the inconsistent availability of solar power in the winter. Over the coming decades, you could see green hydrogen playing a role in heating our homes and powering fuel cells for our cars, trains, ships and planes.
Initially, it’ll be more cost-competitive for long-haul transportation. Auto companies are already working on green hydrogen-fueled trucks and buses. Hydrogen-powered fuel cells are likely to be more expensive than battery-powered vehicles for now, so it will be a while before we see as many hydrogen-fueled passenger cars on the road as electric vehicles. That said, there are automakers in Asia producing hydrogen-powered fuel cell vehicles already, with more expected to be launched.
Q: What are some of the other industries that stand to benefit?
A. Sectors we think could be clear beneficiaries include renewable energy, given that demand is likely to grow 10 times by 2050 to service the needs of green hydrogen alone.2 Utilities will play a role in converting gas grids so that they can carry hydrogen blended with natural gas. Companies that develop electrolyzers and fuel cells stand to benefit, and the chemicals and industrial gases industry is likely to play a large role, given its expertise in using and transporting hydrogen.
Q: What do you see as green hydrogen’s ultimate role in our energy future?
A: It will be a long road and we’re not going to get there tomorrow, or even in 10 years. We’re talking about a long-term transformation of the global energy system, which will challenge some industries and benefit others. But I’m confident that green hydrogen will become part of human life, like fossil fuels are today. I think the pandemic has made government and industry leaders realize they should take heed when there’s overwhelming evidence that environmental challenges are looming.
In addition, the emergence of stakeholder capitalism and surging interest in environmental, social and governance (ESG) investing is making it easier, rather than harder, for companies to set zero-carbon targets.
What’s more, there’s an unlimited source of hydrogen. No one country can use the supply of green hydrogen as a geopolitical negotiating tool. Hydrogen is everywhere.
Connect with an advisor and start a conversation about your goals.
9am - 9pm Eastern, Monday - Friday
1 Based on Intergovernmental Panel on Climate Change (IPCC) trajectories
2 Source: Bloomberg New Energy Finance (BNEF)
3 Source: Hydrogen Council
4 Source: Royal Society of Chemistry
5 Sources: BNEF; International Energy Agency (IEA)
6 Sources: BNEF, ITM Power
7 Sources: BNEF, Hydrogen Council, ITM Power
8 Sources: IEA, BNEF
Information is as of 09/28/2020.
Opinions are those of the author(s), as of the date of this document and are subject to change.
Investing involves risk including possible loss of principal.
BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC, and wholly owned subsidiary of Bank of America Corporation.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.
Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors.