Chinese plans to boost low carbon hydrogen offers few surprises

Low carbon hydrogen in China received a boost with the Chinese Government unveiling official support for the green fuel on Dec. 31.

In a press release, the Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission, and the National Energy Administration call for refiners and chemical companies to increase the use of hydrogen in their production processes to reduce emissions.

In addition, research and development for green methanol and green ammonia, two zero-carbon fuels derived from hydrogen was also encouraged.

The plan offers few surprises to market watchers.

A first source cited the lack of an official offtake agreement for Chinese producers of hydrogen/green methanol and green methanol as an important issue, hence there is pressure on the Chinese government to help these producers.

The preponderance of state-owned enterprises within domestic end-user markets and among the low-carbon hydrogen developers within China is also likely to be a consideration for the Chinese authorities, said Nick Edstrom, Global Hydrogen Pricing lead at S&P Global Commodity Insights.

The first source added that they expect most of the green hydrogen to be consumed locally rather than exported.

Commodity Insights data shows China has 49.57% of the global capacity of green hydrogen projects under construction in 2023/24.

However, according to HySights data, only a handful of China's large-scale projects under construction have significant (>80%) offtake coverage – a threshold often used by banks when determining whether to provide project finance. Most of this announced offtake is for use of methanol (bio- and e-) as a marine fuel.

"China's provinces have been bold in encouraging construction of large-scale low-emission fuel projects in recent years. Whereas projects in other parts of the world have struggled to reach FID due to a lack of offtake for low-emission fuels, it is notable there has been very little announced offtake for these China-based projects. is likely that some China-based projects have signed unannounced offtake with local enterprises in the mobility sector, for example, it is fair to say that there has been a "build it and [the buyers] will come" approach " said Ciaran Roe Co-Founder & CCO of Hysights.

The plan along with an earlier announcement allowing co-firing at coal plants with ammonia meant the Chinese government is creating local demand for green hydrogen.

According to S&P Global Hydrogen Principal Research Analyst, Anri Nakamura, the new policy aims to direct hydrogen towards more critical hard-to-abate sectors. "Given that a significant portion of Chinese industries still rely on coal as a feedstock, we anticipate substantial decarbonization benefits from this strategic shift. Its success will depend on whether the government is able to set a level of subsidy which is both enticing for the businesses and fiscally sustainable." she said. China has firmly established itself as the global leader in renewable energy installations, as well as in the manufacturing and capacity development of electrolyzers though demand has been less than expected due to lack of offtake agreements and technical challenges.