Rais Foudil

The classification of hydrogen based on production methods and carbon intensity plays a crucial role in defining its place within the energy transition and climate policy. The distinctions between green, blue, and grey hydrogen are not merely technical—they carry significant environmental, economic, and regulatory implications.

Green hydrogen, produced via electrolysis using renewable energy sources (such as wind or solar), is the only form of hydrogen that is truly sustainable in the context of climate neutrality goals. Its use enables the decarbonization of sectors that are currently difficult to electrify directly, such as steelmaking, chemical industries, and heavy transport.

Blue hydrogen is increasingly viewed as a transitional solution—it allows the use of existing resources and infrastructure while reducing emissions through carbon capture and storage (CCS) technologies. However, this option remains controversial, as the efficiency and reliability of CCS on a large scale have yet to be fully demonstrated, and there is a risk of "locking in" continued dependence on fossil fuels.

Grey hydrogen, which currently accounts for the majority of global hydrogen production, has the highest carbon footprint and runs counter to decarbonization goals. Its use should be gradually phased out, and policies should introduce regulations and economic instruments that discourage its production while promoting a shift toward cleaner alternatives.

In conclusion, a clear understanding of the differences between hydrogen types is essential for shaping effective energy policy, setting investment priorities, and building a regulatory framework that supports a fair and efficient transition to a low-carbon economy. Green hydrogen, with the right support, should be the strategic objective, while blue hydrogen may play a limited role during the transitional period.

According to arxig.org and www.oecd.org, developing economies face a unique balancing act when designing their national decarbonization roadmaps. At the center of this challenge is the current cost and efficiency gap between green hydrogen—produced via renewable-energy-powered water electrolysis—and blue hydrogen—derived from natural gas combined with carbon capture and storage (CCS).

Cost and Efficiency Realities: Green hydrogen currently carries a higher production cost than blue hydrogen. For example, techno-economic analyses indicate green hydrogen costs can range from roughly $3.50 to $6.00 per kilogram, whereas blue hydrogen, though still more expensive than conventional (gray) hydrogen, is generally estimated at around $2.00 to $3.50 per kilogram. This cost gap is largely driven by green hydrogen's dependence on large capital investments for electrolyzer systems and the need for low-priced renewable electricity, often not readily available or competitively priced in developing countries. Moreover, the efficiency losses inherent in the electrolysis process add to the financial burden.

Implications for Decarbonization Roadmaps: Given these cost discrepancies, many developing economies are forced to chart a pragmatic, phased approach in their decarbonization strategies:

• Short- to Medium-Term Adoption of Blue Hydrogen: Blue hydrogen offers a more immediately viable option because it leverages existing natural gas infrastructures and CCS technologies. This "bridging" technology can help lower overall emissions when rapid decarbonization is needed, even if it does not completely eliminate fossil fuel input. Such an approach allows countries to start reducing emissions without waiting for the extensive cost reductions and efficiency improvements anticipated for green hydrogen.
• Financing Constraints and Policy Measures: In many developing economies, high financing costs and elevated Weighted Average Cost of Capital (WACC) further exacerbate the price differential. Studies have shown that mitigating financial risks, through measures like government-backed guarantees, international partnership models, or targeted subsidies, can narrow the gap by making capital more accessible for green hydrogen projects. Such measures are critical in national roadmaps where energy projects must compete against other pressing development priorities.
• Long-Term Transition Goals: While blue hydrogen may serve as the initial decarbonization tool, national strategies increasingly emphasize the eventual shift toward green hydrogen. This is predicated on anticipated reductions in renewable energy prices, technological advances in electrolyzer efficiency, and economies of scale achieved through policy-driven investments and international cooperation. Thus, roadmaps are often structured to incorporate blue hydrogen as an interim step, while setting clear targets for transitioning to green hydrogen when it becomes economically competitive.
• Risk of Technological Lock-in: There is, however, a cautionary note. Over-reliance on blue hydrogen can lead to a potential technological lock-in, where investments in natural gas infrastructure might delay or complicate the full transition to a net-zero economy. This forces policymakers to ensure that blue hydrogen projects are designed with exit strategies or upgrade paths that can eventually be converted to, or complemented by, green hydrogen systems once cost and efficiency improvements materialize.

Broader System Considerations: Decarbonization roadmaps must also consider regional variations in renewable resource availability, grid infrastructure, and industry-specific energy demands. Mixed strategies become essential for developing economies with varying access to renewable power and different natural gas market conditions. Innovative policy instruments that lower the financial risks and simultaneously incentivize renewable capacity expansion are vital to bridging the cost and efficiency gaps.

In summary, while green hydrogen's higher cost and lower efficiency than blue hydrogen currently tilt short-term choices toward the latter, national decarbonization roadmaps in developing economies are increasingly adopting a dual strategy. They leverage blue hydrogen's relative cost advantage for quick wins in emissions reduction while simultaneously preparing the ground, through policy support, financial risk mitigation, and technological capacity-building, for a deeper transition to green hydrogen in the future.

Such a layered approach aligns with immediate economic and energy realities and sets clear long-term trajectories for sustainable decarbonization.

Cost and Efficiency Gaps Between Green and Blue Hydrogen

Impacts on National Decarbonization Roadmaps in Developing Economies

Specific Considerations for Developing Economies

• Export Potential: Countries with vast renewable resources, like Morocco or Namibia, are positioning themselves as green hydrogen exporters, potentially offsetting costs through trade (e.g., Morocco to Germany). Blue hydrogen may serve as a bridge for domestic needs, but it is less competitive for export due to its emissions profile.
• Industrial Development: UNIDO highlights green hydrogen as a chance for sustainable industrialisation, creating jobs and upgrading skills in developing economies. Blue hydrogen, while cheaper, offers less transformative potential due to its reliance on fossil fuels.
• Energy Security: Green hydrogen enhances energy security by reducing dependence on imported fossil fuels, a critical factor for gas-importing nations like India or Japan. Blue hydrogen, tied to natural gas markets, may expose economies to price volatility, undermining long-term stability.