Scottish Government Hydrogen Policy Statement

Chapter 1. Overview

Hydrogen as a low carbon fuel

Hydrogen is of interest because it can be produced to act as an energy carrier that can be used directly for different purposes. The technology to produce hydrogen is well understood and already routinely applied in industry and when coupled with carbon capture and storage (CCS), large scale hydrogen production can be achieved with ultra-low carbon and even negative emissions when using biomass.

It could also be used to displace the direct use of methane in the heating of our homes and the provision of heat and industrial processes in our heavy industries. This is because domestic central heating systems and industrial applications can potentially be adapted to use hydrogen, making the conversion of existing gas networks to hydrogen and 'greening the gas grid' a serious consideration. (See Chapter 5: Heat in Buildings).

In addition to its use as a substitute for natural gas, hydrogen is used as an energy carrier as part of the electrification of energy systems and applications, mostly via fuel cells. This renewable and low-carbon hydrogen can be used to help displace the use of internal combustions engines that rely on petrol and diesel in the transport sector. (see Chapter 7: Hydrogen in Transport)

Hydrogen Production

In broad terms there are three types of hydrogen production:

• Grey Hydrogen – is produced from the reforming of natural gas. This process produces both hydrogen and carbon dioxide.
• Blue (or low-carbon) Hydrogen – is produced in the same way as grey hydrogen but the process is aligned with CCS systems which capture most of the CO₂ produced, preventing it from entering the atmosphere and storing it safely in deep geological formations.
• Green Hydrogen – is produced from the electrolysis of water, a process which splits water into its constituent parts of hydrogen and oxygen. When renewably sourced electricity is used this process is completely green.

Hydrogen and Negative Emissions Technology

When hydrogen is produced from a bio-energy feedstock and combined with CCS it can deliver negative emissions. This is an example of a Bioenergy with Carbon Capture and Storage (BECCS) technology.

The Scottish Government is exploring the potential of negative emissions technologies such as BECCS for hydrogen production, industrial applications, and electricity generation along with Direct Air Capture (DACCS). We are commissioning research into the development of negative emissions technologies across each of these sectors, and how negative emissions, CCS infrastructure and hydrogen production can best support decarbonisation of the whole energy system.

Hydrogen as an Energy Store

Hydrogen also has a critical role to play in terms energy storage. Today, natural gas provides one of the largest energy storage mechanisms in the UK's energy system, with capacity for 17 TWh of energy storage providing critical flexibility for a wide range of energy system applications.

As we reduce our reliance on fossil fuels and aim for net zero hydrogen provides one of the most viable opportunity for large scale sustainable energy storage.

Key storage applications that hydrogen can deliver include:

• long-duration energy storage over months or longer in order to meet seasonal peaks in electricity and heat demand;
• medium term storage over days and weeks to manage the variability and uncertainty in the output of wind, solar and marine resources, and to balance the generation and use of energy;
• short term storage over hours, providing important services such as system balancing, inertia and voltage control on the electricity system.

Understanding hydrogen's role in decarbonisation

The Climate Change (Emissions Reduction Targets) (Scotland) Act 2019^[2] commits Scotland to reach net zero emissions of all greenhouse gases by 2045. It includes interim targets to reduce emissions by 75% by 2030, against a 1990 baseline, and to reduce emissions by 90% by 2040. These targets are required to meet Scotland's commitments under the 2015 Paris Agreement, which aims to limit global average temperature increases to 1.5 degrees Celsius.

To date, most of Scotland's emissions reductions have come from decarbonisation of electricity generation. Decarbonisation of heat, industry and transport are now priorities and require a broader range of technologies, strategies and energy systems.

There is consensus that hydrogen will play a critical role in decarbonisation of the energy system. Key publications such as the Scottish Energy Strategy (2017)^[3], Committee on Climate Change Net Zero report (2019)^[4], National Grid ESO's Future Energy Scenarios (2020)^[5] and, the Offshore Wind Industry Council and Offshore Renewable Energy Catapults Offshore Wind and Hydrogen: Solving the Integration Challenge (2020)^[6], have identified hydrogen as vital in decarbonising the energy system. Hydrogen is vital to decarbonising sectors where full electrification is challenging, such as industry, transport and parts of the heat sector. A growing hydrogen economy, and the associated infrastructure required to support it, has the potential to provide cross-sectoral benefits.

The Committee on Climate Change has advised that demand for hydrogen across the UK is expected to increase significantly, from 27 TWh in 2017 to around 270 TWh by 2050 in its indicative pathway to reach net zero.

Identifying the unique Scottish context and understanding hydrogen's role in decarbonisation is critical to achieve Scotland's world leading decarbonisation targets. Therefore, the Scottish Government commissioned the Scottish Hydrogen Assessment, which sought to broaden and deepen our understanding of the potential offered by the production and use of hydrogen as we transition to net zero. This policy statement is a response to this assessment and should be read in conjunction with the assessment report.

The evidence gathered in the Hydrogen Assessment was complemented with the completion of a Scottish Offshore Wind to Green Hydrogen Opportunity Assessment and a Deep Decarbonisation Pathways for Scottish Industries study, which contributed to the comprehensive evidence base that now informs our future policies in support of the development of a hydrogen economy in Scotland.

Many of the regulatory and legislative levers required to enable the emergence of a hydrogen economy in Scotland are determined at a UK level. We welcome the UK Government's 10 Point Plan for a Green Industrial Revolution, published in November 2020, which set out a target to generate 5GW of low-carbon hydrogen production capacity by 2030 for industry, transport, power and homes, and an aim to develop the first town heated entirely by hydrogen by the end of the decade. A UK Government Hydrogen Strategy is expected to be published in the Spring of 2021.

Scottish Hydrogen Assessment

The Scottish Hydrogen Assessment was initiated in February 2020 and completed in October 2020. The assessment investigated how and where hydrogen may fit within the evolving energy system in Scotland, technically, geographically and economically.

From the assessment findings, and those of the Scottish Offshore Wind to Green Hydrogen Opportunity Assessment, we can determine the likelihood of sectors to transition to hydrogen and those most likely to be decarbonised by other means. The findings suggest that industrial and transport sectors are most likely to be the first takers of hydrogen in Scotland and could underpin market demand for low-cost hydrogen during the 2020s.

Initially, regional or local production of renewable hydrogen will play an important role in helping to build the domestic hydrogen market and these have the potential to scale up quickly. We are seeing regional efforts coming forward already in Scotland such as the clusters of activity in Aberdeen, Orkney, Glasgow and Dundee. Low-carbon blue hydrogen could supply relatively low-cost hydrogen at scale and be used as a transition fuel in the medium-term, as developments like the Acorn Hydrogen project at St Fergus in North East Scotland become operational by 2025.

This may enable Scotland to establish a hydrogen economy relatively quickly in the near-term alongside the steady growth of large scale green hydrogen production in the medium-term. Scotland has an abundance of the ingredients in green hydrogen production: water and wind, both on and offshore.

A key part of the Assessment was the development of distinct viable scenarios for hydrogen deployment in Scotland and the economic assessment of those scenarios. Analysis of the potential economic impact in terms of Gross Value Added (GVA) and employment was undertaken for the purposes of understanding the relative scale of economic opportunities presented across and within the scenarios.

The most ambitious 'export' scenario in this assessment assumes that Scotland could credibly reach an installed capacity of 5 GW of renewable hydrogen by 2032 and over 25 GW by 2045. This is based on a high capacity of the ScotWind seabed leasing round for offshore wind projects and realistic subsequent future offshore wind developments being realised.

However, the scale of the hydrogen market depends on its cost. Driving down the cost of offshore and onshore wind electricity production will be key to cost-effective green hydrogen production.

If achieved, then Scotland's green hydrogen production will meet an expected growing domestic demand to help address decarbonisation of transport heat and industry sectors and also provide a surplus suitable for export according to the Assessment findings.

Further, this will provide opportunities along the whole hydrogen value chain in manufacturing and component and service supply chains as well as potential international collaboration opportunities with other nations and organisations seeking to decarbonise and invest in hydrogen production.

While headline figures for each scenario are presented, these should be treated as illustrative as they are not intended to be accurate depictions of what happens but possibilities based on a range of current views and assumptions. That said, the potential scale of the economic opportunity from the production of hydrogen has been calculated and the assessment scenarios attribute this in the main to future export demand from the UK and Europe. The gross impacts by 2045 across three scenarios modelled range from 70,000 to over 300,000 jobs protected or created and GVA impacts of between £5 billion and £25 billion p.a.

Global action

In less than a year's time, we will welcome to Glasgow the thousands of delegates to the United Nations Framework Convention on Climate Change 26^th Conference of Parties (COP26). COP26 promises to be the most significant climate change summit since the Paris conference, five years ago. And it will potentially be one of the most important global gatherings of the century so far.

The fact that COP26 will take place here is obviously a huge honour for Glasgow – and for Scotland. But our ambitions for the conference extend well beyond simply being good hosts. We are determined as a country to play a full part – along with other cities, regions and states – in delivering a successful and ambitious outcome.

Last year, our country set world leading targets – to achieve a 75% reduction in emissions by 2030, and net zero by 2045.

We are now taking the action necessary to achieve our targets. As such, we are pursuing policies, including support for the development of alternative energy solutions such as hydrogen, which will help us to reduce emissions – while supporting a green recovery from COVID19, and enabling a just transition to a net zero world.

Many countries are seeking to build a hydrogen economy. Globally, hydrogen is expected to play a key role in a future decarbonised energy system. Many nations, as well as the European Union, are developing hydrogen strategies and policy frameworks which set out their national ambitions.

For a country to be a successful exporter of hydrogen, it must be able to produce and transport the hydrogen to the point of demand safely and securely. This must be done in a cost competitive way, competing in a global market.

Scotland has potential to produce significant quantities of green hydrogen from our offshore and onshore wind resources and our potential wave and tidal power which is vastly greater than our indigenous demand. We also have the potential to produce large scale blue hydrogen.

Scotland is keen to play its role in the development of UK, European and international markets. It is well placed in terms of proximity and infrastructure connectivity to several European nations that are unlikely to be able to produce enough green hydrogen to meet their own decarbonisation needs.

Scotland has recently been confirmed as European Co-Chair of the Under2 Coalition, a network of more than 200 Governments set up to drive climate action across the world and we see hydrogen as a key area of interest in this important body.

Scotland's access to low cost renewables, supplies of natural gas, carbon storage infrastructure, utilisation of existing transport infrastructure and proximity to demand, can all contribute to reducing the cost base. There is therefore an opportunity for Scotland to produce and export the lowest-cost clean hydrogen in Europe.