Assessing The Long Term Costs Of Blue And Green Hydrogen under Zero-Emissions Objectives

Low carbon hydrogen can be produced using a range of technologies. Green hydrogen is produced using electrolysis and renewable electricity, while blue hydrogen is produced using steam methane reforming (SMR) with carbon capture and storage (CCS). Recent studies and strategies have compared these technologies but have not assessed the effects of lower-than-perfect CCS capture rates on long term cost competitiveness. This paper computes the amount of emissions that would occur under different carbon dioxide capture rates, and the relative costs of blue and green hydrogen under different scenarios for carbon costs and for lifetimes of production facilities. Our analysis gives insights into the cost competitiveness of blue versus green hydrogen under strengthening climate policy over time. Our assessment takes into account expected hydrogen production opportunities and costs in Australia, and parameters in the Japanese Hydrogen Strategy. We find that while blue hydrogen (from fossil fuels, with CCS) is generally cheaper to produce now, green hydrogen is likely to improve its cost competitiveness over time. Tightening carbon constraints will raise the possibility that blue hydrogen production assets could become stranded.