The EU has faced mixed results in laying the groundwork for the emerging renewable hydrogen market, according to a report by the European Court of Auditors. Despite positive steps taken by the European Commission, challenges persist throughout the hydrogen value chain, making it unlikely that the EU will meet its 2030 targets for renewable hydrogen production and import.

The report calls for a reality check to ensure that the EU's targets are realistic and that strategic decisions do not compromise the competitiveness of key industries or create new dependencies.

“The EU’s industrial policy on renewable hydrogen needs a reality check,” said Stef Blok, the ECA Member in charge of the audit. “The EU should decide on the strategic way forward towards decarbonisation without impairing the competitive situation of key EU industries or creating new strategic dependencies.”

Risks, one by one

The report shows that the Commission set overly ambitious targets for the production and import of renewable hydrogen, i.e. 10 million tonnes each by 2030. These targets were not based on a robust analysis, but were driven by political will. Moreover, achieving them has had a bumpy start.

Firstly, member states’ differing ambitions were not always aligned with the targets. Secondly, in coordinating with the member states and industry, the Commission failed to ensure that all parties were pulling in the same direction.

On the other hand, the auditors give credit to the Commission for proposing most legal acts within a short period of time: the legal framework is almost complete, and has provided certainty that is key to establishing a new market. However, agreeing on the rules that define renewable hydrogen took time, and many investment decisions were deferred. Project developers also defer investment decisions because supply depends on demand, and vice versa.

According to the Auditor's analysis, building up an EU hydrogen industry requires massive public and private and investment, but the Commission does not have a full overview of needs or of the public funding available. At the same time, EU funding – estimated by the auditors at 18.8 billion euros for the 2021-2027 period – is scattered between several programmes, thus making it difficult for companies to determine the type of funding best suited for a given project.

The bulk of EU funding is used by those member states with a high share of hard-to-decarbonise industry, they said, and which are also more advanced in terms of planned projects, i.e. Germany, Spain, France, and the Netherlands. However, there is still no guarantee that the EU’s hydrogen production potential can be fully harnessed, or that public funding will allow the EU to transport green hydrogen across the bloc from countries with good production potential to those with high industrial demand.

The auditors call on the Commission to update its hydrogen strategy, based on a careful assessment of three important areas: how to calibrate market incentives for renewable hydrogen production and use; how to prioritise scarce EU funding and which parts of the value chain to focus on; and which industries the EU wants to keep and at what price, given the geopolitical implications of EU production compared to imports from non-EU countries.