The H2Global Instrument

In line with the Paris Agreement the EU and Germany have set the ambitious climate protection goal of achieving greenhouse gas neutrality by 2050 and 2045 respectively. This requires significant changes in all sectors of the economy. For the transition towards a CO2-neutral future, we depend on the use of green hydrogen and its derivatives, such as ammonia, methanol, and sustainable aviation fuel (hereafter: Power-to-X (PtX) products).

H2Global has been developed in response to the mismatch between climate change targets and existing instruments to promote rapid reductions in CO2 emissions in the industrial, energy, heat, and transport sectors. The instrument therefore promotes the production and use of PtX products through a market-based approach, making an important contribution to the green transition of our society and economy.

H2Global is a competition-based instrument to promote a timely and effective ramp-up of the PtX market on an industrial scale. Currently, there is a market failure not only in terms of lack of investment in corresponding production capacity, but also in terms of the availability of climate-neutral energy sources, which prevents the large and economically important CO2 emitters in the EU and globally from decarbonizing quickly and consistently. To overcome this market failure, an intermediary, the Hydrogen Intermediary Company GmbH (hereafter HINT.CO), will conclude long-term purchase contracts on the supply side and short-term sales contracts on the demand side. Based on a mechanism in analogy to the Contractsfor Difference (CfD) approach, the difference between supply prices (productionand transport) and demand prices will be compensated by grants from a public or philanthropic funding body.

The combination of these long-term purchase agreements with HINTCO as a government-backed off-taker provide the necessary investment security to unlock large-scale investments now, resulting in a catalytic effect for ramping up the hydrogen economy.

For both, the purchase of the products by HINT.CO and the sales side, the price is determined via competition-based bidding procedures as part of a tailored funding window (see below). In line with sustainability criteria, the bids with the lowest supply price and the highest demand price are awarded the purchase and sales contract, respectively, in order to minimize the price difference that is to be compensated. Thanks to short-term sales contracts, H2Global can benefit from expected increasing market prices for conventional products reducing the gap that has to be compensated in the future. Accordingly, the funds required to compensate the price difference will potentially decrease over the course of the funding period, making it a highly effective and cost efficient mechanism compared to common subsidy schemes.

With H2Global, operators and investors receive the planning and investment security that is required for the development of large-volume electrolysis capacities, as they can build their business and financing model based on long-term purchase agreements with a solvent contract partner at cost-reflective prices. Simultaneously, on the demand side of HINT.CO, H2Global enables the integration of PtX products into the economic cycle at competitive prices.

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