When Xi Jinping opened the Chinese Communist party’s 20th congress last October, China’s most powerful leader since Mao Zedong reaffirmed his plan to steer the world’s biggest polluter on the path to decarbonisation.
“We must stick to the philosophy that ‘clear waters and lush mountains are our silver and gold’,” Xi said. “Harmonious coexistence of humans and nature should be a mission embedded in our development plans.” He was addressing the quinquennial meeting in Beijing, as he secured a third term as leader of the country of 1.4bn people.
And his comments underscored the importance of new sources of fuel in China’s economy, including hydrogen, noted rating agency S&P at the time. They also followed commitments by Xi, in 2020, for China to hit peak carbon by 2030 and carbon neutrality by 2060.
So, with the country’s energy policy now set by the very top, the question, experts say, is not whether hydrogen will have its day in the sun in China, but when?
Green hydrogen, as a clean fuel produced from renewable sources, has the potential to play two critical roles in chasing Xi’s climate change goals.
First, as stored energy, hydrogen could be pivotal in helping China remove coal power plants from its electricity system, and providing a stable back-up to the electricity generated by intermittent solar and wind.
“Many people see hydrogen as a way to add more flexibility in the electricity system, while at the same time ensuring you can unleash the potential of wind and solar,” says Li Shuo, a Beijing-based senior global policy adviser at Greenpeace, the environmental campaign group.
Its second role is as a source of clean fuel, which could replace coal in China’s steel sector — the world’s biggest producer of the metal material. University of Oxford researchers, writing in the scientific journal Nature Communications in May, pointed out that steel remains the mostly widely used metal on earth and that fossil fuels are the “steel sector’s bloodstream”, causing 7 per cent of global energy-related CO₂ emissions.
Alternative fuels, such as methane, could be used to replace coal and lower the carbon profile of steelmaking, but green hydrogen has the potential to decarbonise the process completely.
“It is very difficult to find technologies or solutions to decarbonise steelmaking,” Li explains. “Hydrogen in this context is a very critical tool. Hydrogen from green sources, plugged into the steelmaking process could drastically help reduce emissions.”
Nikhil Bhandari, co-head of investment bank Goldman Sachs’s research on Asia-Pacific natural resources and clean tech, believes that hydrogen could ultimately drive as much as 20 per cent of China’s decarbonisation from current levels.
Bhandari says pure economics should push hydrogen to an “inflection point”, where it becomes much more financially feasible, by the end of the decade.
That view is underpinned by the bank’s assessment, in a recent report, that, by 2030, China’s combined capacity of solar and wind will reach 3.3 terawatts — nearly triple Beijing’s own targets. China already has around 30 per cent of the world’s installed global capacity of solar. Driven by significant reductions in solar and battery costs, the improved economics of renewables and stored energy will mean that green hydrogen becomes increasingly competitive against the price of coal.
Bhandari and his team predict that China will be close to energy self-sufficiency by 2060. They believe that, in coming decades, green hydrogen will displace not only an increasing amount of coal in power generation, but also natural gas in industrial use, and diesel and gasoline in fuelling vehicles.
Beijing has long seen a role for the gas: use of hydrogen was identified in 2015 as part of the government’s 10-year “Made in China 2025” plan to upgrade the country’s manufacturing industry.
However, hydrogen production in China has predominantly relied on fossil fuels. Analysts from Fitch Solutions, the research arm of the US rating agency, expect the role of renewable-based hydrogen to expand more quickly after 2030 but say the pace of deployment may also hinge on the progress of new technology, as well as access to it in different regions.
The Oxford researchers have also stressed that, for market competitiveness, “it is important, especially in the short term” to locate green-hydrogen steelmaking in locations with strong and reliable solar and wind resources as well as high-quality iron ore.
To that end, investments in hydrogen infrastructure and technologies are under way in different parts of China, including the northern industrial rustbelt in Shandong, Hebei and Beijing, as well as in the high-tech export zones further south in Shanghai and Guangdong. These hydrogen clusters include traditional fossil fuel producers and power generators, as well as carmakers and other industrial users.
Large steel producers, including China Baowu Steel and HBIS, are among those piloting programmes producing so-called “green steel” — made with electric rather than coal-fed furnaces — with green hydrogen as a fuel source.
However, Li says there are also sensitive political considerations that will ultimately weigh on the timing of hydrogen uptake.
Will Chinese steelmakers, already facing the prospect of slowing long-term growth, commit to more expensive “green steel”? Equally, will policymakers in Beijing take a harsher position on the carbon profile of high-emitting industries that are still the backbone of the Chinese economy and major employers?
“Do not think of hydrogen as one piece of infrastructure, ‘you put it in, mission accomplished’,” warns Li. “There will be infrastructure costs and deployment costs to do large-scale projects to generate hydrogen . . . Will we see the political appetite for that? There are a lot of question marks.”
