Game Changer: How Green Hydrogen Could Fuel Our Future

AS A CLEAN ENERGY SOURCE, hydrogen almost couldn’t be more ideal. Not only is it a ubiquitous raw material, comprising some 90% of the universe,¹ but hydrogen gas can also be used as a fuel—powering cars, heating homes and enabling heavy industry—that leaves only water and heat as byproducts.²

Right now, producing hydrogen gas is a fossil fuel-intensive endeavor, but when produced using sustainable energy, like solar and wind, hydrogen gas has the potential to be one of the greenest of green fuels. According to The Special 1 — Hydrogen Primer, a report from BofA Global Research, the rapidly decreasing cost of wind and solar power, improvements in the hydrogen production process and the urgent need to address climate change could make hydrogen a major factor across much of the global economy.³

“We believe we are reaching the inflection point for harnessing hydrogen effectively and economically,” says Haim Israel, head of Thematic Investing Strategy at BofA Global Research and lead author of the primer, adding that it could be key in the fight against global warming. 

And since hydrogen fuel cells can be scaled up or down, individual cells can be used to power cars, trucks and buses. While only a few thousand hydrogen fuel cell electric vehicles (FCEVs) are on the road today, BofA Global Research projects that the market is quickly gaining steam and could reach 240,000 FCEVs worldwide by 2030¹⁰—fueled by reductions in cost and strong support from a number of governments, including China, Japan and the European Union.¹¹

This, in turn, would create a demand for the fueling infrastructure—pipelines, storage and transport—needed to service a hydrogen-based fleet. Longer-term, we may even see the adoption of green hydrogen among companies involved in aerospace and shipping.¹²

Why public policy and private investment are both essential

One of the prerequisites to scaling up green hydrogen adoption is increased coordination between government policy and private capital. According to Briggs, neither one on its own is enough to move the needle on wide-scale hydrogen adoption. “We will need to see greater harmonization between the two, whereby governments establish research budgets, financial incentives and clear targets—and companies subsequently ramp up to meet those targets. Private money won’t simply fund this without clear visibility from the public policy sector. Instead, we’ll need to see economically viable solutions and a reasonable return on investment.”

This could be aided by a shift in policy to focusing on “climate solutions” rather than debating “climate change,” suggests Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “Governments are spending enormous amounts of money combating issues that climate change creates—floods, fires, destruction of arable land and the list goes on. If we could change that equation and take those dollars to reinvest in solutions, that absolutely changes the game.”

This may already be starting to happen. In some instances, governments are setting sustainability targets that focus on areas like decarbonization, the number of FCEVs needed to be produced or electrolyzer capacity. Indeed, the European Union recently made its European Hydrogen Strategy the centerpiece of its Green Deal¹³—while Australia, Japan, China, the United Kingdom and Korea all have green hydrogen strategies and/or targets of their own.¹⁴

For now, producing green hydrogen costs substantially more than the more common “gray” hydrogen, which is produced with natural gas—a financial reality that won’t change overnight.¹⁵ Yet established industries are finding ways to progress toward clean energy goals. Industrial gas companies, for example, don’t yet have the capacity to create green hydrogen but are creating joint ventures and partnerships that will do so.¹⁶

This is where investors could join forces with businesses to make a difference—and not just in supporting hydrogen-based startups. Although not without risk, investors are increasingly choosing to support companies with a strong focus on sustainability, including reducing the impact of their operations on the environment.¹⁷ And as more companies and industries seek to adopt cleaner energy sources, such as green hydrogen and other renewables, the opportunity set should continue to expand. While hydrogen alone can’t solve the challenges of climate change, it could be a critical part of a greener and cleaner global energy system.

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