Debate over renewable credentials for hydrogen rages in Germany

The debate has been triggered by proposed new legislation that is designed to establish a register of ‘guarantees of origin’ for hydrogen and other gases in Germany.

In a bid to increase transparency over the source of energy that businesses and consumers across the EU use, EU law makers in June 2022 finalised legislation to provide for a system of certification for gas, hydrogen, heating and cooling from renewable energy sources, as laid down in the Renewable Energy Directive II (RED II). Such a ‘guarantees of origin’ certification scheme already exists for green electricity. Earlier this month, the German federal government published draft legislation that is designed to implement parts of RED II on a national level. The German government is planning to establish a register of guarantees of origin, in order to promote the national market ramp-up of green gases and hydrogen.

Under the current draft legislation, only gases that do not use electricity subsidised under the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz) can receive certificates. ‘Blue’ hydrogen, i.e. decarbonised hydrogen from fossil sources, would also be eligible for certificates, because the CO2 produced during production is split off and stored, even though the source energy used for production is not renewable.

Environmental organisations argue that the certification of hydrogen that is not produced 100% from renewable energies could be deceptive and have demanded even stricter regulation.

However, industry associations believe the plans are impractical and go too far. Critics of the plans, which include business bodies such as the German Hydrogen and Fuel Cell Association, in particular, have said, the draft law “inhibits the substitution of natural gas” since the draft law foresees that hydrogen can only be certificated where it is transported in a 100% green hydrogen distribution network. This would mean businesses required or incentivised to purchase green hydrogen would not be able to do so if it is blended into the regular distribution network for natural gases. 

Germany’s hydrogen market is still in its relative infancy. The level of investment needed to produce 100% green hydrogen at the scale required to substitute for natural gas is substantial, also as the German government wants a separate distribution network for green hydrogen. Bodies such as the German Hydrogen and Fuel Cell Association essentially believe that the blending ban is an attempt to implement the energy transition too quickly and at too great a cost.

The government’s plans also have implications for energy users – particularly businesses in heavy industries under increasing pressure to decarbonise their operations. If substituting natural gas for hydrogen means having to decide whether to buy 100% green hydrogen or no hydrogen at all, and energy users are required to source renewable energy while being unable to consider blended gases as a source, then this will push up the cost of energy to them in the short term and is likely to force the price of the products they manufacture up more broadly across the economy.

Alice Boldis of Pinsent Masons said: “Germany, like many countries around the world, has set testing greenhouse gas reduction targets in an effort to combat the climate emergency. Viewed solely through that prism, the government’s plans to focus on certifying only gases, including hydrogen, that are separately distributed, are not surprising. That position is also supported from a consumer protection perspective, with it arguably being misleading to suggest blue hydrogen is sourced from renewable energy. However, there are other complex elements to the debate over whether at least blended gases could be an option – at least in the short term.”

More precise details on the implementation of the register are not yet clear. The law provides for further regulations to be made in relation to the register authority, the detailed requirements for the certificates, as well as further definitions, for example.

Stakeholders now await the final version of the law to see whether and to what extent their concerns are reflected.