April 15, 2021 / Regnan Research

Hydrogen’s role in the SDG agenda

The world economy needs to reach net-zero emissions by about 2050 to limit global warming by 1.5 degrees Celsius. It also needs to reduce energy-related air and soil pollution, which harms ecosystems and humans. And it needs to do this while providing access to energy to a larger proportion of the growing global population. These interconnections put the energy transition question at the heart of the United Nations’ Sustainable Development Goals (SDG), the global agenda launched in 2015 to tackle the world’s toughest environmental and social challenges by 2030. The energy transition spans multiple SDG targets across climate change, human health, ecosystem preservation, and poverty alleviation. Energy transition is also one of the investment themes of the Regnan Global Equity Impact Solutions strategy, prompting our interest in deeply understanding potential risks and unintended consequences – the subject of Regnan’s report: H2 beyond CO2.

In theory, hydrogen could be used for many sectors: as a fuel for transport and power, for heat for industrial processes and buildings, as a feedstock for chemicals like fertilizers and industrial products like metals. In practice, hydrogen’s appeal depends on two critical factors: how it compares to other decarbonisation options, and how much zero-carbon hydrogen production can be ramped up to meet demand.

Today very little of current hydrogen production is made by water electrolysis powered by renewables, generally called “green hydrogen”. Most of the hydrogen produced today is made through the reforming of gas – which results in emissions of methane and carbon dioxide, two greenhouse gases – And a third of hydrogen produced is used in fossil fuel refining processes. Indeed, hydrogen producing companies in Europe are among the continent’s largest emitters of greenhouse gases. Hydrogen from steam methane reforming could become low-carbon if emissions are captured and stored during production – generally called “blue hydrogen”. This could work as a low-carbon solution although much work remains to address issues across the full lifecycle profile. Notable concerns are methane leakages during the production and transport of gas, uncertainties on carbon storage, the pollution potential in the supply chain, and a relatively large water consumption.

Things are about to change radically as renewable energy capacity ramps up. Wind and solar installed capacity has already grown 7x in the 10 years to 2019, according to Bloomberg New Energy Finance. Countries like Denmark, the UK and Spain are generating more than a third of their electricity from renewable energies. Large renewable energy projects, such as gigawatt-scale offshore wind farms, are the most likely candidates for pairing with hydrogen production through electrolysers. In Europe, the offshore wind resource in the North Sea is conveniently located close to heavy industrial hubs. In China, about 4% of wind production was curtailed in 2019 at times where supply exceeded demand, according to China’s National Energy Administration; this excess production could be used instead for hydrogen production.

Hydrogen production needs to be assessed beyond just carbon and across all sustainability dimensions. Investors and companies need to avoid locking in sustainability problems later down the line – as happened with other technologies initially promoted as impact solutions, such as earlier generations of biofuels (deforestation contributing to global warming, food price inflation, and biodiversity loss), liquified natural gas (methane leakages contributing to global warming), and bioplastics (lack of suitable composting or recycling infrastructure).

Regnan’s report: H2 beyond CO2, looks beyond carbon emissions analysis alone and:

  • Presents investment relevant insights from our comparison of three key production technologies, considering performance today as well as how the positioning of each will evolve over time.
  • Provides current and future estimates across all key environmental factors for our focus technologies.
  • Identifies management practices that responsible investors should look for in hydrogen producers to minimise risks and maximise positive impact.

This analysis supports comprehensive evaluation of hydrogen solutions applying the Regnan SDG Taxonomy, a central part of the structured investment process which underpins the Regnan Global Equity Impact Solutions Strategy.

Regnan has developed a structured approach to identify solutions across our thematic investment areas, such as future mobility and energy transition, building from the UN Sustainable Development Goals (SDG). The taxonomy provides a framework to identify specific sustainability issues to be resolved with respect to the relevant SDG, drawing on corresponding SDG targets.

Research is then conducted to define solution areas which assist identification of appropriate investment opportunities. Identification of ‘impact risks’ – risks to consider when assessing potential solutions – is a central feature of the taxonomy.

Hydrogen production needs to be assessed beyond just carbon and across all sustainability dimensions. Investors and companies need to avoid locking in sustainability problems later down the line – as happened with other technologies initially promoted as impact solutions, such as earlier generations of biofuels (deforestation contributing to global warming, food price inflation, and biodiversity loss), liquified natural gas (methane leakages contributing to global warming), and bioplastics (lack of suitable composting or recycling infrastructure).

Regnan’s report: H2 beyond CO2, looks beyond carbon emissions analysis alone and:

  • Presents investment relevant insights from our comparison of three key production technologies, considering performance today as well as how the positioning of each will evolve over time.
  • Provides current and future estimates across all key environmental factors for our focus technologies.
  • Identifies management practices that responsible investors should look for in hydrogen producers to minimise risks and maximise positive impact.

This analysis supports comprehensive evaluation of hydrogen solutions applying the Regnan SDG Taxonomy, a central part of the structured investment process which underpins the Regnan Global Equity Impact Solutions Strategy.

Regnan has developed a structured approach to identify solutions across our thematic investment areas, such as future mobility and energy transition, building from the UN Sustainable Development Goals (SDG). The taxonomy provides a framework to identify specific sustainability issues to be resolved with respect to the relevant SDG, drawing on corresponding SDG targets.

Research is then conducted to define solution areas which assist identification of appropriate investment opportunities. Identification of ‘impact risks’ – risks to consider when assessing potential solutions – is a central feature of the taxonomy.

Maxime Le floch, CFA

Analyst

Alison George

Head of Research

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