What it would take to unlock the next phase of hydrogen growth

Global hydrogen demand reached 100 Mt in 2024, mainly from refineries, the production of chemicals and the iron and steel sector. Demand grew by almost 2% from 2023, in line with overall energy demand growth. This consumption was almost completely met with hydrogen produced from unabated fossil fuels, using 290 billion cubic metres of natural gas and 90 million tonnes of coal equivalent. However, alternative technologies that can produce low-emissions hydrogen have attracted a lot of interest from governments given their potential to reduce greenhouse gas emissions and diversify energy supply, particularly in countries that have a large dependence on fossil fuel imports.

Low-emissions hydrogen production – or the production of hydrogen from low-emissions electricity via water electrolysis, from bioenergy or from fossil fuels in combination with carbon capture and storage – is still at an early stage today. But it saw impressive momentum in the early 2020s, when a wave of ambitious government commitments was met with a vigorous response from the private sector, which spearheaded the announcement of hundreds of low-emissions hydrogen production projects.

This created high expectations for what was still a nascent sector. When the IEA published its Global Hydrogen Review 2022, governments had adopted targets that cumulatively accounted for 190 GW of electrolysis capacity by 2030 – even though less than 0.7 GW was operational at the end of 2022 and, according to the latest data available, global capacity was on track to barely surpass 4 GW in 2025.

To be sure, setting ambitious goals has proved useful in attracting corporate activity. But there are barriers for new products entering the market, such as high costs for first movers and a lack of adequate regulation and infrastructure. The adoption of nascent technologies can therefore a be lengthy and uneven process, combining rapid breakthroughs with periods of sluggish development. Other sectors that are now viewed as success stories have also gone through these phases. For example, it was 25 years after the first solar panels arrived on the market that solar PV reached a 1% share of a country’s electricity supply for the first time.

Recent headlines on hydrogen have emphasised project delays, cancellations and downward revisions of targets for low-emissions hydrogen adoption. This has fostered a gloomier outlook among government and industry, feeding fears that the sector has stalled and concerns that hydrogen has simply gone through another “hype” cycle, as was the case in the 1970s, 1990s and early 2000s. However, a closer look at the data shows that rather than stalling or faltering, the sector is still progressing and reaching important milestones, even though they do not match the high expectations from the early 2020s.

In 2020, low-emissions hydrogen production stood at just over 0.5 Mt and was concentrated in a few projects that used fossil fuels with carbon capture and storage, along with some small electrolysis demonstrators. In 2024, production got close to 0.8 Mt, and it is estimated to have reached close to 1 Mt in 2025. By 2030, production is expected to surpass 4 Mt based only on committed projects (or those that are operational, under construction or have reached a final investment decision).

This falls short of the ambitions announced in early 2020s. But it is nonetheless strong growth for a nascent sector, and it implies that low-emissions hydrogen production will grow from less than 1% of total production today to around 4% in 2030. If achieved, this would make growth in low-emissions hydrogen production comparable to the fast expansions of other clean energy technologies seen in recent years.

Production could go even higher. A new assessment of announced projects and the likelihood they will become available by 2030, carried out in the 2025 edition of the IEA’s Global Hydrogen Review, suggests that an additional 6 Mt of low-emissions hydrogen production has a strong potential to be operational by 2030. Realising these projects will depend on policy action to address key barriers, particularly support for closing the cost gap with hydrogen from unabated fossil fuels and measures to stimulate demand in sectors where hydrogen is already used, such as refining and the chemical industry.  

The expected growth to 2030 is underpinned by a step change in the size of individual projects. The largest electrolyser in operation in the world in 2020 was the Industrias Cachimayo plant (Peru), with 25 MW of capacity. In July 2025, Envision Energy commissioned what is currently the world’s largest electrolysis project in China, which has 500 MW of capacity. The NEOM Green Hydrogen Project in Saudi Arabia, which is currently under construction, is expected to reach 2.2 GW by 2027 – 90 times bigger than the project that held the record at the start of the decade.

China, Europe, India and North America account for close to 90% of the committed production to 2030. Other regions are lagging behind, and production at scale will probably only occur after 2030, despite a current project pipeline that could yield more than 15 Mt of output.

Governments have started announcing and implementing measures to stimulate demand, and industry is launching initiatives to accelerate adoption. However, these efforts have yielded mixed results so far. Tenders in the refining sector have achieved some positive outcomes, with more than 220 kt per year of renewable hydrogen contracted by refineries in Europe and India. In the fertiliser sector, winning bids for a tender in India to procure more than 700 kt per year of renewable ammonia for 13 fertiliser plants have been announced (although the results were significantly delayed). In the steel sector, several tenders have either not yet been awarded or put on hold due to bids that were significantly higher than expected.

Increasing firm offtake agreements requires policy action, but so far this has been largely insufficient, geographically limited and, on many occasions, the details of their implementation remain uncertain. Some carefully targeted policy interventions could play a pivotal role in unlocking large demand in the near term. Priorities include:

• Focusing on existing uses of hydrogen, which account for most firm offtake agreements and are already enabling large investment decisions on the production side

• Exploring new opportunities through public procurement and the creation of lead markets

• Incorporating offtake as an eligibility criterion in support schemes for low-emissions hydrogen production projects

• Leveraging potential international regulations in aviation and shipping to accelerate the adoption of low-emissions hydrogen-based fuels through coordinated global standards

Given hydrogen’s versatility and wide range of potential uses, there is no single set of effective policy instruments, and pathways forward will depend on the specific country contexts. And with the low-emissions hydrogen sector still in its nascency, governments can take different approaches to develop policies that address ongoing barriers.

Options for addressing the cost gap between low-emissions hydrogen and hydrogen produced from fossil fuels include grants and subsidies, which have already been used extensively by advanced economies. Loan guarantees, concessional loans, export credit facilities and public equity investments can also be useful to reduce investment risks. For demand creation, quotas, mandates and carbon contracts for difference are among the most-widely used instruments. Some governments have considered public procurement to trigger demand for hydrogen in steel production, heavy-duty transport and aviation, but the instrument remains relatively unexplored compared with other options. The creation of hydrogen hubs – or areas where several hydrogen applications are combined together into an integrated hydrogen ecosystem – has so far mostly been a source of funding for project development.  Hubs also provide an opportunity to address coordination barriers and to aggregate demand from several users, sharing the offtake risks among those involved.

For most of these policies to be effective, it is necessary for hydrogen producers and buyers to be able to differentiate low-emissions hydrogen by tracking greenhouse gas emissions along the value chain. Several regions already have certification schemes in place, and a more standardised approach could be achieved once the forthcoming International Organization for Standardization methodology is published.

There have been delays in implementing the first wave of hydrogen policies since they had to be designed from scratch (and, in many cases, they have been subject to trial-and-error). While these delays are understandable, they have also created uncertainty for project developers and investors. For example, in the European Union, the transposition of the Renewable Energy Directive to national legislation has taken more than four years. In India, support for hubs is being scaled back, and conditions for financial support for ammonia supply have been revised several times.

Very firm regulations may provide clarity as the sector develops. However, in some cases, they can be very restrictive and slow down market development, which is essential during these early stages. Given that the hydrogen market is expected to evolve quickly, policies need to be adaptive, with short review cycles to account for market developments. This approach can leave room for experimentation at first while providing longer-term clarity. Such clarity is fundamental not only for creating investment security, but also for ensuring that low-emissions hydrogen adoption can accelerate beyond initial strong steps and play its part in meeting the energy policy goals of countries.