Analysis of the costs of hydrogen in different end-uses enables identification of the maximum acceptable costs for hydrogen users, i.e. the maximum amount that can be spent on the hydrogen feedstock within a low-emissions pathway while maintaining the same total levelised cost of production as the incumbent pathway to produce the same commodity.

This can enable policy makers and investors to identify sectors with both high maximum acceptable hydrogen costs and high potential volumes that can serve as lead markets for low-emissions hydrogen. Cost acceptability can be influenced by policies and depends on technologies, fuels and cost structure.

The factors with the most influence on the maximum acceptable hydrogen cost are energy and carbon prices. Applications where energy has a larger weight in total product cost, like refining and ammonia, in regions with high energy prices, like the European Union, have the highest maximum acceptable hydrogen costs. Steel has high specific emissions and a low share of energy costs, making it the sector most affected by carbon pricing.

In the absence of policy support, the maximum acceptable hydrogen cost is below USD 2/kg for most combinations of sectors and regions. For steel production, the hydrogen cost must be negative (i.e. would require incentives) to reach parity with the incumbent route.

Carbon pricing can increase the maximum acceptable hydrogen cost across regions and sectors with high impact on demand. Quotas can create demand certainty but are not widely used. Even with policy incentives, the cost gap is not closed in most regions and applications. Only China would come close, and only if sufficiently high carbon pricing were to be implemented across all sectors.

The cost gap can also be closed by front-running companies and consumers who are willing to pay a premium for low-emissions products. This willingness is largest for steel and aviation. Co-ordination among stakeholders in the value chain can help to distribute the cost premium to those actors most willing to pay.

About 45% of the low-emissions hydrogen demand in the Net Zero Emissions by 2050 Scenario could be achieved with an abatement cost of less than USD 250/t CO₂ by 2035. Nearly two-thirds of this demand is in China, mostly in the industrial sector, due to low hydrogen production costs. Europe also has low abatement costs, due to high costs for both incumbent and the low-emissions routes.