EU hoping to bond the Hydrogen market to the Euro

On the 1st February 2021, Kadri Simson, the European Union (EU) Energy Commissioner, explained how she believed that the Euro should be the global standard currency for future international hydrogen transactions. She informed the attendees of an online event, hosted by Esade Business School, that she “see[s] the great potential for the role of the euro as a reference currency in the international trade of sustainable energy.” Simson is a keen believer that green hydrogen will be the solution to the transition from oil and gas to carbon-neutral fuel sources. At the 2020 European Hydrogen Forum, Kadri Simson described how “Europe is running down the track while other countries are still on the starting block.” She furthered this statement with her claim that the EU is an industrial leader in electrolyser development.

 

Currently, hydrogen only accounts for roughly 1% of Europe’s energy consumption, however, within the 750 billion EUR COVID-19 rescue plan, called NextGenerationEU, there is a 90 billion EUR hydrogen project plan in place. As part of the plan, the EU is supporting the installation of 6 GW of renewable hydrogen electrolysers by 2024; an upscaling of 600% from their current 1 GW electrolysers. By 2030, the EU green hydrogen electrolyser goal is to increase this capacity by over a six-fold to 40GW capacity, producing up to 10 million tonnes of green hydrogen per year.

 

The EU has been a major importer of oil and gas over the past decades and with their aim of rapid upscaling of hydrogen production, the EU sees it as an opportunity to turn the tides. The EU created the European Clean Hydrogen Alliance, which has given the major European oil and gas companies, such as Equinor, Royal Dutch Shell, and Total, a green lifeline by putting them at the centre of their Green Deal. The Green Deal aims for Europe to reach a 55% reduction in emissions by 2030 as well as being carbon neutral by 2050. This 2030 goal is equivalent to 2.86 billion tons of CO2 emission compared to its 4.39 billion tons emitted in 2018.

 

Royal Dutch Shell has welcomed this plan by preliminarily suggesting its full switch towards power trading and its rapid growth in hydrogen and biofuel. The full strategy will be announced on 11th February 2021, but the company’s plans to reduce their dependency on oil and gas is apparent. It is an unusual strategy to take since many of its competitors, such as BP and Total, have been trying to fill their balance sheets with renewable assets. Royal Dutch Shell is the world’s leading energy trader and with their experience in trading all types of energy assets, acting as an intermediary position may be more lucrative for them. It will also allow them to fully commit to their rapid integration of hydrogen technology in their business.

 

If the EU can fix the hydrogen market to the euro, it would be a great opportunity to validate the euro as an international currency. By requiring all transactions of hydrogen to be conducted using euros, it would give the euro a level of security to foreign exchange shocks, as well as strengthen the euro economy. It would also mean that the value of the euro will increase as countries shift away from oil and gas toward hydrogen and other renewable sources. Historically, petrocurrencies valuation has followed a similar trend to that of petroleum. If the euro is benchmarked, it would likely be referred to as a ‘hydrocurrency’ and probably follow a valuation pattern similar to the valuation of hydrogen. The EU wants to resolve this issue, by producing a surplus of green hydrogen, allowing hydrogen to be much cheaper than oil and gas and in turn, making it more economically viable to make the switch to zero-emission energy sources.

 

The prospects of the euro being the first ‘hydrocurrency’ is possible, but not as clear-cut as Kadri Simson makes it out to be. If the EU can produce such a surplus of green hydrogen that they end up with what is equivalent to a monopoly, then the EU will be able to control the valuation of green hydrogen to a much greater extent and would give reasoning to the euro being the global standard currency. China, the US and Japan already have a lot of public funds invested in the development of hydrogen and will likely want their currency to be the global standard. It is clear the world sees hydrogen as a strong green replacement for petroleum and the race to dominate this space has only just begun.

 

By James Watson-Gandy

Sector Head: Sophia Li

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