Read time: 39 minutes
In this article, we look at the regulations in some of the key jurisdictions globally, which includes: European Union, France, Germany, the United Kingdom, China, Singapore, the United Arab Emirates, and the United States. In the past two years, legislators have stepped up their efforts by adopting hydrogen policies.
The climate crisis has become a central policy driver in many jurisdictions, with regulators coming to the view that clean hydrogen may provide the necessary solution to reach the targeted levels of decarbonization, as set out in international treaties such as the Paris Agreement, and as discussed at COP26. Consequently, stakeholders, including industry players, investors, supranational organizations, and governments, have begun harnessing the potential of hydrogen to drive the global green energy transition, creating a hydrogen policy momentum.
Ahead of the development and implementation of product-specific legislation, regulators in many of these jurisdictions have brought hydrogen within the scope of existing laws (for example, those applicable to natural gas). Alongside the use of existing laws, regulators are drafting a comprehensive regulatory framework that will govern the production, storage, transportation, distribution, and associated infrastructure of hydrogen. The forthcoming regulations also will set out rules pertaining to the use, sale, and purchase of low-carbon hydrogen.
The regulators’ overarching objective is to facilitate the development and functioning of the domestic hydrogen market, as well as cross-border trade. To this end, some regulators hope to implement public support mechanisms and incentives, and to develop a workable definition of clean hydrogen, which is necessary for the establishment of a licensing regime. Some jurisdictions also are considering the launch of certification tools that provide guarantees of origin and trace the types of hydrogen produced. However, it is worth noting at the outset that, despite certain similarities, hydrogen policy strategies will differ from jurisdiction to jurisdiction. In this article, we seek to provide an overview of the legislation that is currently in place, and provide a summary of forthcoming proposals, in certain key jurisdictions.
Pressure to create a hydrogen-only distribution system
At the EU level, the only rules regulating the gas market are Directive 2009/73/EC of the European Parliament and of the Council of July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (Gasbinnenmarktrichtlinie – GasRL) and the Regulation of the European Parliament and of the Council on the internal markets for renewable and natural gases and for hydrogen (Fernleitungszugangsverordnung – ErdgasZVO).
The currently applicable versions of the GasRL and ErdgasZVO are designed to regulate the transmission, distribution, supply, and storage of natural gas.
On December 15, 2021, the EU Commission published proposals for the regulation of the natural gas and hydrogen market. This would involve amending the GasRL and ErdgasZVO.
Like Germany’s recently amended Energy Industry Act (Energiewirtschaftsgesetz – EnWG), both drafts make a clear distinction between the regulation of natural gas networks and that of hydrogen networks. However, unlike the EnWG, the EU regulatory requirements for hydrogen would apply to all hydrogen network operators: There is no opt-in option.
Combined gas and hydrogen operations
There are high hurdles for the combined operation of gas and hydrogen networks.
Operating gas and hydrogen networks in combination, as many transmission and distribution system operators would like to do, would be virtually impossible with the implementation of the regulations.
Definition of “gas” under GasRL and ErdgasZVO
Natural gas is referred to when the gas consists mainly of methane or can be fed into the natural gas grid and transported in a technically safe manner.
Hydrogen, on the other hand, is not defined in more detail, but this is also due to the fact that the EU follows a more technology-open approach; i.e., all production paths for hydrogen generation (electrolysis, steam reforming, methane pyrolysis, etc.) are covered.
Upcoming European Parliament and Council rules for internal market in natural gas
Under the present drafts, “gas” means not only natural gas, but also hydrogen.
The article 2 of the GasRL treats gases together and does not make an overall distinction between hydrogen and other gases, thereby defining “gases” as “hydrogen and gas.”
Strengthening consumer and end-user markets
Article 10 I ensures that all end customers have the right to be supplied with gases, including hydrogen, by a supplier. This applies regardless of the member state in which the supplier is registered.
Article 10 I further stipulates that in the supply contract end customers are entitled to an overview of the services to be provided, and the various quality levels and maintenance services offered.
Article 11 gives the customer the right to change hydrogen supplier. In this context, it is stipulated that the switching fees incurred in the event of a switch must be reasonable.
Duties of hydrogen network operators, hydrogen storage facilities, and hydrogen terminals
Article 46 regulates the various duties of hydrogen network operators, hydrogen storage facilities and hydrogen terminals. Among other things, under article 46 I a), a safe and reliable infrastructure for the transportation and storage of hydrogen must be operated, maintained, and further developed.
It further provides that environmental protection must be taken into account and close cooperation must be established with associated and neighbouring hydrogen network operators.
In addition, under article 46 I b), operators must ensure that the hydrogen system can meet a realistic demand for the transportation and storage of hydrogen.
Also, under article 46 I f), operators must provide network users with the information they need for timely access to the infrastructure.
Article 52 I obliges operators of hydrogen networks to send the regulatory authorities, at regular intervals, details of the hydrogen infrastructure that they plan to build.
It should be noted that, as an EU directive, these regulations do not enter into force immediately upon their adoption, but must first be transposed by member states into national law.
Overview of the European Parliament and ErdgasZVO rules
Under article 6 I of the ErdgasZVO, hydrogen network operators must offer their services to all network users on a non-discriminatory basis. If the same service is offered to different customers, equivalent contractual conditions apply. Hydrogen network operators must also publish on their website the contract terms and conditions, the tariffs charged for network access and, where applicable, the balancing charges.
Distribution of capacity rights
Capacity rights for hydrogen storage and distribution should be freely tradable. To this end, article 11 requires each transmission system operator, storage system operator, LNG system operator, and hydrogen system operator to take appropriate measures to ensure that capacity rights can be traded freely, transparently, and in a non-discriminatory manner.
Obligation of hydrogen plant operators
In accordance with article 31 I, hydrogen storage operators must publish details of all services they offer, including the relevant terms and conditions, and the technical information required by hydrogen storage users. Regulatory authorities may require operators to publish additional information for network users.
Article 40 I requires hydrogen network operators to cooperate at the EU level within the framework of the European Network of Hydrogen Network Operators in order to promote the functioning and development of the internal hydrogen market and cross-border trade. This is to ensure optimal management, coordinated operation, and proper technical development of the European hydrogen network.
The annex to the Natural Gas Regulation also contains significant proposals for supplementing the Security of Gas Supply Regulation (EU SOS GasVO), which are of particular importance given the current turbulence in prices and low storage levels. This implementation of the third energy package for gas markets is a further concretization of the European Green Deal.
The Commission’s drafts will be discussed in the European Parliament and the Council this year. Adoption is not expected before the end of 2022, and more than likely not until 2023.
While the ErdgasZVO and the EU SOS GasVO will have immediate legal effect upon adoption and publication, the GasRL, as a directive, must then be transposed into national law.
Regulators define three types of hydrogen by production type
Under article L. 811-1 of the French Energy Code, Hydrogen is defined as a gas containing various concentrations of dihydrogen molecules obtained after application of an industrial process.
According to article L. 811-1, three types of hydrogen are defined:
- Renewable hydrogen, which is produced either by electrolysis using electricity from renewable energy sources, or by means of any other technology that uses exclusively one or more of these same renewable energy sources and does not conflict with other uses allowing their direct recovery. In all cases, its production process emits, per kilogram of hydrogen produced, a quantity of carbon dioxide equal to no more than a given threshold.
- Low-carbon hydrogen, where the production process generates no more emissions than the threshold set for renewable hydrogen, but the hydrogen does not meet the other criteria necessary to be designated as renewable hydrogen.
- Carbonaceous hydrogen, which is neither low-carbon, nor renewable.
The threshold and proportions necessary to classify hydrogen according to the above definitions have not yet been established.
Pursuant to article L. 821-2, the renewable or low-carbon characteristics of hydrogen can be proven by traceability warranties based on a model similar to the one used to guarantee origin for renewable electricity.
In accordance with article L. 812-1 et seq., a system of grants was introduced in the Energy Code to support hydrogen production.
Hydrogen production is subject to the “classified facilities for protection of the environment” regulation (installations classées pour la protection de l’environnement – ICPE), which imposes specific requirements and enhanced state scrutiny on facilities and activities that may harm the environment. The facilities and activities in scope are divided into sections.
Under section 3420 of the ICPE, the production of inorganic chemicals such as hydrogen in industrial quantities by chemical or biological transformation is subject to state authorization regardless of the quantities produced.
This authorization covers: (i) programs to mitigate risks to the environment; (ii) programs to prevent pollution of, and protect, water; and (iii) limits on greenhouse gas emissions.
Hydrogen storage is regulated. The relevant rules depend on the quantities of hydrogen being stored.
Under section 4715 of the ICPE, storage is subject to:
- State authorization when the quantity of hydrogen likely to be present in the facility is equal to or greater than 1 tonne.
- Notification to the regulatory authorities when the quantity of hydrogen is greater than or equal to 100 kg, but less than 1 tonne.
Under these thresholds, no permit is required.
The Mining Code covers the possibility of storing hydrogen underground.
Underground hydrogen storage is regulated by concession contracts. In principle, any concession must be subject to a public inquiry and open to competing bids. The concession contract determines the scope of the underground facility and the geological formations concerned. The duration of the concession is also determined by the contract and cannot exceed 50 years.
Transportation is subject to different regulatory frameworks depending on whether hydrogen is transported via the pipelines of a dedicated transportation network or through the existing natural gas transportation network:
- If the pipeline is part of a transportation network dedicated solely to hydrogen, the regulatory framework has yet to be defined by the government.
- If the pipeline is part of the existing natural gas transportation network (this applies only to renewable hydrogen), the hydrogen is subject to the same regulatory framework as natural gas, namely:
- The right of access to natural gas transportation facilities must be guaranteed by operators under the terms of the contract.
- Charges for using transportation networks must be determined in a transparent and non-discriminatory manner.
Distribution will be subject to different regulatory frameworks depending on whether hydrogen is distributed by pipelines that are part of a dedicated distribution network or the existing natural gas distribution network:
- If the pipeline is part of a distribution network dedicated solely to hydrogen (unlike the regulatory framework for transportation, this applies only to renewable energy), the regulatory framework has yet to be defined by the government.
- If the pipeline is part of the natural gas distribution network (this applies only to renewable hydrogen), the hydrogen is subject to the same regulatory framework as the distribution of natural gas:
- A right of access to natural gas distribution facilities must be guaranteed by operators under the terms of the contract.
- Charges for using natural gas distribution networks must be determined in a transparent and non-discriminatory manner.
- In municipalities that are already served by a natural gas network, state owned gas distribution system operators are required to connect customers who so request to the existing state owned distribution networks.
The production of renewable hydrogen and its sale to end users take place in competitive markets that are not regulated by the Energy Code.
The sale of renewable gas injected into the natural gas network is not subject to supply authorization, provided that this gas is sold by the producer to a natural gas supplier.
On September 8, 2020, the French government announced a National Strategy for the Development of Decarbonized Hydrogen, which will provide €7 billion in public support by 2030, including €2 billion by 2022 under France’s Recovery and Investments for the Future (“France Relance et du Programme d’Investissements d’avenir”) plans.
Following the adoption of Law No. 2019-1147 of November 8, 2019 on energy and climate, article L. 100-4 of the Energy Code on national energy policy was amended to include the objective of “developing low-carbon and renewable hydrogen and its industrial, energy and mobility uses.” The Law also empowers the government to take any measure by ordinance that would “define a support and traceability framework for renewable and low-carbon hydrogen.” This is the purpose of Ordinance No. 2021-167 of February 17, 2021 on hydrogen.
The Ordinance creates a new Book VIII in the Energy Code and defines three types of hydrogen according to their production methods. It also sets up a public support mechanism for hydrogen production and creates a mechanism for guarantees of origin and traceability to certify the type of hydrogen produced. Finally, a new regime for self-consumption of hydrogen has been introduced.
The Ordinance will be supplemented by three decrees and two application orders, which have yet to be enacted.
- Germany is using a stop-gap regulatory framework until EU rules take effect
- Separate rules for hydrogen and natural gas transmission are inevitable
- Many countries use existing gas legislation to regulate hydrogen
- Land constraints may prevent some countries from producing green hydrogen