HYDROGEN ENERGY FOR EUROPE 2035

The Oxford Institute for Energy Studies - Mar 06, 2025 - Challenges and Opportunities Posed by the EU’s 42 Percent Renewable Hydrogen Target by 2030

Executive Summary

Renewable hydrogen has emerged as a cornerstone of the European Union (EU)’s plan to decarbonize hard-to-abate sectors. However, like other regions, the EU is facing a demand issue as offtakers have been reluctant to sign offtake agreements given the high costs of renewable hydrogen. Renewable hydrogen is also part of a broader plan and series of directives aiming at increasing the share of renewable energies in EU’s energy consumption. The latest iteration of the Renewable Energy Directive (RED III), which entered into force in November 2023, includes, for the first time, sectoral targets for renewable fuels of non-biological origin (RFNBOs, which include renewable hydrogen) in the industrial and transport sectors. This should incentivize demand for renewable hydrogen in these two key sectors. In particular, RED III sets an ambitious target: achieving a 42 percent share of RFNBOs in industrial hydrogen use by 2030 and 60 percent by 2035.

While the target at EU level seems relatively straightforward, the legislation establishing this target needs to be transposed by each EU country. The key question for hydrogen stakeholders and industrials is, therefore, how it will trickle down to individual industries, how EU member states will transpose the Directive, and whether the obligation will remain at the national level or be translated at the sectoral or individual company levels. As of February 2025, a lot of uncertainty remains, while the Netherlands appears to have moved towards a proposed obligation at the company level, most EU countries have yet to clarify their approach. Additionally, the Directive provides a lot of flexibility to either reduce or exempt some sectors or facilities, such as Article 22b and Recital 63. Differences in implementations could create some disparities between countries, particularly if differences in demand modeling and policy strategies create varying approaches toward industry deployment and the perceived use cases for the technology. Finally, the European Hydrogen Bank auctions have shown that some EU regions – Iberia, the Nordics, and Greece – are taking the lead in terms of lower renewable hydrogen costs, while the bulk of hydrogen demand is currently located in Northwest Europe and Poland. This could require faster build-up of hydrogen transport infrastructure. Besides hydrogen demand creation, hydrogen infrastructure needs to be developed in a timely manner, as delays would impact both hydrogen supply and demand developments.

This target also emerges at a time when the European industrial sector faces a crisis: high energy prices since 2022 have impacted the region’s industrial production and competitiveness. There are concerns that turning towards more expensive sources of decarbonized energy without securing a downstream market for their products and protecting them from international competitors will further damage these industries.

This paper shows that the demand emerging from the RED III requirements for the industrial sector will be limited, probably around 1-2 Million tonnes (Mt), especially if countries use the flexibility options. This is far below the ambitious but non-binding REPowerEU target of 20 Mt of renewable hydrogen demand by 2030. It highlights the various uncertainties still remaining regarding some aspects of the regulation, including the implementation at a country level, the role of the refining sector, which is in both transportation and industry, the potential impact of imports, the importance of certification as renewable hydrogen needs to fulfill the criteria defining renewable hydrogen in the EU and whether there will be penalties in case of countries not reaching the targets.

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