Green hydrogen gained significant traction during the post-pandemic period, as governments worldwide pledged to decarbonise their economies and energy companies looked to diversify their portfolios. Hydrogen produced using renewable energy as an input looked like the best way to provide a clean alternative to traditional fuels, as it can be used for a range of applications, including decarbonising hard-to-abate industries. However, many green hydrogen projects are now lagging behind as energy companies scale back their climate plans and governments fail to achieve decarbonisation goals.
Green hydrogen is produced using renewable electricity to power an electrolyser, which splits water into hydrogen and oxygen. The gas is then burned to produce power, emitting only water vapour and warm air, making it carbon-free. This contrasts with grey and blue hydrogen production, which are powered by natural gas.
According to the International Energy Agency (IEA), global hydrogen demand reached 100 Mt in 2024, marking a 2 percent demand increase from 2023. Demand was driven by refineries, the production of chemicals, and the iron and steel sector. Most hydrogen is produced using fossil fuels, using 290 billion cubic metres of natural gas and 90 million tonnes of coal equivalent a year.
During the early 2020s, the widespread support for a global green transition drove companies to announce hundreds of green hydrogen projects, despite the fuel still being in the nascent stage of development. Governments targeted a cumulative electrolysis capacity of 190 GW by 2030, according to the IEA’s Global Hydrogen Review 2022. While the global green hydrogen capacity has grown, from just 0.7 GW in 2022 to a capacity potential of around 4 GW in 2025, this is still far below the global target.
Some companies have been deterred from developing green hydrogen projects due to the barriers to new products entering the market, including high costs and a lack of adequate regulation and infrastructure, according to the IEA. In addition, due to the lack of experience in developing commercial-scale green hydrogen projects, several companies have faced delays in development.
Reports of project delays, cancellations, and downward revisions of green hydrogen output targets have exacerbated concerns that green hydrogen could have been an overhyped trend. According to a 2025 study, just 7 percent of global green hydrogen capacity announcements were completed on schedule, out of 190 projects monitored over three years. However, research by the IEA suggests that many green hydrogen projects are still being developed, albeit at a slower pace.
Green hydrogen is now expected to contribute around 4 percent of the total global hydrogen production by 2030, compared to less than 1 percent today. However, green hydrogen output has the potential to grow beyond current estimates by the end of the decade, to 6 Mt of low-emissions hydrogen production, depending on political will and investment in projects. Achieving this production by 2030 will require policy action to overcome barriers, with a focus on closing the cost gap between green hydrogen and other fossil fuels.
The Industrias Cachimayo plant in Peru became the world’s largest electrolyser in 2020, at 25 MW, and several major projects are currently in the works, such as Envision Energy’s 500 MW electrolysis project in China and Saudi Arabia’s 2.2 GW NEOM Green Hydrogen Project, which is expected to be operational by 2027. There is a global project pipeline of more than 15 Mt of green hydrogen production, with most planned for after 2030. China, Europe, India, and North America contribute almost 90 percent of the committed production to 2030.
One of the main barriers to expanding green hydrogen operations is the high cost associated with the production of the fuel. Green hydrogen production is between three- and five-times higher on average than that of grey hydrogen. However, a recent breakthrough in technology could drive down production costs, according to a 2025 Interesting Engineering report.
The new system, developed by a joint team from China Agricultural University and Nanyang Technological University, uses sugars derived from agricultural waste (such as wheat stalks) in place of oxygen, which makes the overall production cycle much cheaper than conventional methods, at just $1.54 per kilo.
Green hydrogen is particularly attractive to heavy industries in the hard-to-abate emissions segment, as decarbonisation relies on the use of clean fuel, as it cannot simply shift to renewable electricity. However, justifying the use of renewable electricity for green hydrogen production, rather than using it directly to provide clean power, is difficult.
Nevertheless, without green hydrogen or an alternative clean fuel, it will be difficult for many industries to significantly reduce emissions. Therefore, the creation of favourable government policies and economic incentives could support the accelerated deployment of green hydrogen projects to power heavy industry.
While the development of the global green hydrogen sector has been complicated, with several barriers arising in recent years, there is still hope for a delayed expansion of the sector to support meaningful decarbonisation efforts in some of the most hard-to-abate industries.
By Felicity Bradstock for Oilprice.com
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