German taxpayers may have to foot bill for risky hydrogen bet

Germany may have to rethink its hydrogen strategy as demand is likely to fall short of official projections, with the country running the risk of wasting tens of billions of euros overbuilding infrastructure, new research into the sector warns.

Described as “overoptimistic hydrogen demand projections” by the Institute for Energy Economics and Financial Analysis (IEEFA), the study Rethinking Germany’s hydrogen-led transition expects Germany’s 2045 hydrogen demand to be at or below the lower end of official scenario ranges.

“Failure to meet optimistic hydrogen demand projections could require around €45 billion in additional public funding – roughly €1,000 per German taxpayer. The financing model behind Germany’s hydrogen network shifts costs to taxpayers when demand disappoints,” said the IEEFA.

The Institute also cautioned that policy is expanding to prop up faltering demand.

“A shift away from renewable-based hydrogen towards natural gas-based hydrogen with carbon capture could prolong Germany’s exposure to volatile gas markets, threatening energy security and long-term industrial competitiveness.”

Hydrogen ambition

Germany has the largest and most ambitious national hydrogen strategy in Europe. It aims to deliver not only decarbonisation, but industrial growth, technological leadership and energy system resilience.

“Green hydrogen sits at the centre of this vision, though the strategy increasingly allows for low-carbon alternatives, including blue hydrogen, to support scale-up,” said the IEEFA.

“The challenge lies in building supply, demand and transport infrastructure simultaneously. Costs remain higher than the current willingness to pay, while supply volumes are still limited.

“To bridge this gap, Germany has deployed a range of regulations and public finance mechanisms to build the market in parallel. But the strategy rests on two key assumptions: broad cross-sector adoption and substantial cost declines. Both are becoming increasingly uncertain.”

However, Germany still plans an economy-wide role for the fuel.

Yet government outlooks fail to fully consider how electrification and cheaper alternatives will limit hydrogen use across heating, power generation, industry and transport, said the IEEFA.

“This matters because Germany is financing its hydrogen network on the assumption that demand will grow quickly enough for users to repay the costs over time. If that demand fails to materialise, taxpayers will be on the hook,” said Alasdair Docherty, an IEEFA sustainable finance analyst and co-author of the report.

IEEFA estimates that a limited-demand scenario could leave German taxpayers liable for at least €34.7 billion in pipeline costs by 2055.

While pipeline costs make up most of the fiscal exposure, weak hydrogen demand would also increase spending on hydrogen-ready power plants and prolong reliance on liquefied natural gas terminals.

Sacrificing energy independence

With public finances tied to pipeline use, German policy has focused on sustaining hydrogen demand rather than treating weak uptake as a signal to scale back the network.

Germany’s Hydrogen Acceleration Act, passed by parliament in February 2026, designates blue hydrogen – produced from natural gas with carbon capture and storage – as being in the “overriding public interest”.

This marks a significant shift from Germany’s original strategy, which focused exclusively on green hydrogen produced from renewable energy.

“A pivot to blue hydrogen would add a network of costly carbon dioxide pipelines and re-entrench Germany’s dependence on volatile global gas markets, threatening long-term energy security and industrial competitiveness,” said Docherty.

“Blue hydrogen is an expensive way to sacrifice energy independence.”

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Risk of indefinite taxpayer expense

IEEFA recommends that Germany align hydrogen infrastructure development with confirmed demand and supply commitments.

Importing hydrogen derivatives for targeted industrial applications could greatly reduce the need for a large-scale domestic pipeline buildout, lowering system costs and limiting public spending.

Access the report: Rethinking Germany’s hydrogen-led transition

Coordinating hydrogen investment with the phaseout of support for liquefied natural gas terminals would reduce the risk of underwriting two overlapping systems against the same demand uncertainty.

“It is better to recognise infrastructure risk early than to justify an oversized network by artificially propping up demand at indefinite taxpayer expense,” said Docherty.

The IEEFA said that to reduce costs and compete in the long term, German industrial sectors may need to import clean hydrogen derivatives rather than hydrogen itself – further reducing the need for hydrogen pipelines.

Germany’s hydrogen targets

Germany announced its initial hydrogen strategy in 2020. It updated it in 2023 to target 10GW of domestic electrolyser capacity and 95–130TWh of annual hydrogen demand by 2030, of which 50% to 70% is expected to be supplied by imports.

Since 2023, there has been a further shift in approach, with the original, larger-scale supply-push build out of production and transport capacity swapped for a more cautious demand-pull approach.

This is in response to slow implementation, with an insufficient number of announced hydrogen production projects reaching final investment decision.

Developers’ constraints include high project costs, strict EU definitions (renewable fuels of non-biological origin) for green hydrogen and investors seeking long-term offtake agreements.