CBAM regulation could be a first step in a global renewable, low carbon hydrogen standard

LONDON (ICIS)–The shift towards a global standard on renewable and low-carbon hydrogen took a step closer to being realised on 13 December after the European Parliament and the European Council agreed on the Carbon Border Adjustment Mechanism (CBAM) regulation.

Under the CBAM, imports of certain goods and selected precursors whose production is carbon intensive and at most significant risk of carbon leakage will put a “fair price” on the carbon emitted on goods entering the European Union.

The CBAM will enter into force on 1 October 2023, and will incorporate hydrogen as part of the regulation in addition to other carbon-intensive commodities (cement, iron, steel, aluminium, fertilisers, and electricity).

The Council’s press release said that “once the permanent system enters into force, according to a schedule to be defined in the revised EU ETS rules currently under negotiation, importers will need to declare each year the quantity of goods imported into the EU in the preceding year and their embedded GHG.

“They will then surrender the corresponding number of CBAM certificates. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in €/tonne of CO2 emitted.”

ICIS VIEW

The CBAM regulation having both hydrogen and fertilisers (including ammonia) included could be a first step in the development of a global standard on renewable and low-carbon hydrogen.

Indeed, from the beginning of October next year, hydrogen imported into the EU will have to be below a certain threshold in regards to greenhouse gas emissions to avoid paying a carbon levy on top.

Several EU countries (Belgium, the Netherlands, Germany) have said that they intend to import hydrogen from other global regions through ammonia, with some of those deals set to begin as early as 2025.

Nonetheless, the memorandums of understanding (MoUs) that have been signed for imports of ammonia into the EU have been for renewable ammonia produced via renewable energy sources.

The implementation of a global hydrogen standard has yet to surface, but the subject is certainly under discussion (the MoU between the EU and Japan specifically mentioned an international standard) to facilitate renewable and low-carbon hydrogen to be moved on a global basis.

The move by the Council to put hydrogen as a carbon intensive commodity is potentially a first step in this process, as hydrogen imported into the EU that does not meet the standard will have a financial consequence attached.