Evaluating the Feasibility of Renewable Hydrogen for Industrial Decarbonisation in Europe
Why Europe’s heavy industries are under pressure
Europe’s debate over renewable hydrogen is ultimately a debate about industrial survival. As carbon costs rise under the EU Emissions Trading System and carbon leakage rules tighten through the Carbon Border Adjustment Mechanism, energy-intensive producers face growing pressure to cut emissions while remaining globally competitive. Moreover, volatile fossil-fuel prices have reinforced the political case for reducing import dependence. Therefore, the real question is not whether Europe should decarbonise heavy industry, but where renewable hydrogen can do so efficiently without accelerating deindustrialisation.
So, what counts as renewable hydrogen?
To assess that role accurately, renewable hydrogen needs a stricter definition than the familiar colour labels suggest. In EU policy, renewable hydrogen is generally hydrogen produced through electrolysis using electricity that satisfies the rules for renewable fuels of non-biological origin, including additionality and temporal and geographical correlation. By contrast, grey hydrogen is normally made from natural gas without carbon capture, while coal-based hydrogen is more carbon-intensive. Meanwhile, blue hydrogen uses fossil fuels with carbon capture and storage, although its overall emissions depend on capture rates and upstream methane emissions.
The sectors where hydrogen makes sense today
Crucially, hydrogen has the strongest case where direct electrification is difficult and where industry already needs hydrogen as a molecule. For example, ammonia production and oil refining already consume large volumes of hydrogen, meaning renewable or low-emissions hydrogen can substitute directly for fossil-based supply. Furthermore, methanol and other chemical processes can use low-emissions hydrogen as a feedstock. Therefore, these existing industrial users are among the most credible early markets because demand, infrastructure and technical knowledge already exist.
Steel could be hydrogen’s big industrial breakthrough
In primary steelmaking, renewable hydrogen is also one of the leading routes for deep decarbonisation. Specifically, hydrogen-based direct reduced iron can replace coal-based reduction before the iron is melted in an electric arc furnace. However, it is not the only route: scrap-based electric steelmaking, natural-gas DRI during a transition period and emerging electrochemical processes can also contribute. Accordingly, the strongest argument is that hydrogen is strategically important for low-carbon primary steel, rather than that every steel plant must use it in exactly the same way.
Hydrogen cannot solve every industrial heat problem
At the same time, hydrogen should not be presented as a complete solution for all high-temperature industry. In glass and ceramics, electrification can replace part of fossil heat, although hydrogen or other clean fuels may remain useful in specific furnaces. More importantly, cement has substantial process emissions from limestone calcination, which hydrogen cannot eliminate because those emissions do not come from fuel combustion. Consequently, cement decarbonisation is likely to require a combination of efficiency, alternative materials, electrification or clean fuels, and carbon capture for residual process emissions.
The infrastructure problem Europe still has to solve
Infrastructure is another major constraint between attractive project announcements and bankable projects. In many cases, dedicated hydrogen pipelines can be the lowest-cost option when large volumes move between stable producers and users. However, long-distance shipping is more likely to involve ammonia, methanol or other hydrogen derivatives than pure liquid hydrogen, especially in the near term. Moreover, the IEA reports that only a small share of announced hydrogen pipelines and underground storage projects has reached committed-investment status, underlining how far infrastructure still lags behind ambition.
Europe is pushing hydrogen forward but the rules are complicated
European regulation is deliberately creating demand, but the details matter. Under RED III, member states must ensure that renewable fuels of non-biological origin account for at least 42% of qualifying hydrogen used in industry by 2030 and 60% by 2035. However, these percentages do not mean that 42% of all industrial energy must come from renewable hydrogen, and the directive contains exclusions and limited flexibility. Furthermore, the EU’s delegated rules on additionality and temporal and geographical correlation increase environmental credibility while also adding complexity to project design and power procurement.
The biggest obstacle is still cost
The economic gap remains the most immediate barrier. According to ACER’s 2025 European hydrogen market monitoring, average renewable hydrogen production costs in 2024 were around €8 per kilogram, roughly four times the cost of conventional fossil-based hydrogen. Consequently, electricity prices, electrolyser utilisation, financing costs and grid charges can determine whether a project is commercially viable. Meanwhile, the European Hydrogen Bank is using competitive production premiums to narrow the gap, but subsidies alone cannot compensate for weak offtake, expensive capital or delayed permits.
Cheap electrolysers do not tell the whole story
Electrolyser manufacturing shows a similar tension between rapid technological progress and commercial reality. Alkaline systems are mature and widely used, PEM electrolysers can respond quickly to variable electricity, and solid-oxide electrolysers offer high efficiency but still face durability and scale-up challenges. Moreover, some technologies depend on critical materials such as iridium, platinum and titanium. At the same time, Chinese equipment is substantially cheaper at the factory gate, but the IEA finds that transport, tariffs, engineering, standards compliance and installation costs narrow that advantage when Chinese systems are deployed outside China.
Sometimes, electricity is simply the better option
Efficiency therefore matters when deciding where scarce renewable electricity should go. Direct electrification usually avoids the conversion losses involved in producing, compressing, storing, transporting and reconverting hydrogen. For this reason, battery-electric vehicles and heat pumps generally have a stronger efficiency case than hydrogen for passenger cars and low-temperature building heat. Nevertheless, hydrogen and hydrogen-derived fuels remain valuable where batteries are constrained by weight, range, feedstock requirements or industrial chemistry, particularly in selected heavy-industry processes, shipping fuels and synthetic aviation fuels.
Can imports really solve Europe’s hydrogen shortage?
Europe’s import strategy adds another layer of uncertainty. REPowerEU set an ambition of 10 million tonnes of domestic renewable hydrogen production and 10 million tonnes of imports by 2030. However, the European Court of Auditors concluded that these targets were driven more by political ambition than by sufficiently robust analysis and called for a reality check. Furthermore, imported hydrogen derivatives can diversify supply but require conversion, shipping and terminal infrastructure, while projects in water-stressed regions may need desalination, wastewater treatment or other carefully managed water sources.
Announced projects versus what is actually being built
The biggest warning sign is the gap between announcements and committed investment. Globally, the IEA’s 2026 review reduced the announced low-emissions hydrogen project pipeline for 2030 to about 27 million tonnes per year, while committed production was only about 4.3 million tonnes. In Europe, ACER reported just 308 MW of installed electrolyser capacity in 2024, far below the EU’s earlier 40 GW ambition for 2030. Therefore, headline project pipelines should never be treated as future supply until financing, permits, power contracts and long-term buyers are secured.
Why industrial clusters may be the smartest starting point
A pragmatic European strategy should therefore prioritise industrial clusters rather than universal hydrogen use. Specifically, electrolysers located near refineries, fertiliser plants, steelworks and major ports can reduce transport requirements and create dependable local demand. Moreover, public support is more likely to deliver value when it is tied to credible offtake, infrastructure readiness and measurable emissions reductions. At the same time, cross-border pipelines, electricity grids and port infrastructure should be developed in line with realistic demand instead of assuming that every announced hydrogen project will reach operation.
Where hydrogen can genuinely make a difference
Ultimately, renewable hydrogen is neither a failed technology nor a universal energy solution. Instead, it is a relatively scarce and expensive decarbonisation tool whose value depends on using it where alternatives are weakest. Consequently, Europe can gain the most by replacing fossil hydrogen first, accelerating selected hydrogen-based steel and chemical projects, and supporting hydrogen-derived fuels where direct electrification is impractical. By maintaining that hierarchy, policymakers can reduce emissions while limiting unnecessary energy losses, controlling subsidy costs and protecting the competitiveness of Europe’s industrial base.
sources
The EU’s industrial policy on renewable hydrogen – Special Report 11/2024 – European Court of Auditors
