Rapporteur: Arianna CENSI (IT/PES), Member of the Local Executive of Milan Reference document: COM(2023) 156 final

POLICY RECOMMENDATIONS

THE EUROPEAN COMMITTEE OF THE REGIONS (CoR),

Regulatory framework and overall conditions

1.

welcomes the communication on the European Hydrogen Bank (EHB); notes, however, that the name ‘European Hydrogen Bank’ can be misleading, as this is not a bank but an initiative that coordinate activities and financing aimed at boosting EU production and import of renewable hydrogen, and to support renewable hydrogen projects;

2.

underlines that the creation of a renewable hydrogen economy is an essential building block to reach the Green Deal objectives and achieve climate neutrality. Meeting the ambitious REPowerEU targets for renewable hydrogen production in synergy with the Green Deal Industrial Plan must ensure the European ramp-up of industrial capacity and competitive edge;

3.

urges the European Commission to significantly speed up the notification process for IPCEI (1) hydrogen projects. Stakeholders in hydrogen valleys in EU regions urgently need investment and planning certainty. The pending third wave of notifications of infrastructure projects makes this particularly pressing;

4.

regrets that the communication does not sufficiently address local and regional authorities (LRAs) and calls on the European Commission to reconsider the role of LRAs for the future functioning of the EHB, as LRAs will play an important role in the implementation of projects across EU territories with regard to both energy planning and programming and the authorisation process; calls on the European Commission to address this issue in the roadmap for hydrogen valleys that it announced (2);

5.

recalls that the only sustainable form of hydrogen compatible with the Green Deal ambitions is renewable hydrogen and stresses that the EHB instrument must aim at lowering production costs of renewable hydrogen. Recognises that other low-carbon hydrogen sources could play a role in the short term with a view to ensuring a smooth transition to renewable hydrogen as fast as possible;

6.

points out that electrolysers account for less than 4 % of total hydrogen production in the EU, and recognises the urgent need to scale up their manufacturing capacities in the EU. At the same time the CoR recognises the importance of importing renewable hydrogen from non-EU countries for reaching the REPowerEU targets; highlights that the efforts of these non-EU countries to reach their own energy and climate targets should not be undermined; invites the European Commission to consider only imports from EU neighbouring countries aligned to EU values, committed to sustainability and to not generate additional emissions along the supply chain. Recalls that the Carbon Border Adjustment Mechanism (CBAM) will apply to hydrogen and calls on the Commission to deliver a robust certification scheme for imports of renewable hydrogen based on the same criteria applied to EU production; remains cautious about potential risks of recreating dependencies;

7.

welcomes the fact that the EHB builds on the already established H2Global tool for hydrogen import auctions; in this regard calls for national, specific support for imports to complement the EHB’s hydrogen import tool; sees great potential in hydrogen imports to turn ports and LNG terminals in coastal regions into the energy hubs of the future;

8.

stresses the need to boost the EU infrastructure for the production, storage, transport, distribution and consumption of hydrogen across all the EU. Moreover, emphasises the need for integrated network planning for electricity, heat and gas to ensure a smooth integration of the energy systems. EHB auctions can be organised per sector (3), allowing a level playing field among competitors with similar cost structures and requirements;

9.

recognises the role-model played by the first call of the EHB to further promote renewable hydrogen to decarbonise industrial activities, energy supply and heavy transport in the EU. After the first call, auctions should be organised to prioritise the decarbonisation of those industrial sectors (including the energy production sector) with the biggest potential in terms of emission savings, and that will need the price delta coverage the most. Priority should also be given to sectors where electrification is not a technically and economically viable option and with particular regard to undertakings which are strategically important to the country or region in question;

10.

calls on the co-legislators to ensure that the regulatory framework for renewable hydrogen is in place to support the emerging renewable hydrogen economy, with an appropriate customer protection and significant investments. The legislative package Fit-for-55 and other main initiatives such as the Net-Zero Industry Act and the Critical Raw Materials Act need to be adopted as soon as possible to enable EHB auctions in a timely manner, considering local and regional perspectives;

11.

praises the initial funding envelope foreseen for the first EHB auction of EUR 800 million and calls on the Commission to engage rapidly in the implementation and assessment of this pilot auction. However, calls on the European Commission and the Member States to ensure that the overall funding available for the future EHB auctions must be increased, for instance with additional Emissions Trading System (ETS), European and national resources. The recently introduced Strategic Technologies for Europe Platform (STEP) mechanism could also play a role;

12.

reiterates the importance of geographical balance to enable the production and use of renewable hydrogen across the EU; urges the Commission to develop macro-regional auctions and, for that purpose, define macro-regions that would be sufficiently large to secure adequate competition while ensuring geographical balance; requests that the Commission propose an allocation key with the aim of sharing the financial envelope between the different regions on an equal footing, based in particular on the possibility of contributing to the transformation of EU industry to improve global competitiveness and reduce climate impact. This regional differentiation should take into account the specific challenges faced by outermost regions, islands, mountains areas and peripherical regions, as well as cities and regions characterised by the presence of energy-intensive industrial activities having significant impact on environment and human health and being difficult to electrify;

13.

recognises the importance of regions that play an overarching role in ensuring a geographically balanced distribution of hydrogen in the EU through the import and transport of hydrogen, and calls on the Commission to set up a compensatory mechanism for these regions in order to compensate them for the particular burden they experience as a consequence of this transit function;

Regions as catalysts for the European Hydrogen Bank

14.

further underlines in this context that hydrogen infrastructure must be developed at both national and transnational level and across borders in order to supply hydrogen where it is primarily needed in industrial sectors within the EU;

15.

emphasises the inherent weakness of the chosen auction concept in terms of insufficient protection against default. Auctions between just one supplier and one customer increase the risk of default by one of the two participants during the up to 10 years of operational implementation, with potentially fatal economic consequences for the participants. The CoR therefore strongly recommends considering how to mitigate the risk of default by an auction participant during operational implementation. Both producers and customers should use effective market-proven methods. For subsequent auctions it should also be assessed whether alternative auction mechanisms (e.g. double auctions similar to H2Global) can minimise such risks;

16.

points out that it will not be possible to effectively transmit hydrogen by pipeline nationwide or Europe-wide by 2027. Therefore, regional aspects are expected to play a greater role in the first hydrogen auctions. The CoR stresses that the Commission should take effective inspection measures to prevent price-distorting agreements between sellers and buyers, and ownership ties between sellers and buyers (e.g. sales to the seller’s own company, subsidiary or another company in its own group);

17.

considers that LRAs will act as facilitators for the development of the hydrogen economy, as they serve as a natural platform to create strong connections between hydrogen producers and offtakers. In order to fully tap into this facilitation role, supporting instruments need to be put in place to provide additional technical assistance and capacity building to LRAs. It is also important to remove legal obstacles that prevent local and regional authorities themselves contributing to the production and sale of hydrogen. Calls on the European Commission to address this issue in the roadmap for hydrogen valleys (4) that it announced;

18.

calls on the European Commission to actively involve LRAs for aggregating supply and demand, and gathering exact data on where the main points of production and use of renewable hydrogen will be distributed across the EU paying attention to territories facing structural barriers;

19.

highlights the necessity to decarbonise energy intensive industrial activities, heavy transports and urban areas, prioritising emission savings and at the same time creating new employment opportunities especially in carbon- intensive regions and cities. EHB calls should promote the provision of renewable hydrogen for decarbonisation of cities and industrial processes, the replacement of fossil fuels for production of derivatives (e.g. ammonia), for direct injection of hydrogen for steelmaking where full electrification is not yet possible;

20.

invites the European Commission to promote future auctions for zero-emission mobility, especially for long-haul mobility such as trains, planes, trucks, lorries and ships. A great supply of renewable hydrogen will help with the deployment of hydrogen refuelling stations (HRS) all over the EU, as pointed out in the Alternative Fuels Infrastructure Regulation;

21.

stresses the importance of hydrogen infrastructure to support the efficiency of the EHB calls, to spread the production and use of subsidised renewable hydrogen across the EU. Hydrogen pipelines have been demonstrated to be the cheaper vector for hydrogen transport. Stresses however the importance of promoting local and regional production and utilisation of renewable hydrogen as much as possible, including in the spirit of the hydrogen valleys concept;

22.

recalls that while hydrogen production through electrolysis requires a significant volume of water ranging from 18 and 24 kilograms per kilogram of hydrogen (5); it can still offer a sustainable approach to water use when compared to other water-intensive industries. However, calls on the Commission and Member States to pay specific attention to resource efficiency and to the Water Framework Directive (6), in particular for regions at risk of drought; avoiding water use conflicts should be a primary objective for partnerships with third countries, particularly those in arid regions; advocates for further research on technologies on resource efficiency and water desalinisation as well as solutions tackling brine pollution, that minimise energy consumption and environmental impacts;

Financing the renewable hydrogen transition — EHB and actions to support

23.

calls for a further improvement to the future budget, to incentivise a bigger spread of the market, to allow for the effective engagement of smaller companies and small and medium-sized enterprises (SMEs), and to better support industrial sectors where the cost of transition will be higher;

24.

calls on the European Commission to allocate more ETS resources within the EHB budget. The revised Innovation Fund, with an increased size and new categories of projects to be supported, would allow for bigger auction windows for the EHB and an increase in the volumes supported. In this scenario, more calls per year, organised per sector or per macro-region could be fit for purpose to kick-start an evenly spread renewable hydrogen market in Europe;

25.

strongly invites the European Commission to consider that not only more resources would be needed for the EHB calls, but also for their implementation by LRAs, in terms of capabilities related to technical and/or administrative expertise. For this, synergies with existing instruments such as Technical Support Instrument (TSI), the joint assistance to support projects in European regions (Jaspers), should be explored and appropriate specialist training provided through dedicated courses funded by the Member States;

26.

calls on the European Commission to rethink how EHB support can be pooled with funding via the European Regional and Development Fund, the Just Transition Fund and the InvestEU programme run by the European Investment Bank (EIB), partly with a view to supporting the introduction of hydrogen into the industrial cycle of hard-to-abate sectors. This kind of support will ultimately enhance the deployment of production facilities and their infrastructure, allowing for an easier crowd-in of public and private resources;

27.

Recognises that less developed regions may require additional support for the implementation and oversight of renewable hydrogen projects due to their specific needs and capacities. Encourages the European Commission to collaborate closely with local and regional authorities in these regions to develop tailored solutions, streamline administrative procedures, and provide assistance in navigating regulatory complexities;

28.

Stresses that the first pilot auction in particular should aim also to attract smaller, developing projects; asks the Commission, therefore, to alleviate the administrative burden and adjust some of the elements of the mechanism design — namely the requirement for the minimum installed electrolyser capacity and the restriction on bid size — in order to facilitate the participation of small and medium-sized entities;

29.

urges the European Commission to implement an indexation criterion for granted fixed premiums to safeguard renewable hydrogen production from unforeseen inflationary fluctuations;

30.

agrees with the European Commission that financial support from auctions, with exceptions prescribed in the terms and conditions of each auction, should not be cumulative with public support at national level; nevertheless calls on the European Commission to assess the results of the first auction with a view to relaxing the cumulation rules for future auctions, as long as this does not lead to distortions in competition;

31.

welcomes the European Commission’s idea of launching the concept of ‘auctions as a service’; considers that this could lower the administrative costs for the Member States; suggests an evaluation before extending this concept to other forms of support;

Job creation and cross-cutting measures

32.

stresses the fact that LRAs have the highest potential to leverage skills development and reskilling of the workforce, mostly in hard-to-decarbonise communities. In both technical and administrative profiles, the job projection for the sole hydrogen production sector amounts to 249 000 by 2030 (7), and 1 million new jobs are expected to be created by 2030 (8) for the entire hydrogen value chain;

33.

emphasises that the EHB auctions, and their success, will depend on how the implementation of programmes will be devised in local and regional contexts. The Hydrogen Valleys and related infrastructure will play a substantial role by clustering all segments of the hydrogen value chain, fostering innovation and contributing to the local economy; welcomes the creation of the Centres of Excellence and European Academies, proposed by the Net-Zero Industry Act (9); which also provide specialist training for both technical and administrative staff;

34.

calls on Member States, local and regional authorities to use green public procurement in order to favour goods produced with renewable hydrogen; when more sustainable options are not available. This will promote the development of European value chains for the manufacturing of machinery and components related to hydrogen production, and therefore will boost sustainable economic development across the EU;

35.

invites the European Commission to reconsider the essential role of LRAs in Hydrogen Bank governance as a whole, as they are the key players when it comes to permits for additional renewable energy sources (RES) deployment, assignment of parcels to projects defining and implementing and environmental standards and calls for a conducive regulatory framework to be created by the EU and Member States that allows local and regional room for manoeuvre for energy, industry and the protection of natural resources. In this context, LRAs will play a key role in defining environmental safeguards as regards production facilities and their subsequent infrastructure; Member States might also grant them greater decision-making autonomy in discharging this role in order to speed up the processes involved;

36.

stresses the importance of limiting the fragmentation of EU entities and initiatives (i.e. Clean Hydrogen Joint Undertaking, Fuel Cell Hydrogen Observatory, European Clean Hydrogen Alliance) dealing with hydrogen, without reducing public investment for research, development and innovation.

37.

while the Commission’s efforts to increase renewable hydrogen production are welcome, the circular economy principle must be upheld throughout the production lifecycle, particularly in areas whose morphology limits exploitation of certain renewable energy sources.

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(1)   OJ C 528, 30.12.2021, p. 10.

(2)  REPowering the EU with Hydrogen Valleys (roadmap), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13875-REPowering-the-EU-with-Hydrogen-Valleys-roadmap-_en

(3)  E.g. one auction for steel, one for ammonia, one for e-fuel production, one for mobility, etc.

(4)  REPowering the EU with Hydrogen Valleys (roadmap), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13875-REPowering-the-EU-with-Hydrogen-Valleys-roadmap-_en

(5)  Source: International Renewable Energy Agency.

(6)  Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy (OJ L 327, 22.12.2000, p. 1).

(7)  Hydrogen Europe’s estimates.

(8)  https://greenskillsforhydrogen.eu/wp-content/uploads/2023/04/Final-deliverable-T2.1.pdf

(9)  Proposal for a Regulation of the European Parliament and of the Council on establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem (Net Zero Industry Act) (COM (2023) 161).