Reassessing the UK’s hydrogen strategy as the government prepares its update

The UK has long been regarded as a climate leader and has achieved clear progress to back it up. It has cut its greenhouse gas emissions by more than 50 percent since 1990 and was the first major economy to legislate for net zero and set legally binding carbon budgets.

Part of this attempt has been its leadership on hydrogen. Since releasing its low-carbon hydrogen strategy in 2021, the UK has taken meaningful steps to build out a hydrogen economy, including setting time-bound production targets, formulating a pragmatic low-carbon hydrogen standard (LCHS) for accounting emissions reductions, and establishing its Hydrogen Production Business Model. It has also created critical funding streams like the Hydrogen Allocation Rounds (HAR) and Cluster Sequencing processes, which support the development of hydrogen projects within carbon capture and storage (CCS) networks.

With a Hydrogen Strategy update expected imminently, this is a timely opportunity to reflect on what the UK has got right and where there are opportunities for course correction to ensure hydrogen is deployed in the sectors that need the clean molecule most.

These questions were central to the CATF-E3G event held earlier this month in London, which examined how and where the UK should deploy clean hydrogen to best decarbonise its economy as part of a pragmatic decarbonisation portfolio. Below are some key takeaways from that discussion.

Hydrogen will play a critical but not extensive role in UK decarbonisation

While it is too early to define every end use, low-carbon hydrogen will be most critical for industry and long-distance transport. The clearest cases for hydrogen in the UK are in energy-intensive industries, such as chemicals and fuels production, that cannot decarbonise without a clean molecule, and which can also take advantage of shared industry cluster infrastructure. Hydrogen-derived fuels will be required for the UK’s aviation and maritime sectors, with demand expected to grow into the 2040s.

Electrification, however, should remain the default decarbonisation choice, with hydrogen reserved for applications that are genuinely hard-to-electrify or the only option available. The UK government, therefore, must consider how its hydrogen strategy is more closely integrated into broader industrial decarbonisation and electrification endeavours.

Some hydrogen transport and storage (T&S) may be needed at the national level, but the location, scale, and function of such infrastructure require further assessment. For example, long-distance hydrogen transport through the gas network is becoming increasingly unrealistic and lacks strategic purpose, and T&S will be more beneficial when deployed around critical demand centres.

Addressing misalignment across national hydrogen policy and funding is critical

Despite early leadership on low-carbon hydrogen, inconsistent policy frameworks and delayed implementation are now creating barriers to investment and deployment.

Funding frameworks across hydrogen-related schemes are misaligned in approach. Some allow developers to apply for funds from multiple schemes whereas others restrict support to just one pot. For example, the Department for Energy Security and Net Zero (DESNZ) and Department for Transport (DfT) each have their own hydrogen-derived fuels schemes and a producer supported under the DESNZ scheme is not eligible for support under the DfT scheme.

Frameworks also apply regional competition inconsistently. The cluster sequencing and infrastructure allocations require regions to compete for funding, whereas HAR does not. The UK Government should instead plan decarbonisation strategically at the national level, prioritising infrastructure in the most critical locations. NESO’s Strategic Spatial Energy Plan due in 2027 should support this approach. This will mean making difficult but necessary decisions to ensure best value of public funds and enable projects to move from planning to operation.

Furthermore, hydrogen standards cross-government are not fully aligned. A clear standout is the DfT Sustainable Aviation Fuel mandate, which does not align with DESNZ hydrogen rules as CCS-enabled hydrogen is currently ineligible as a feedstock for aviation fuels production limiting domestic feedstock production potential.

These policy inconsistences across government departments and quasi-government bodies like the National Energy System Operator (NESO) undermine business cases and delay investment decisions in first-of-a-kind hydrogen projects. And this is not just applicable to hydrogen, as cross-governmental policy coordination and support on industrial decarbonisation is also needed.

The planning and governance process would also benefit from broader stakeholder representation, particularly NGO perspectives and those of public interest. NGO perspectives would be particularly welcome under initiatives such as the Hydrogen Delivery Council, where viewpoints are limited to only government and industry, which may lead to unrealistic decisions/outcomes.

The UK has been a frontrunner on hydrogen, but it must follow through on commitments

The UK’s twin-track approach to electrolytic and CCS-enabled hydrogen production has enabled effective optionality for project developers, supported by dedicated funding streams for each pathway. However, the transition from planning to real-world progress has been slower than anticipated.

Electrolytic hydrogen production remains expensive, with costs significantly higher than early estimates. Early projects have faced high costs, and a clear pathway to economies of scale is needed to help bring costs down. Policy is also needed to tackle high energy prices faced by industry.

Delays to awarding HAR 2 projects have reduced investor confidence and slowed the speed of deployment, yet the existing policy framework does not reflect these realities. The private sector cannot price policy uncertainty on its own, and a widening “valley of death” that developers face now threatens the viability of the next wave of projects.

Without action, decarbonisation risks turning into deindustrialisation

Slow government support has already had consequences. The shutdown of the UK ammonia industry and the need for last-minute intervention to prevent Tata Steel’s exit from the domestic market illustrate how delays and uncertainty have real world consequences for energy-intensive industries. Whether these industries remain in the UK is closely linked to the pace and clarity of decarbonisation policy and availability of public support mechanisms, including hydrogen.

A path forward for the UK’s hydrogen strategy

To get hydrogen efforts back on track, the UK should:

• Update its national hydrogen strategy to better reflect sectoral demand and interlink more clearly with industrial decarbonisation priorities.
• Align and coordinate low-carbon hydrogen and fuels policy across Government bodies to ensure uniform and fair application.
• Bring more holistic voices into decision-making processes for more pragmatic planning.
• Build back industrial decarbonisation funding, including hydrogen funding streams, and ensure timely delivery of public funds that minimise regional competition.

Hydrogen can be an important part of the UK’s net zero transition, but only if deployed where it is most needed and underpinned by a coherent, predictable, and coordinated policy environment. The upcoming national strategy update offers a key opportunity for the UK to reaffirm its leadership and build a hydrogen sector that strengthens both climate ambition and industrial competitiveness.