Tomorrow’s hydrogen economy

People get obsessed with hydrogen, and I can see why. It is the lightest and most abundant element in the universe. It’s colourless, and odourless. In its liquid form it carries three times as much potential energy as petrol. But burn it and all you leave behind is water.

Hydrogen is a miraculous molecule. And yet we’re moving away from using it in many of the scenarios in which it has been proposed. In February 2025, the UK government’s Climate Change Committee said “...we see no role for hydrogen in buildings heating and only a very niche, if any, role in surface transport.”

If the government follows the advice of the committee, it will not support schemes that use hydrogen for domestic heating or powering cars.

This didn’t surprise people watching the space closely. Because in spite of all its miraculous properties, physics is largely against the idea of using hydrogen in heating or transport. And a panel including many eminent scientists was never going to miss that.

This doesn’t mean that there won’t be a big hydrogen economy in the future. It just ratifies what role hydrogen should play. A role that is shaped by finance as much as physics. By demand, by competition, by regulation – just like any other economy.

Here comes the science bit

Hydrogen can’t just be plucked out of the air. You have to extract it. There’s some underground. But mostly today it comes from two sources. You can make it from methane gas using a process called steam reforming. This so-called ‘grey hydrogen’ accounts for about 99% of all hydrogen we make today¹. And for every tonne you make, the process emits at least 10 tonnes of carbon². You can capture that carbon to make so-called blue hydrogen, but hardly anyone does.

The most common alternative is to make hydrogen from water, through a process called electrolysis – not quite the same as the process your beautician uses to remove hair, but similar in principle. It releases a fraction of the carbon emissions. So why don’t we make more hydrogen this way?

The economics bit

Electrolysis requires electricity, and that electricity has to come from renewables if it’s going to be low carbon ‘green hydrogen’. Electricity right now is expensive, and that makes green hydrogen expensive. Some 2.5 times as expensive a grey hydrogen, to be precise, according to the European Hydrogen Observatory (based on 2022/23 energy prices in the UK)³.

Simply put, power is pricey. And electrolysis is a lossy process. Today, it’s about 80% efficient with the most advanced processes, i.e. one fifth of the energy you put in is lost. And that’s not the only place you make losses.

Think about what you’re going to do with your hydrogen. Specifically, the two use cases ruled out by the UK Climate Change Committee: cars and heating. If you’re going to put it into a fuel cell and turn it back into electricity, to power a car or a heat pump, you’re going to lose maybe another 40%. Burning it – for example, in your boiler at home – is more efficient. You’re going to lose only 10%.

But compare this to electricity, carried directly or stored in batteries. This is the competition. What happens if rather than using electricity to make hydrogen, you just stick the electricity straight into your car, or your heat pump? There are still losses – no system is perfect – but many, many times fewer.

The Houdini molecule

All this is before you get into the complexities of moving hydrogen around. Hydrogen atoms are like the Houdini of molecules: they will escape almost anything. That means enormous capital cost has to go into transporting hydrogen, whether you want to use it for cars or homes. Who is going to pay for the pipes, tankers, filling stations, safety training?

And there are other issues. Like volumetric efficiency: hydrogen looks great when you measure its energy per kilo. It looks less great when you measure it per cubic metre: hydrogen needs four times as much space to store the same amount of energy as petrol, even if it’s lighter.

And if you really do want to burn it, it turns out it doesn’t just release water, it also produces nitric oxides, one of the core components of air pollution from things like diesel engines that we have been fighting to reduce.

Once you do the analysis, hydrogen looks a little less miraculous. But that doesn’t mean it isn’t useful. And it certainly doesn’t mean we shouldn’t be investing in a green hydrogen economy.

The right applications

Let’s start with where hydrogen is used today: big industrial processes. Hydrogen is used in refining fuel – the stuff that already goes in your car. It goes into the process for making ammonia, which then goes into everything from fertilisers to cleaning products. And it’s used for making methanol, which then goes into paints, varnishes, anti-freeze and all sorts of other things. Add in the broader chemicals production industry and you account for the vast majority of hydrogen demand today.

Switching these processes from gray hydrogen to green hydrogen is an enormous challenge in itself, but if achieved would yield incredible benefits in carbon reduction. And that’s before you look at other carbon-intensive industries that could benefit from the switch to green hydrogen, like steel and cement production. Each of these industries accounts for roughly 8% of global carbon emissions. Decarbonising both, which would require vast quantities of green hydrogen, would be a massive win.

Then there is flight. Green hydrogen could be a fuel for aircraft in its own right, but also a feedstock for sustainable aviation fuel. Right now the airline industry can only access around 0.2% of the sustainable fuel it needs to decarbonise. The growth potential here is vast.

There are many more areas where green hydrogen could have enormous potential that are not subject to the same issues as heating and passenger cars. Shipping, for example. Places where you don’t have to create lots of widely distributed infrastructure. Places where control of the fuel can be concentrated in the hands of specialists. Places where volumetric energy density and conversion losses aren’t so much of an issue.

Demand growth

Hydrogen demand is already growing at a few percent a year. Green hydrogen demand is growing four times faster than that, by some estimates. As a result, the technologies for producing and distributing hydrogen are advancing fast. I don’t think a week goes by when I don’t read about a new innovation. For example, plants that can convert sea water into hydrogen rather than purified water – much cheaper. Or new materials for the key components of an electrolyser – anode, cathode, membrane, electrocatalyst – that are cheaper, more effective, or longer lasting. New storage and transportation technologies. And more efficient fuel cells.

With all this innovation, we might one day overcome the barriers to using hydrogen as a fuel source for home heating and cars. But today, doing so makes no sense. And the demand for green hydrogen is potentially so large, and the benefits of applying it to existing markets so vast, that redirecting it to these applications where we already have good alternatives is absurd.

Tomorrow’s economy

The future green hydrogen economy is potentially enormous. But how fast it will grow looks deeply uncertain right now.

The speed of its growth will certainly not be defined by making it work for consumer applications. These might be a good way to make green hydrogen projects attractive to casual investors, through applications that they understand. But they were never going to be the real drivers of growth.

Instead, the hydrogen economy will be defined by other factors. Demand is not the issue, supply is. Supply at the right volume: production of green hydrogen needs to scale 100x just to meet current hydrogen usage. And supply at the right price: even with all the new innovations, green hydrogen prices will be highly dependent on green energy prices, especially if the hydrogen is to be made close to where the demand is.

Both energy prices, and the prices of the goods produced from hydrogen, are very much set by regulation. Regulation combined with government investment could, for example, lower the cost of production of green steels, cements, and chemicals. And regulation could require their use at the same time, growing the market.

We might not see bold action in that direction in the current political climate. But the world is slowly moving in that direction. Even the most conservative estimates see demand for hydrogen doubling by 2050. The most optimistic see 5-6x growth by that time. If we’re to meet either predicted level of demand without a similar spike in emissions, it will have to be by making much more green hydrogen.