China: New Policies Boost Low-Carbon Hydrogen in Industrial sector

The Implementation Plan, jointly issued by the Ministry of Industry and Information Technology (the “MIIT”), the National Development and Reform Commission (the “NDRC”), and the National Energy Administration (the “NEA”) on 30 December 2024, aims to boost the Chinese Government’s efforts to promote the use of low-carbon hydrogen in industrial sectors. It is built on the framework established by the Medium and Long-Term Plan for the Development of Hydrogen Energy Industry (2021–2035) (the “Medium and Long-Term Plan”), announced by the NDRC and NEA in March 2022, and China’s first Energy Law, effective 1 January 2025. The Energy Law, included hydrogen energy in national legislation for the first time and classified it as an energy resource like fossil fuels and renewables, rather than a dangerous chemical product.

According to the Medium and Long-Term Plan, China aims to produce 100,000 - 200,000 tons of low-carbon hydrogen annually by 2025 and create a diverse hydrogen energy ecosystem across transportation, energy storage, and industrial sectors by 2035. While it is on track to achieve the 2025 target, primarily led by Sinopec and other state owned energy companies, the Chinese Government has faced challenges in securing sufficient off-takers due to the economically unviable demand for low-carbon hydrogen energy and its limited usage in public transportation for technical challenges. To address this, the Government is seeking to scale up its hydrogen energy industry by first promoting its usage in industrial sectors through the Implementation Plan, which provides top-level policy guidance, encouraging the deployment of low-carbon hydrogen and the development of a comprehensive industrial chain for hydrogen production.

How will the new guidelines work?

Policy Goals

To achieve the goals of the Medium and Long-Term Plan, the Implementation Plan sets the following detailed targets to be met by 2027:

• large-scale deployment: widely used low-carbon hydrogen in industries like metallurgy, ammonia/methanol synthesis, and refining (although no specific quantitative target was set)

• technological innovation: make significant progress in developing hydrogen metallurgy equipment and key materials/components, production technologies for green methanol and synthetic ammonia, and constructing green methanol/ammonia demonstration projects

• establishing industrial chain: cultivate a network of “dragon head” companies and industrial clusters to create a comprehensive industry ecosystem, supported by system solution providers with high expertise and robust service capabilities.

Key Tasks

To achieve the above goals, the Implementation Plan identifies the following key tasks:

• production technologies: the Implementation Plan mentions the need to develop green methanol production technologies coupled with carbon capture and biomass, and to develop high-activity, high-selectivity, and high-stability catalysts and carbon dioxide capture materials. Additionally, it is necessary to enhance the flexible production process of ammonia synthesis, explore new processes for low-temperature, low-pressure, near-atmospheric ammonia synthesis to adapt to the volatility of renewable energy power generation

• prioritized use cases: the Implementation Plan urges the refining sector to transition to low-carbon hydrogen in processes such as hydrocracking and hydrorefining instead of using hydrogen produced from fossil fuels. It suggests that companies scale up green methanol production and encourages relevant sectors such as airlines to invest in green methanol to produce sustainable aviation fuels. Energy, chemical and shipping/shipbuilding companies are advised to make joint efforts in constructing synthetic ammonia demonstration projects

• lowering system costs: the Implementation Plan tackles the high costs of renewable-based, low-carbon hydrogen by encouraging companies to build factories and industrial parks in areas with abundant renewable power. This approach allows companies to directly use renewable electricity as it is generated, thus reducing system costs and enhancing efficiency

• hydrogen energy infrastructure: the Implementation Plan emphasizes the need to build a complete industrial chain from hydrogen production, storage to refuelling. The policy also highlights the importance of standardizing and certifying hydrogen energy infrastructure to improve the utilization efficiency of hydrogen energy, reduce the production and transportation costs of hydrogen.

Policy Support

To encourage the investment in hydrogen energy projects, the Implementation Plan proposes a series of financial support and incentive policies. For example:

• municipal finances will allocate annual funds based on higher-level policies and local development needs. This includes subsidies for technological innovation in hydrogen enterprises. For example, Guangzhou has introduced a policy offering financial rewards for hydrogen energy manufacturing projects with investments between RMB 100 million and 1 billion. Eligible projects can receive a reward equivalent to 1% of their annual fixed asset investment after construction begins, capped at RMB 10 million

• supporting the expansion or upgrading of industrial capacity for demonstration projects that use low-carbon technologies, such as hydrogen-based steel production (hydrogen metallurgy)

• encouraging regions to support hydrogen production powered by renewable energy by implementing supportive policies and integrating these projects into electricity markets. By leveraging market mechanisms like peak shaving and valley filling, hydrogen producers can reduce energy costs while making better use of renewable energy resources

• innovating local management models, allowing integrated hydrogen production and refueling stations to be located outside chemical parks.

While these policies provide strategic directions, they contain limited specifics on concrete measures. It is anticipated that the Chinese government, including local authorities, will subsequently issue more specific implementation policies.

Why this matters

Over the past few years, China has positioned itself as a dominant force in the realm of advanced energy solutions. Their financial commitment to clean energy technologies has outstripped the total investments of the next ten leading countries combined.

China’s dedication to hydrogen isn’t a recent development. Back in 2015, the Government advocated for the transition to low-carbon energy within the “Made in China 2025” initiative, a decade-long strategy to modernize the manufacturing sector. Over the last ten years, the central Government has introduced various policies to foster the growth of the hydrogen industry. The Implementation Plan is set to further transform China’s hydrogen supply chain, driving innovation, cost reduction, and investment across the industry.

China’s strong advocacy for renewable energy is expected to lower production costs for low-carbon hydrogen. As of early 2024, the country’s renewable energy capacity has exceeded 1,300 GW, and its electrolyzer production costs are only one-fourth of those in the US and Europe. This competitive edge positions China as a global leader in cost-effective hydrogen production. Bloomberg forecasts that production costs in China will drop to USD 2.5/kg by 2030 and USD 1.6/kg by 2050. The Plan also prioritizes technological advancements, such as hydrocracking, catalysts, and green methanol/ammonia synthesis, to enhance the efficiency of low-carbon hydrogen applications.

China’s leadership in green hydrogen is already attracting foreign investors. For instance, on 29 January 2024, BASF partnered with Envision to develop the world’s largest green hydrogen-ammonia project in Inner Mongolia. The project, based at Envision Energy’s green hydrogen facility, will combine BASF’s advanced catalyst technology with Envision’s secured green hydrogen supply to optimize ammonia production efficiency.

• The expanding and cost-effective supply of low-carbon hydrogen, green ammonia, and methanol is also unlocking opportunities across various sectors, including metallurgy, transportation, and energy storage. Multinational corporations are leveraging these advancements to meet their low-carbon transition goals. For example, Maersk has signed a long-term agreement with Goldwind to secure an annual supply of 500,000 tons of green methanol for its vessels. Starting in 2026, this green methanol will be produced using wind energy at Goldwind’s new facility in China.
• The Plan also provides a boost to midstream sectors, particularly in hydrogen storage, transportation, and infrastructure development. It emphasizes the need for high-density, long-life storage technologies, safe and reliable transportation systems, and the construction of refueling stations, storage facilities, and pipelines. One notable project reflecting this trend is the Plastic Omnium and Shenergy Group joint venture, announced in January 2024, to build a Shanghai factory for high-pressure hydrogen storage containers. With an annual production capacity of 60,000 units, the facility is scheduled to begin operations in 2026.

By reducing costs, advancing technology, and expanding infrastructure, the Implementation Plan aims to strengthen China’s domestic hydrogen ecosystem while positioning the country as a global leader in the hydrogen energy industry. With strategic investments in renewable energy, midstream infrastructure, and innovative partnerships, China is poised to play a pivotal role in shaping the future of low-carbon hydrogen production and applications worldwide.