OMC - Facilitar el comercio mundial de hidrógeno renovable y sus derivados

ENABLING GLOBAL

TRADE IN RENEWABLE

HYDROGEN AND DERIVATIVE COMMODITIESDisclaimer This publication and the information herein have been prepared by the International Renewable Energy Agency and the staff of the World Trade Organization (WTO) and are provided “as is”. All reasonable precautions have been taken by IRENA and the WTO to verify the reliability of the material in this publication. However, neither the IRENA nor the WTO, nor any of their officials, agents, data or other third-party content providers provides a warranty of any kind, either expressed or implied, and they accept no responsibility or liability for any consequence of use of the publication or material herein. The information contained herein does not necessarily reflect the positions or opinions of the Members of IRENA. The information provided for this report by the WTO is published under the responsibility of the WTO Secretariat. The opinions expressed and arguments employed herein do not necessarily reflect the opinions or views of WTO members. The views expressed, and the terms and illustrations used in this publication are without prejudice to WTO members’ rights and obligations; they are not intended to provide any authoritative or legal interpretation of the provisions of the WTO Agreements. The mention of specific companies or certain projects or products does not imply that they are endorsed or recommended by either IRENA or the WTO in preference to others of a similar nature that are not mentioned. The designations employed and the presentation of material herein do not imply the expression of any opinion on the part of IRENA or the WTO concerning the legal status of any region, country, territory, city or area or of its authorities, or concerning the delimitation of frontiers or boundaries.

© IRENA and WTO, 2024.

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ISBN: 978-92-9260-637-4

publication that is attributed to third parties may be subject to separate terms of use and restrictions, and appropriate permissions from these third parties may need to be secured before any use of such material.

ISBN: 978-92-9260-637-4

Citation : IRENA and WTO (2024), Enabling global trade in renewable hydrogen and derivative commodities, International Renewable Energy Agency and World Trade Organization, Abu Dhabi and Geneva.

Acknowledgements This report was authored by James Walker and Ann-Kathrin Lipponer (IRENA), and Svetlana Chobanova, Saira Munir and Rainer Lanz (WTO), under the guidance of Roland Roesch (Director, IRENA Innovation and Technology Centre), Francisco Boshell (IRENA) and Aik Hoe Lim (Director, Trade and Environment Division, WTO). Several IRENA and WTO staff reviewed drafts of this report, including Arno van den Bos, Francisco Gafaro, Paul Komor, Danial Saleem, Zafar Samadov, Gondia Seck and Patricia Wild (IRENA), as well as Ankai Xu, Daniel Ramos, Devin McDaniels, Jose-Antonio Monteiro, Mateo Ferrero, Michael Roberts, Philippe Pelletier, Roy Santana, Seref Gokay Coskun and Helen Swain (WTO). The authors also wish to express their sincere appreciation to the following experts for their reviews and insightful feedback: Nawal Yousif Alhanaee (UAE Ministry of Energy and Infrastructure), Laurent Antoni (International Partnership for Hydrogen and Fuel Cells in the Economy), Daria Nochevnik (Hydrogen Council), and Carla Robledo and Han Feenstra (Ministry of Climate Policy and Green Growth of the Netherlands). Publications and editorial support were provided by Francis Field and Stephanie Clarke, with design by Phoenix Design Aid. About IRENA The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports countries in their transition to a sustainable energy future, and serves as the principal platform for international co-operation, a centre of excellence, and a repository of policy, technology, resource and financial knowledge on renewable energy.

About IRENA The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports countries in their transition to a sustainable energy future, and serves as the principal platform for international co-operation, a centre of excellence, and a repository of policy, technology, resource and financial knowledge on renewable energy. IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of sustainable development, energy access, energy security and low-carbon economic growth and prosperity. About the WTO The World Trade Organization (WTO) is the only global international organisation dealing with the rules of trade between its members. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The WTO’s fundamental goal, as set out in the organization’s founding agreement, is to use trade as a means to improve people’s living standards, create better jobs and promote sustainable development. This report follows prior relevant work published by IRENA and the WTO, including: International trade and green hydrogen: Supporting the global transition to a low-carbon economy (IRENA-WTO joint report 2023) Trading into a bright energy future: The case for open, high-quality solar photovoltaic markets (IRENA-WTO joint report 2021) Global trade in green hydrogen derivatives: Trends in regulation, standardisation and certification (IRENA 2024) Global hydrogen trade to meet the 1.5°C climate goal: Trade outlook for 2050 and way forward (IRENA 2022) Trade Policy Tools for Climate Action (WTO 2023)CONTENTS ABBREVIATIONS ..................................................................................................................... 5

EXECUTIVE SUMMARY ............................................................................................................ 6

INTRODUCTION ...................................................................................................................... 7

The role for hydrogen and its derivatives in the global energy transition ................................. 7 International trade as a tool for sustainable development ........................................................7

Enablers: Foundations and approach .........................................................................................9

MARKET OVERVIEWS ............................................................................................................. 11

ENABLERS ............................................................................................................................ 20

Physical .........................................................................................................................................20

The role for hydrogen and its derivatives in the global energy transition ................................. 7 International trade as a tool for sustainable development ........................................................7

Enablers: Foundations and approach .........................................................................................9

MARKET OVERVIEWS ............................................................................................................. 11

ENABLERS ............................................................................................................................ 20

Physical .........................................................................................................................................20 Holistic consideration of resource availabilities and requirements for infrastructure development planning ................................................................................................................ 20 Prioritising distribution infrastructure development to ensure market access for producers ................................................................................................................................21 Supporting the development of diversified supply chains across sectors ..............................21

INSTITUTIONAL ....................................................................................................................... 22

Aligning standards and reducing divergences in certification to ensure credible global markets .............................................................................................................................22 Calibrating government support and procurement to facilitate demand and offtake .........24 Rebalancing tariffs for key products and services to reduce technology costs .................... 26 Co-ordinating carbon pricing mechanisms to enhance competitiveness .............................28 Harnessing international cooperation to ensure equitable growth ........................................ 28

SOCIAL .................................................................................................................................. 31

Balancing local and international market focus to encourage sustainable industrial development .................................................................................................................................31 Embedding job creation in national action planning for hydrogen and the derivative sectors .........................................................................................................................32 Community and stakeholder engagement guidelines for project developers .....................34

CONCLUSIONS .................................................................................................................... 36

Summary of enablers .................................................................................................................. 36

REFERENCES ......................................................................................................................... 38

3 ENABLING GLOBAL TRADE IN RENEWABLE HYDROGEN AND DERIVATIVE COMMODITIESFIGURES Figure 1 Bilateral trade patterns in hydrogen (HS 280410) in 2023, USD million and % ....................... 12 Figure 2 Bilateral trade patterns in ammonia (HS 281410) in 2023, USD million and % ........................ 14 Figure 3 Bilateral trade patterns in methanol (HS 290511) in 2023, USD million and % ....................... 16 Figure 4 Bilateral trade patterns in kerosene (HS 271019) in 2023, USD million and % ........................ 18 Figure 5 Average tariffs for hydrogen and derivatives by income group .................................................. 27

Figure 4 Bilateral trade patterns in kerosene (HS 271019) in 2023, USD million and % ........................ 18 Figure 5 Average tariffs for hydrogen and derivatives by income group .................................................. 27 Figure 6 Overview of sample profession types required for the renewable hydrogen and derivative sector .......................................................................................................................................... 33 Figure 7 Community engagement guidelines for hydrogen hubs. ................................................................ 35 BOXES Box 1 Case study: Preparing for ammonia imports in the Republic of Korea ..................................... 21 Box 2 Case study Applications of institutional enablers in Chile .......................................................... 30 Box 3 Case study Kenya hydrogen roadmap and sustainable industrial development .................. 32 4 ENABLING GLOBAL TRADE IN RENEWABLE HYDROGEN AND DERIVATIVE COMMODITIESABBREVIATIONS CO2 Carbon dioxide CO2eq Carbon dioxide equivalent COP28 28 th Conference of the Parties CTS Consolidated Tariff Schedules ENTSOG European Network of Transmission System Operators of Gas EU European Union GHG greenhouse gas Gt gigatonnes GW gigawatt HS Harmonized System (of tariff codes) IHTF International Hydrogen Trade Forum IRENA International Renewable Energy Agency ISO International Organization for Standardization ITS 1996 Information Technology Agreement MFN most favoured nation Mt megatonnes PV photovoltaic R&D research and development RoW rest of the world RSB Roundtable on Sustainable Biomass Initiative SAF sustainable aviation fuel TESSD Trade and Environmental Sustainability Structure Discussions UNIDO United Nations Industrial Development Organization USD United States dollar WCO HS World Customs Organization Harmonized System WTO World Trade Organization ° C degrees Celsius 5 ENABLING GLOBAL TRADE IN RENEWABLE HYDROGEN AND DERIVATIVE COMMODITIESEXECUTIVE SUMMARY Renewable hydrogen and hydrogen-derived commodities – such as ammonia, methanol and e-kerosene – are expected to play important roles in the energy transition. While most energy consumption can be met using renewable electricity or biofuels by 2050 (IRENA, 2023a), the use of renewable hydrogen and its derived

Renewable hydrogen and hydrogen-derived commodities – such as ammonia, methanol and e-kerosene – are expected to play important roles in the energy transition. While most energy consumption can be met using renewable electricity or biofuels by 2050 (IRENA, 2023a), the use of renewable hydrogen and its derived commodities will be required in hard-to-abate sectors, including in industry as feedstocks ( e.g. chemical manufacturing, fertiliser production, refining, steel manufacture) and heavy-duty transport as e-fuels (e.g. in maritime transport and aviation). Their use may account for around 14% of final energy consumption in 2050

(IRENA, 2023a).

Differences in climate conditions and economic circumstances are expected to drive cost variations for the production of renewable hydrogen, hydrogen-derived feedstocks and e-fuels in different geographies. Many countries and regions are considering potential roles in these emerging markets. For those with access to abundant renewable energy resources, exporting opportunities emerge. For those with developed industrial sectors and more limited renewable resources, imports can allow access to a decarbonised feedstocks or fuels. A global market for these commodities is expected to enhance competitiveness and lower total costs by facilitating the development of production facilities where renewable resources are most abundant. The development of an international market for renewable hydrogen and its derivative commodities will require significantly scaled-up sustainable value chains. Further physical infrastructure is needed; for example, pipelines and shipping facilities are necessary to transport commodities from producers to consumers. Robust market development will be supported by establishing and elaborating plans and strategies for the development of supply chains around technologies and vital inputs (such as water and carbon sources for the production of methanol and e-kerosene). Moreover, the development of sound and coherent policy frameworks will foster market growth, support sustainable production, and facilitate international trade flows. It is also clear that engaging communities and building social acceptance helps to facilitate successful projects. All of these priorities require action, from various stakeholders, and this report sets out a series of considerations for policy makers enabling international market development and trade in renewable

frameworks will foster market growth, support sustainable production, and facilitate international trade flows. It is also clear that engaging communities and building social acceptance helps to facilitate successful projects. All of these priorities require action, from various stakeholders, and this report sets out a series of considerations for policy makers enabling international market development and trade in renewable hydrogen and its derivative commodities. These considerations cover areas of energy and trade policy, and the intersections between them. Policy makers are encouraged to consider the resources and tools available to them in their economies, and their specific objectives in terms of international trade in renewable hydrogen and its derivatives. Trade policies such as standardisation and certification mechanisms, government support and procurement, rebalancing tariffs, and carbon pricing mechanisms, can be used to bolster international market development. The evolution of these markets is expected to support green industrial development and job creation, and foster an efficient energy transition. International collaboration and co-operation is also recognised as being essential to driving these international markets, especially when mechanisms for standardisation and certification are considered. Further work across borders is required in these areas. 6INTRODUCTION THE ROLE FOR HYDROGEN AND ITS DERIVATIVES IN THE GLOBAL ENERGY TRANSITION Towards 2050, most energy use can be addressed via electrification, using renewable power; in its World energy transitions outlook 1.5°C Scenario IRENA projects that 51% of energy demand can be met using renewable power directly in 2050, rising to 67% when contributions from bioenergy are considered (IRENA, 2023a). However, certain sectors that cannot be easily or cost-effectively electrified will require renewable hydrogen or a hydrogen-derived commodity such as ammonia, methanol or e-kerosene to decarbonise. These end-use sectors are often referred to as “hard to abate”, as there are relatively few solutions available for addressing their energy demand through renewable means. This is true for both industrial processes in which these hydrogen-derived commodities are used as feedstocks – like chemical manufacturing, fertiliser production, refining and steel manufacturing – and for heavy-duty transport where they will be used as fuels – as in

their energy demand through renewable means. This is true for both industrial processes in which these hydrogen-derived commodities are used as feedstocks – like chemical manufacturing, fertiliser production, refining and steel manufacturing – and for heavy-duty transport where they will be used as fuels – as in the maritime and aviation sectors. In a net-zero scenario – as sources of lowor zero-emission hydrogen – ammonia, methanol or e-kerosene will be crucial to delivering the comprehensive emissions reductions that are required across the energy system. These end uses account for 14% of total final energy consumption in 2050 being addressed by hydrogen and hydrogen-derived fuels under the IRENA 1.5°C Scenario (IRENA, 2023a). This report is concerned with renewable hydrogen – hydrogen produced via electrolysis, powered by renewable electricity. Currently, global hydrogen production stands at around 95 megatons per year (MtH2/year), and is primarily derived from fossil fuels without carbon capture and storage. Hence, hydrogen production is a significant contributor of emissions and resultant climate change. Similarly, hydrogen derivatives like ammonia and methanol, which are also largely produced using fossil fuels, also contribute to global emissions. Transitioning these industries to renewable hydrogen sources will be crucial to reducing their environmental impact and aligning them with climate goals. Joint analysis by IRENA and WTO in 2023 indicates that international trade will play an important role in the development of markets for renewable hydrogen derivatives. These commodities are expected to be easier to transport than hydrogen itself, especially over long distances, as they have a higher volumetric energy density (IRENA and WTO, 2023). Building on these findings, this brief focuses on enabling measures for the development of international markets for both renewable hydrogen, and hydrogen-derived feedstocks and e-fuels, that include renewable ammonia, renewable methanol and e-kerosene. All three derivative commodities have important applications in the current energy system, and are expected to become increasingly important vectors for supplying energy or chemical feedstocks. INTERNATIONAL TRADE AS A TOOL FOR SUSTAINABLE DEVELOPMENT Current processes for the production of ammonia, methanol and kerosene rely on the use or direct conversion

commodities have important applications in the current energy system, and are expected to become increasingly important vectors for supplying energy or chemical feedstocks. INTERNATIONAL TRADE AS A TOOL FOR SUSTAINABLE DEVELOPMENT Current processes for the production of ammonia, methanol and kerosene rely on the use or direct conversion of fossil fuels. These conventionally-produced commodities are widely traded today, and data is provided in the following sections on the scale of current international markets for each. 7 ENABLING GLOBAL TRADE IN RENEWABLE HYDROGEN AND DERIVATIVE COMMODITIESProducing renewable ammonia, methanol and e-kerosene at scale will require a readily available source of renewable hydrogen, alongside nitrogen for ammonia, and biogenic carbon (carbon that is sequestered from the atmosphere during biomass growth) for methanol and e-kerosene. The report also considers key enablers to scale up sustainable production and international trade. The transition to renewable energy offers an opportunity to redefine the boundaries of energy markets and their players. International trade can play a significant role in scaling up the production of renewable hydrogen and its derivatives by matching regions where these commodities are in high demand with regions benefitting from abundant supply. Cross-border trade could save USD 3.7 trillion in investment costs by 2050 by connecting high-demand areas with regions that can supply low-cost renewable and low-carbon hydrogen and derivatives, while helping to unlock some 22 million jobs by mid-century, half of them in emerging markets and developing economies (Hydrogen Council and McKinsey & Company, 2024). This is especially true in economies with abundant renewable resources – many of which are developing economies – where it may be possible to produce these green commodities at a lower cost than elsewhere. In turn, the demand of importing markets can encourage the development of production capacity and innovation to further lower costs. Trade can thus help developing economies realise their green comparative advantages, stimulate sustainable industrial development and increase availability of technology, while at the same time optimising investment and ensuring diversity of supply. More than fifty governments have presented strategies and policy frameworks for the development of

markets can encourage the development of production capacity and innovation to further lower costs. Trade can thus help developing economies realise their green comparative advantages, stimulate sustainable industrial development and increase availability of technology, while at the same time optimising investment and ensuring diversity of supply. More than fifty governments have presented strategies and policy frameworks for the development of renewable hydrogen production and use in their countries, and some have also considered how to best facilitate the evolution of value chains for renewable ammonia, methanol and e-kerosene (IRENA, 2024a). These value chains cover the production, transport, distribution, and end use of these commodities. At this stage of market development, government policies – from optimised tariffs and tax regimes, through aligning standards and certification schemes and providing government support, to implementing green government procurement practices and carbon pricing schemes – are essential to secure significant, stable demand as well as to incentivise investment, while discouraging the consumption of fossil-fuel derived products. The optimal policy mix may vary across economies, depending on their natural resource endowments, financial capacities and industry compositions. Each economy’s approach will also reflect its specific priorities, such as whether it seeks to position itself as a net exporter or importer of renewable hydrogen, derivatives and/or technologies. The implementation of environmental policies often follows a familiar sequence: initially, governments tend to provide support and regulatory frameworks to foster green technology development and adoption. Once these technologies achieve greater maturity, countries then typically introduce procurement policies, investment incentives, and carbon pricing mechanisms to further drive market expansion and sustainability goals (Linsenmeier et al., 2022). A patchwork of rules and divergent policy approaches can, however, create trade tensions and jeopardise the effectiveness of these policies. International coordination and dialogue between governments and the private sector are therefore essential in order to create efficiencies and speed up the dissemination of sustainable volumes of renewable hydrogen, ammonia, methanol and e-kerosene. Fostering international cooperation through inclusive multilateral fora can also provide much-needed policy stability and enhance investment security, creating a global market for renewable hydrogen and derivative commodities. 8

sector are therefore essential in order to create efficiencies and speed up the dissemination of sustainable volumes of renewable hydrogen, ammonia, methanol and e-kerosene. Fostering international cooperation through inclusive multilateral fora can also provide much-needed policy stability and enhance investment security, creating a global market for renewable hydrogen and derivative commodities. 8 ENABLING GLOBAL TRADE IN RENEWABLE HYDROGEN AND DERIVATIVE COMMODITIESENABLERS: FOUNDATIONS AND APPROACH The enablers considered in this report are categorised according to three ‘pillars’ or ‘types’ of measures, which can be developed to support the scaling up of international markets for the renewable hydrogen-derived commodities discussed here. These pillars describe physical, institutional and social enablers. Recommended actions that can facilitate or support the development of international markets for these green commodities are described under these pillars below. Physical Physical enablers refer to the deployment of essential infrastructure such as renewable energy generators, hydrogen production plants and derivative commodity production facilities. Infrastructures for the storage, transport, distribution and delivery of hydrogen, and derivative commodities, are also considered in this category. Institutional Institutional enablers primarily encompass the policy measures that governments and regulators can use to support market development. These regulatory frameworks include, inter alia, import tariffs, taxation regimes and carbon pricing instruments, standards and certification, government support and procurement. Social The social enablers consider the additional considerations and potential benefits that trade in hydrogen derivative commodities may realise. Anticipated social benefits associated with developing these markets include sustainable industrialisation and growth, along with the associated job creation. Enabling measures in this area concern community engagement and other means of encouraging social acceptance of energy development, as well as skills development and wider educational measures to enable citizens to benefit from market growth. The following section introduces the current state of markets for hydrogen and hydrogen-derived commodities, i.e. ammonia, methanol and kerosene. 9

ENABLING GLOBAL TRADE IN RENEWABLE HYDROGEN AND DERIVATIVE COMMODITIESBelgium

(83.34) 35.10%

market growth. The following section introduces the current state of markets for hydrogen and hydrogen-derived commodities, i.e. ammonia, methanol and kerosene. 9

ENABLING GLOBAL TRADE IN RENEWABLE HYDROGEN AND DERIVATIVE COMMODITIESBelgium

(83.34) 35.10% Malaysia (5.57) 2.35% Germany (8.96) 3.77% Rest of World (46.05) 19.40% France (10.59) 4.46% Netherlands (80.95) 34.10% Canada (67.94) 28.62% United States of America (68.10) 28.69% Rest of World (24.40) 10.28% Canada (6.43) 2.71% Mexico (10.76) 4.53% Netherlands (20.32) 8.56% United States of America (22.03) 9.28% Germany (13.41) 5.65% France (5.38) 2.26% Malaysia (0.59) 0.25%

EXPORTER IMPORTER

Source: WTO Analytical Database (WTO, 2024a).

Note: Based on bilateral import data; left-hand side indicates exporters, right-hand side indicates importing markets; RoW = rest of the world HYDROGEN Today, almost all hydrogen is produced from fossil fuels, emitting around 1.3 gigatonnes (Gt) of carbon dioxide equivalent (CO2eq) emissions annually, posing a significant challenge for climate goals. To meet net-zero targets, low-carbon hydrogen production must expand five-fold by 2050, requiring large-scale deployment of electrolysers and renewable power. Costs remain a barrier, but falling prices for renewable electricity and anticipated reductions in electrolyser costs could make renewable hydrogen competitive with fossil-based alternatives by the 2030s, especially in regions with abundant renewable energy resources (IRENA, 2023a).

MARKET OVERVIEWS

of electrolysers and renewable power. Costs remain a barrier, but falling prices for renewable electricity and anticipated reductions in electrolyser costs could make renewable hydrogen competitive with fossil-based alternatives by the 2030s, especially in regions with abundant renewable energy resources (IRENA, 2023a). MARKET OVERVIEWS Figure 1 Bilateral trade patterns