The Hydrogen Ladder

Clean hydrogen is seen by most people familiar with the subject, from experts to politicians, as a crucial tool to stop global warming before it exceeds 2 °C. That’s why governments and investors are throwing money at almost any project that uses clean hydrogen. This is tempting many to try to strike gold with clean hydrogen projects; initiatives, projects and large-scale plants are springing up like mushrooms in a wide range of applications.

But, says Michael Liebreich, a prominent figure in the clean hydrogen discourse, there will not be enough green energy to produce clean hydrogen for all applications.

He therefore wants to steer stakeholders away from fuel cell cars and other applications where batteries are a viable alternative to fertilizers and other selected applications where clean hydrogen can be more beneficial. To illustrate which areas of application investors and politicians should or should not invest in, he has created a framework named the Hydrogen Ladder.

Let’s delve deeper into the intricacies of the Hydrogen Ladder to better understand its implications for the clean hydrogen landscape.

Shortage

There is not enough green electricity that can be converted into clean hydrogen to supply all possible applications of hydrogen, says Michael Liebreich.

Of course it’s not enough today, says the optimist. This is because less than 1 percent of all hydrogen produced 2023 is clean. We will remedy this by building a heck of a lot of PEM electrolyzers all over the world.

But even then, insists Michael Liebreich, we will not be able to produce enough hydrogen.

It feels like Michael Liebreich is a party crasher. Here we have the party of a lifetime to celebrate the great future of clean hydrogen. We are drinking bubbly and in a great mood. Optimism is high; we are invincible. Then he comes here and trashes everything. Who does he think he is?

Michael Liebreich

Michael Liebreich is a Londoner and an Olympian. But it’s not in these qualities that he hangs out in the hydrogen space. He is known for his deep understanding of how energy markets work, including clean energy and its impact on the environment. Expertise that builds on his experience as a consultant at McKinsey, venture capitalist at Groupe Arnault, and especially as founder of Bloomberg New Energy Finance, a leading source of insights on clean energy, transportation and technology. Today he runs his own consulting business.

It is worth noting that Michael Liebreich is not anti-hydrogen. On the contrary! He is also excited about the future of hydrogen. After all, that’s why he’s at the same party as us. But unlike the party prizes, he has only sipped his bubbly. He is simply the sober one among us. Maybe we should listen to what he has to say about clean hydrogen.

Short interruption for important message

Dear shareholders and investors,

You may wonder why I have dragged you to this party. Of course, you have nothing against hydrogen, and are as keen as anyone to reduce greenhouse gas emissions. But you are primarily interested in seeing Smoltek’s shares increase in value.

Of course you know why I’ve invited you to the party: Smoltek develops carbon nanofibers that can be used for a lot of good things. For a start, we have focused on two business areas: Smoltek Semi and Smoltek Hydrogen. The latter has developed a unique cell material for PEM electrolyzers; it can significantly reduce the amount of the necessary but ridiculously expensive catalyst metal iridium. This will save gigantic amounts of money for electrolyzer manufacturers and, by extension, all their customers.

Their customers? Yes, all the ones you see here at the party. They all need PEM electrolyzers. And all will want to save big by choosing electrolyzers with Smoltek cell material. You see?

This makes Smoltek such a damn good investment. Both cha-ching and social benefit at the same time.

But…

(I’ve said it before, there’s always a but in every good story).

The rub is that there won’t be enough PEM electrolyzers and green electricity for everyone at the party. At least that’s the message Michael Liebreich is trying to get across to everyone at the party.

But no one wants to listen to him. Everyone is preoccupied with boasting about their anticipated success to their peers instead of paying attention to Liebreich’s warnings.

But we have listened and will now explain what Michael Liebreich is trying to say.

Hydrogen Ladder

The Hydrogen Ladder looks like the European Union energy label. (You know that colorful sticker on white goods, light bulb packaging and cars you buy that shows how energy efficient it is on a scale from A to G – from best to worst).

However, instead of grading the energy efficiency of white goods, light bulbs and cars, Michael Liebreich uses the same color and letter scale to grade the likelihood that hydrogen will be directly or indirectly used on a large scale by an application a decade from now.

Why a decade?

Right now the government is throwing money at all clean hydrogen applications. Anyone with ideas for how clean hydrogen can be used is running after this money.

In ten years, when the subsidies start to dry up and the tough commercial conditions kick in, the wheat will be separated from the chaff. In the meantime, the technology will be fine-tuned and the necessary infrastructure will emerge.

So in ten years – give or take a few years – we will see which applications can really stand on their own.

While we wait for the verdict, we can speculate on what will work and what won’t. This is what Michael Liebreich does with his Hydrogen Ladder.

What the Hydrogen Ladder is and isn’t

It is important to understand that the Hydrogen Ladder is only a classification based on Michael Liebreich’s assessment of the likelihood of a clean hydrogen application being commercially viable at scale around 2035.

In his assessment, Michael Liebreich has weighed

scientific factors such as thermodynamics, physics, and chemistry,
economic factors such as cost, critical mineral availability, and co-benefits, and
environmental factors such as air pollution, geopolitics, and human behavior.

The model is about nothing else. It is not an assessment of energy efficiency. It is not an assessment of the speed of the transition to hydrogen. It is not an assessment of market size. It is not an assessment of how much carbon dioxide the atmosphere can be saved from.

That said, we are now ready to look at Michael Liebreich’s ranking of 35 candidates for clean hydrogen use.

No alternative

Rung A signifies use cases where hydrogen is the only option, with no alternative energy carriers or processes available. These applications may not necessarily be growing markets, but hydrogen’s role is indispensable due to its unique properties or requirements of the process.