Comprising the largest share of an organisation’s emissions, Scope 3 is also the most difficult to tackle. Nadim Chaudhry, Founder of World Hydrogen Leaders, takes an honest look at hydrogen’s full lifecycle carbon footprint and its impact on this crucial and complex emissions scope.
Global demand for hydrogen has increased by 28% over the last decade. It is rightly recognised as a versatile fuel source that can reduce emissions across large parts of our economies. In particular, hydrogen has shown significant promise in hard to abate industries, such as steel and cement manufacturing, chemical processing, and long-distance transportation, as well as long term storage for utilities and energy networks.
Yet there remain misconceptions around how much hydrogen can reduce an organisation’s emissions and the Scope (1, 2, or 3) that the emissions fall into. Because hydrogen emits zero emissions at its point of use, it is sometimes referred to as a ‘zero emission’ or ‘clean’ fuel source and companies attribute this to a direct reduction of their total emissions.
However, most hydrogen is best seen as a lower emission fuel source that will become significantly less carbon intense in the future. Hydrogen users need also to be aware of the CO2 emissions emitted from both upstream and downstream activities used in the production of hydrogen that sit inside their Scope 3 emissions; specifically, Scope 3, Category 3: fuel- and energy-related activities not included in Scope 1 or Scope 2.
The scarcity of low-emission hydrogen and the complexity of its sources
Hydrogen can be created in several ways, and the technologies used to produce it largely determines its carbon intensity. Being aware of the production method for purchased hydrogen is therefore crucial to accurately report on and reduce an organisation’s Scope 3 emissions. Currently the vast majority of hydrogen demand is met mainly through unabated fossil fuel technologies. Low-emission hydrogen represents less than 1% of total hydrogen production, according to the IEA. The two main methods for producing ‘high emission’ or ‘carbon intense’ hydrogen are steam methane reforming (SMR) without carbon capture, and coal gasification. Organisations which use these forms of hydrogen are largely displacing their emissions from Scope 1 to Scope 3 rather than reducing them.
Hydrogen produced by electrolysis is considered the least carbon intense form of hydrogen, particularly when the electrolysis process is powered by renewable energy. But even then, different energy sources such as wind, solar, or tidal vary the carbon intensity of the hydrogen produced depending on the full lifecycle emissions of the energy source. Based on National Renewable Energy Laboratory (NREL) data, the World Economic Forum has shown that the carbon footprint of low-emission hydrogen can vary significantly. Ocean and hydropower produced hydrogen has a fraction of the carbon-intensity of photovoltaic or geothermally produced hydrogen, for example.
On top of this, the intermittency and location of renewable energy means up to 30% of planned electrolysis projects will be connected to national electricity grids to draw power. This introduces the need for hydrogen generators to evidence the source of their renewable energy through mechanisms like power purchase agreements (PPA). This adds another layer of complexity for hydrogen buyers aiming to accurately calculate their Scope 3, Category 3 emissions.
The need for a greater quantity of accurate data from all stakeholders within the value chain is further emphasised by the ongoing debate surrounding the ‘additionality’ of electrolysis produced hydrogen. The large increase in potential demand on the grid from electrolysers may impact the generation mix because it may have to be met by fossil fuel generation. Any increase in demand must be met by an increase in supply. Even if their owners have renewable power contracts in place, new electrolysers will still create an overall increase in electricity demand which will be met by gas or coal fired power plants. Any fossil fuel savings are therefore displaced, and the real-world, net carbon intensity of such hydrogen would therefore remain high.
Transportation, certification, and ‘well-to-gate’ measures
The transportation of hydrogen adds significantly to its full lifecycle emissions, and therefore the carbon intensity of the end product. Again, this must be accounted for in hydrogen buyers’ Scope 3, Category 3 emissions. Over 40% of announced hydrogen capacity is intended for export, and estimates suggest that by 2030 one-third of total hydrogen production may be exported.
Transporting hydrogen generates more emissions than those from freight fuel (a fuel source which could be replaced by hydrogen or hydrogen derivatives in the future). Due to hydrogen’s low density, transporting it requires one or more of three processes: compression, liquification, or conversation into a derivative such as ammonia or methanol. Ammonia is preferred for long-distance shipping, involving converting and cracking at either ends of its journey. Estimates suggest this could add between 1 – 4.5 kgCO₂e/kgH₂ to the carbon intensity of hydrogen.
Hydrogen buyers must be aware of these additional costs when sourcing low-carbon hydrogen, while exporters and other stakeholders need to be conscious of the impact this can have on the potential sales in other markets. For example, the transportation of hydrogen can make a material difference to whether or not the end product qualifies as low carbon, and whether an exporter may face financial sanctions stemming from border adjustment mechanisms, such as the EU’s Carbon Border Adjustment Mechanism (CBAM).
The transportation of hydrogen between markets also highlights the need for universal and consistent certification schemes for labelling and assessing the carbon intensity of hydrogen. Currently, there are many certification schemes are inconsistent, and hydrogen buyers must be aware of the differences prior to purchasing hydrogen and calculating their Scope 3 emissions. For example, it is only the EU’s carbon intensity threshold calculations that account for the conversion and transportation of low-emission hydrogen. Meanwhile, the US, the UK, Japan, India and others certify hydrogen as low-emission based only on ‘well-to-gate’ emissions, i.e., those emissions that ‘stop at the factory gate’. In effect, this means many hydrogen users will require more granular downstream data to calculate their Scope 3 emissions. Relying on national certification labels will almost certainly be a misleading guide to an organisation’s final Scope 3 calculations.
What next?
Scope 3 emissions are simultaneously crucial and complex. By their nature, they are difficult to identify, measure, and address, requiring many stakeholders to work in tandem. Yet they also take up the largest share of any organisation’s total value chain emissions; the UN Global Compact estimates that scope 3 emissions account for 70% of an organisation’s overall emissions.
As we’ve seen, hydrogen buyers face the difficulty of needing full lifecycle data on their hydrogen to calculate their Scope 3 emissions. It is required for reporting schemes such as the Science Based Target Initiatives (SBTi), and inaccurate Scope 3 reporting creates an information gap for investors that can introduce financial and reputational risks.
Coordinated action and collaboration is therefore required from all stakeholders in the hydrogen value chain. World Hydrogen Leaders helps to facilitate progress toward better Scope 3 hydrogen reporting by bringing parties together to share data, research, and potential ways forward.
World Hydrogen Leaders are hosting the world’s largest hydrogen event in Copenhagen, Denmark from September 30th to October 4th, 2024. For more information please visit World Hydrogen Week.