Hydrogen and its potential for UK net zero: a legal and regulatory perspective

Hydrogen, as the most abundant element and a portable energy carrier, holds immense potential for decarbonising the energy sector. Thanks to its capacity to be stored as a renewable energy source, it is also being championed for its transformative role in the UK's energy transition.  JBS Haldane's foresight, nearly a century ago, envisioned a future with powerful stations harnessing surplus wind energy to electrolytically decompose water into oxygen and hydrogen, storing these gases underground.

Reflecting on the visionary words of JBS Haldane, it seems we have arrived at his predicted stage three centuries ahead of schedule (he predicted this to happen in four hundred years).  In 2021, the UK Government unveiled its Hydrogen Strategy, a pivotal document that charts a course towards harnessing low-carbon hydrogen's potential to meet our net zero targets.  However, the challenges surrounding the production costs of low-carbon hydrogen have been substantial, necessitating a robust legal and regulatory framework to incentivise production and align it with our carbon-neutral goals.

This paper covers some of the legal and regulatory issues associated with the development and deployment of low-carbon hydrogen in the context of amendments made through the Energy Act of 2023. The associated issues to be addressed in the paper include the potential role of low-carbon hydrogen in achieving net zero targets, the legal qualification of low-carbon hydrogen activities, incentivisation by the UK government, its regulation as a gas, and regulatory steps required for deployment of a low-carbon hydrogen project.

Role in UK’s energy transition –Hydrogen`s role in the future energy mix

In December 2023, the government announced its support for green hydrogen production through electrolysis.  It also confirmed that hydrogen suppliers will receive a guaranteed price from the government.

The Hydrogen Strategy Delivery Update published in December 2023^[1] firmed up some of the plans about the potential role of hydrogen in the future energy mix as envisioned in the Hydrogen Strategy of 2021.  The UK’s Department for Business, Energy & Industrial Strategy (BEIS)`s prior analysis suggested (and reiterated in the 2021 Strategy) that the UK would need 250-460 TWh of Hydrogen in 2050, making up 20-35 percent of the UK’s final energy consumption.

Figure 1: Final hydrogen consumption[3]

The 2021 Strategy stated that the size of the low-carbon hydrogen economy is dependent on various factors, including but not limited to the costs of production and relativity to other energy sources.  Meanwhile, the Hydrogen Net-Zero Investment Roadmap (the 2024 Roadmap) published by the UK Government in February 2024 aims for 10GW of Hydrogen Production by 2030, with up to 6GW from electrolytic hydrogen.  The 2024 Roadmap also identified potential hydrogen projects up to 27GW with more than £960 Million from the Green Industries Growth Accelerator Fund and more than £170 Million to be spent from the Net Zero Innovation Portfolio on hydrogen innovation. It also mentioned the private financial capacity of the UK Infrastructure Bank of up to £18 Billion.^[4]

However,the government's ambitious plans and pathway would also require a conducive regulatory environment and infrastructure for the development and deployment of low-carbon Hydrogen production.  

Hydrogen production

Hydrogen can be produced in numerous ways, and the prominent ways include thermal processes and electrolysis.  In thermal processes, energy is used to release hydrogen from the molecular structure of natural gas, coal, or biomass.  In electrolysis, electricity is used to split water into hydrogen and oxygen.

Hydrogen has various applications as a portable energy carrier.  Due to its multiple applications, its significance in decarbonisation gained support and momentum.  Most of these applications have also been formulated and incorporated for incentivisation and support in different strands of initiatives, such as the UK Hydrogen Strategy, Powering Up Britain,etc.  A few hydrogen applications are illustrated in Figure 2 below.

Figure 2: Hydrogen and its uses

The International Renewable Energy Agency (IRENA) reported that at the end of 2021, almost 96% of the global hydrogen production was from fossil fuels, and only around 4% came from electrolysis.^[5]  In December 2023, the UK government announced eleven new Hydrogen Projects through electrolysis, investing £400 million upfront to develop the green economy.  The initiative is being claimed to represent the largest number of commercial-scale electrolytic hydrogen production projects announced at once anywhere in Europe. It is expected to generate more than 700jobs in local communities across the UK and deliver 125MW of new hydrogen for businesses.^[6] These steps are also being asserted and propagated as the beginning of a new era.

The following is an overview of the initiatives for the development and deployment of low-carbon hydrogen in the United Kingdom.

Low Carbon Hydrogen Standard in the UK

In the UK context, the level of public subsidy through incentives and support will primarily depend on the hydrogen production output.  Therefore, the primary question in hydrogen production is what qualifies as Low-Carbon Hydrogen, which in turn provides a basis for access to the funding initiatives supported by the government.

This section will discuss the qualification of low-carbon hydrogen within the UK's context as defined by the Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023. Section 2 (1) and (2) of the Hydrogen Regulations 2023 are as follows:

1)      “Standard compliant hydrogen" means hydrogen produced in accordance with the low carbon hydrogen standard;

2)      "The low carbon hydrogen standard" means the document published by the Secretary of State in April 2023 entitled "UK Low Carbon Hydrogen Standard - Version 2" or such standard as may be from time to time published for the purposes of these Regulations by the Secretary of State.

The UK Low Carbon Hydrogen Standard, Greenhouse Gas Emissions Methodology and Conditions of Standard Compliance (Low Carbon Hydrogen Standard Guidance) is published by the UK Department for Energy Security and Net Zero (DESNZ) and has been revised periodically.^[7]  It was last revised and published by DESNZ in December 2023 and defines what constitutes 'low carbon hydrogen' up to the point of production.  The Low Carbon Hydrogen Standard intends to ensure UK hydrogen production contributes to the UK's GHG emission reduction targets under the Climate Change Act.

An important point in the discussion here is that the Low Carbon Hydrogen Standard and its compliance (Standard Compliance) are applicable to the 'Consignments'^[8] and not to the Hydrogen Production facility; therefore, the claim of Standard Compliance can only be made after the Production Facility starts producing the hydrogen consignments.  Standard Compliance of the consignment has been defined by the Low Carbon Hydrogen Standard as follows:

For a consignment to be considered compliant with the Standard, the consignment shall:

(a)    Have a Final GHG Emission Intensity that is less than or equal to the GHG Emission Intensity Threshold of20 grams of carbon dioxide equivalent per megajoule of Hydrogen Product, using Lower Heating Values (20.0 gCO₂e/MJLHV Hydrogen Product); and

(b)    Be produced by a Hydrogen Production Facility which satisfies all of the Conditions of Standard Compliance.

The Low Carbon Hydrogen Standard lists and defines the conditions of standard compliance.  Electrolysis (including low-temperature electrolysis or high-temperature electrolysis using nuclear-generated electricity and heat), Fossil gas reforming with CCS, Biogenic gas reforming, Biomass gasification, Waste gasification, and Gas splitting producing Solid Carbon are eligible Hydrogen Production Pathways under this Standard.

An increase in Hydrogen production through electrolysis to provide low-carbon hydrogen by 2050 is estimated (Below is a figure projecting the hydrogen production capacity by technology).  The Low-Carbon Hydrogen Standard is aimed at supporting the development of quality low-carbon hydrogen and fostering long-term resilience in the UK electrolytic hydrogen production market.  The emissions standards in the Low-Carbon Hydrogen Standard are likely to ensure that the hydrogen production facility has to procure electricity from dedicated renewables or nuclear power.

Figure3: Split of hydrogen production capacity by technology in National Grid's System Transformation scenario^[9]

Revenue support for hydrogen

The Energy Act 2023 contains provisions to support the delivery of the low-carbon hydrogen production business model and grants powers to the Secretary of State to make regulations for revenue support contracts for hydrogen production,transport, and storage.  Revenue support is intended to be delivered through a private law contract between an eligible low-carbon hydrogen producer, transporter, or storer and the counterparty.  Section 57 of the Energy Act 2023 states as follows:

“57    Revenue support contracts

(1)       The Secretary of State may by regulations make provision about revenue support contracts (including the funding of liabilities and costs in relation to such contracts).

(2)       In this Chapter “revenue support contract”means:

(a)    a carbon dioxide transport and storage revenue support contract (see section59(2)),

(b)    a hydrogen transport revenue support contract (see section 61(2)),

(c)    a hydrogen storage revenue support contract (see section 63(2)),

(d)    a hydrogen production revenue support contract (see section 65(2)), €(e) a carbon capture revenue support contract (see section 6’(2))…”

In this context, the Hydrogen Production Business Model (HPBM)has been devised, which is a business model offering ongoing revenue support for low-carbon hydrogen entities.  HPBM is to be delivered through a private law contract and is offering financial support to low-carbon hydrogen producers, bridging the operational cost disparity between low-carbon Hydrogen and high-carbon fuels.  The aim is to encourage investments in low-carbon hydrogen production and utilisation aligned with the government's target of achieving up to 10GW of low-carbon hydrogen production capacity by2030.^[10]

Similarly,the Net Zero Hydrogen Fund (NZHF), valued at up to £240 million, was launched to finance the development and deployment of new low-carbon hydrogen production methods to mitigate investment risks and reduce lifetime costs.  It was issued in two strands to support various low-carbon hydrogen production technologies meeting the low-carbon eligibility standards.  Strand 1allocates development expenditure for front-end engineering design (FEED) and post-FEED activities.  Strand 2 extends capital expenditure assistance for hydrogen production initiatives not reliant on revenue support through HPBM.  The first two hydrogen allocation rounds (HAR) have been completed so far.^[11]  Figure 4 illustrates the activities towards the development of the UK Low-Carbon Hydrogen Economy.

Figure4: 2035 Delivery Plan^[12]

Hydrogen as a fuel:  Renewable Transport Fuel Obligation (RTFO),and the additionality principle

Hydrogen's use as a fuel is one of the key applications of low-carbon hydrogen that is envisioned to play a significant role in the decarbonisation of the transport sector.  However, the adoption of low-carbon hydrogen as a fuel by the transport sector would also require incentivisation and sometimes intervening impositions.  For example, recently, the UK government has imposed sustainable fuel targets on the airlines, meaning that ten per cent of all aviation fuels for flights taking off from the UK will need to be comprised of sustainable aviation fuels (SAFs).^[13]

RTFO, like SAFs, is one of several measures implemented to promote and incentivise the use of renewable fuels in the transport sector.  It requires fuel suppliers to demonstrate that a certain percentage of the fuel supplied comes from renewable and sustainable sources when supplying 450,000 litres or more of petrol, diesel, or gasoil for use in the UK during an obligation year (1 January to 31 December).

The obligation provides thresholds and targets for including a certain percentage of renewable fuels in the total fuel supply.  Fuel suppliers may meet these targets by blending renewable fuels with conventional fossil fuels or by purchasing Certificates from other suppliers who have exceeded their obligations.

One category of renewable fuels is Renewable Fuels of Non-Biological Origin (RFNBOs), which includes hydrogen produced from renewable energy (electrolysis).  In this context, competition is expected between renewable electricity needed for hydrogen production and direct electrification. The concept of additionality refers to the requirement that new electrolysers producing renewable hydrogen must be supplied by electricity from new, dedicated renewable sources.

Renewable energy for producing hydrogen is considered to be additional energy if the electricity would not have been produced or it would have been wasted if not consumed by the Renewable Hydrogen production site.  Para 2.17 of the RTFO Guidance for Renewable Fuels of Non-Biological Origin, issued by the UK Department of Trade, lays down the criteria for the additionality of renewable electricity used in renewable Hydrogen production as follows:

(a)      Direct line, no grid connection: The electricity production site is directly connected to the RFNBO production site with no connection to an electricity grid.

(b)      Direct line, grid connection: The electricity production site is connected directly to the fuel production plant and the electricity grid, and the fuel production plant can evidence that their consumption has been provided by the electricity production site without importing electricity from the wider grid.

(c)      Additional capacity via an electricity grid: The electricity production site (or a proportion of it) is new, upgraded or recommissioned, and/or it was specifically built, upgraded, life-extended or brought back into service for the purposes of providing electricity via an electricity grid to a given RFNBO production site.

(d)      Curtailment and wastage: The renewable electricity used is electricity which would have led to curtailment or been wasted if not consumed by the RFNBO production site.

(e)      Other: The supplier can provide evidence relating to a case not specified above that satisfies the Administrator that the renewable electricity is additional.^[14]

The Guidance also stipulates further conditions for the above scenarios. The RTFO Guidance exclude hydrogen produced from nuclear-fission-derived electricity from the ambit of RFNBO on the premise that nuclear power is not listed as a renewable energy source. However, this appears to be contrary to the provisions of the Energy Act 2023, which in Section 131D states as follows:

131D.      Recycled carbon fuel and nuclear-derived fuel

(1)     An RTF order may:

(a)  designate as recycled carbon fuel a description of liquid or gaseous fuel which is produced wholly from waste derived from a fossil source of energy;

(b)  designate as nuclear-derived fuel a description of liquid or gaseous fuel which is produced wholly using, or by a process powered wholly by, nuclear fuel.

(2)     Where a designation under subsection (1)is in force, the recycled carbon fuel or nuclear-derived fuel is to be treated for the purposes of this Chapter and any RTF order as renewable transport fuel.^[15]

The recent development through the Energy Act 2023 is likely to develop and support electrolytic hydrogen production as a fuel through nuclear power, also creating an incentive for future nuclear capacity.  It is not clear yet if this designation of hydrogen from nuclear as an RTF Order is to be done on a case-by-case basis or if such designation of RTF is to be made under a single RTF Order setting out the criteria for hydrogen from nuclear.

Regulating Hydrogen

The legal and regulatory framework for hydrogen, as a product, is not consolidated,and various activities related to hydrogen are governed by different rules and regulatory structures, which would require them to be regulated variously by OFGEM, planning authorities, the environmental agency, the Health and Safety Executive and others. Following is an overview of the regulatory framework governing hydrogen-related activities.

Hydrogen under the Gas Act 1986

The transport and supply activities of hydrogen fall under the ambit of the Gas Act 1986 and the Office of Gas and Electricity Market, which includes hydrogen as a regulated gas as follows:

"gas" means—

(a)    any substance in a gaseous state which consists wholly or mainly of:

(i)      methane, ethane, propane, butane, hydrogen or carbon monoxide;

(ii)    a mixture of two or more of those gases; or

(iii)   a combustible mixture of one or more of those gases and air; and

(b)    any other substance in a gaseous state which is gaseous at a temperature of 15°C and a pressure of 1013·25 millibars and is specified in an order made by the Secretary of State.

Anyone involved in hydrogen transportation, supply, or smart metering must obtain a licence from the Office of Gas and Electricity Markets (OFGEM) under the Gas Act.  These licences encompass safety measures for gas network operations and provisions for price controls.  Entities intending to transport hydrogen through gas pipelines may similarly need a licence.

The Gas Safety (Management) Regulations 1996 cover blending hydrogen into the existing network.  These regulations permit the injection of hydrogen into the UK gas network at a concentration of0.1%.^[16]

There exists no provision under the Gas Act 1980 for the grant of a licence for producing hydrogen if the production facility is not engaged in the supply,transport, or shipping of the gas.  In such a scenario, the planning, environmental, and health and safety laws would apply to the hydrogen production facility.

Planning consent regimes for hydrogen production project

The planning permissions for a hydrogen production facility can be made through two possible routes:  as a National Significant Infrastructure Project (NSIP) Consent under the Planning Act 2008or as a project under the town and county planning pathway.  This section will briefly cover the two pathways.‍

Consent under the Planning Act 2008 pathway

The Planning Act 2008 governs the development consent for NSIPs under the planning regime.  The Act lays down the law for the types of large infrastructure projects that may qualify as NSIPs, depending on whether they meet the relevant thresholds.  The categories of major infrastructure projects that can be categorised as NSIPs are as follows:

a.      Generating stations

b.      Above-ground electricity lines

c.      Liquid natural gas facilities

d.      Gas storage and reception facilities

e.      Gas pipeline

Hydrogen fuel cell projects for electricity production (above 50 MW in England, 350MW in Wales), transmission, and storage are likely to qualify as an NSIP, and would require a development consent order from the Planning Inspectorate.  It is the UK Government (DESNZ) which notifies the infrastructure projects that would be covered as NSIP requiring DCO approval as part of the national policy statements (NPS).

The NPS issued by DESNZ in 2023 through EN2 and EN4 stated that hydrogen gas-fired electricity-generating infrastructure with over 50MW electricity-generating capacity in England and over 350MW electricity-generating capacity in Wales,and new hydrogen pipelines and underground hydrogen storage will require consent from the Secretary of State.^[17] The DCO process for the NSIPs related to hydrogen is described and explained in Figure 5 below.

Figure 5: Process map for seeking planning permission under the DCO pathway^[18]

Consent under the Town and Country Planning Act 1990 pathway

For smaller hydrogen projects and demonstration hydrogen projects, consent is required from the local planning authority, which will decide the application based on the local development plan.  Various steps involved in the consent and planning application before the local planning authority for the development of hydrogen production are described in Figure 6 below.

Figure 6: Process map for seeking planning permission under the TCPA pathway^[19]

Consent under the Electricity Act 1989

For the hydrogen projects to produce power, if the project does not fall under the NSIP regime, the developer is likely to obtain consent from the Secretary of State or the relevant authority under section 36 of the Electricity Act 1989.  The procedure for applying for section 36 consent is set out in Schedule 8 of the Electricity Act 1989.

Environment and Health and Safety Permissions

A hydrogen production project, being an installation to produce^[20] low-carbon hydrogen, which is listed as an inorganic chemical on an industrial scale (without including hydrogen production by electrolysis), would be governed by the relevant environmental regulations, such as the Environmental Permitting (England &Wales) Regulations 2016 (SI 2016/1154), which may require a permit from the relevant environmental agency to undertake the construction, operation, storage and transportation of hydrogen.

From a health and safety perspective, hydrogen, as a gas, is regulated to comply with the safety case devised and submitted under the Gas Safety (Management) Regulations 1996 for the flow of gas through the transmission network and Pipeline Safety Regulations 1996 in respect of pipeline design, construction,installation, operation, maintenance and decommissioning.

The Planning (Hazardous Substances) Regulations 2015 and the Control of Major Accident Hazards Regulations 2015, depending on the scale and volume of hydrogen, govern the storage of hydrogen and require the facility to comply with the standards laid down and thresholds for storage, safety plans, emergency plans, and accident prevention plan.

Conclusion

The Energy Act 2023 has paved the way for comprehensive business models for supporting the deployment of low-carbon hydrogen.  The activity timeline, as suggested by the Department of Energy Security and Net Zero for the potential investment,projects a promising pathway towards the development of low-carbon hydrogen.  The low-carbon hydrogen standard has now been defined.  The incentivisation through the Hydrogen Production Business Model, net zero funds, renewable fuel obligation,and the recent announcement by the UK government to impose sustainable aviation fuel for aviation (with hydrogen or other synthetic fuels as potential candidates) are likely to play a significant role in the net zero pathway.

The law on hydrogen regulation has developed, but it still requires some clarity on issues such as the status of designation for the RTF Order for hydrogen from nuclear.  Hydrogen is being regulated under multiple regimes related to the environment, planning, transport,transmission, production, and its status as a hazardous substance. Research^[21] has identified a lack of published or unpublished guidance for hydrogen production facilities planning and development, challenges around thresholds for planning pathways and regulations, a lack of flexibility in the process, and inconsistencies across the UK.  These barriers and concerns have to be carefully and timely addressed.  As not only do they have the potential to slow down the growth and production of hydrogen but can also negatively impact possible investment in the sector.  Removing these barriers is likely to improve the bankability of the low-carbon hydrogen development and deployment projects,which are envisioned to support the net-zero targets.

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^[1] UK HydrogenStrategy Update to Market, UK Government, https://assets.publishing.service.gov.uk/media/65841578ed3c3400133bfcf7/hydrogen-strategy-update-to-market-december-2023.pdflast accessed 1-May-2024

^[2]UK Hydrogen Strategy, UK Government, https://assets.publishing.service.gov.uk/media/64c7e8bad8b1a70011b05e38/UK-Hydrogen-Strategy_web.pdflast accessed 1-May-2024

^[3] UK Hydrogen Strategy, UK Government, https://assets.publishing.service.gov.uk/media/64c7e8bad8b1a70011b05e38/UK-Hydrogen-Strategy_web.pdf last accessed 1-May-2024

[4] HydorgenNet-Zero Investment Roadmap, UK Government, https://assets.publishing.service.gov.uk/media/65ddc51dcf7eb10015f57f9b/hydrogen-net-zero-investment-roadmap.pdf last accessed1-May-2024

[5] Hydrogen,International Renewable Energy Agency, https://www.irena.org/Energy-Transition/Technology/Hydrogen last accessed1-May-2024

[6] Major boostfor hydrogen as UK unlocks new investment and jobs, UK Government,

https://www.gov.uk/government/news/major-boost-for-hydrogen-as-uk-unlocks-new-investment-and-jobs last accessed1-May-2024

[7] UK Low CarbonHydrogen Standard Greenhouse Gas Emissions Methodology and Conditions ofStandard Compliance (Version 3), UK Government, https://assets.publishing.service.gov.uk/media/6584407fed3c3400133bfd47/uk-low-carbon-hydrogen-standard-v3-december-2023.pdf last accessed1-May-2024

[8] Consignmenthas been defined in the Low-Carbon Hydrogen Standard as: A Discrete Consignment(see definition below) or a Weighted Average Consignment (see definitionbelow), as the context requires. Discrete Consignment means an amount ofHydrogen Product which shares the same Environmental Characteristics (includingGHG Emission Intensity) within a Reporting Unit. Weighted Average Consignmentmeans an optional aggregation of Discrete Consignments of Hydrogen Product atthe end of a calendar month that is assigned the weighted average Final GHGEmission Intensity of its constituent Discrete Consignments.

[9] ElectrolyticHydrogen Production Report, Hydrogen UK, https://hydrogen-uk.org/wp-content/uploads/2023/09/HUK-Electrolytic-Hydrogen-Production-Report.pdf last accessed1-May-2024

[10] HydrogenProduction Business Model, UK Government, https://www.gov.uk/government/publications/hydrogen-production-business-modellast accessed 1-May-2024

[11] Net ZeroHydrogen Fund, UK Government, https://www.gov.uk/government/publications/net-zero-hydrogen-fund-strand-1-and-strand-2last accessed 1-May-2024

[12] Hydrogen NetZero Investment Roadmap, UK Government, https://assets.publishing.service.gov.uk/media/65ddc51dcf7eb10015f57f9b/hydrogen-net-zero-investment-roadmap.pdf, lastaccessed 1-May-2024

[13]UK imposessustainable fuel targets on airlines, The Financial Times,  https://www.ft.com/content/1ecaac55-3269-4779-b9d8-3005f9a1b681 last accessed1-May-2024

[14] RTFO Guidancefor Renewable Fuels of Non-Biological Origin, UK Government, RTFO Guidancefor Renewable Fuels of Non-Biological Origin (publishing.service.gov.uk)lastaccessed 1-May-2024

[15] The EnergyAct 2023 https://www.legislation.gov.uk/ukpga/2023/52/section/157/enacted last accessed1-May-2024

[16] Schedule 3,Gas Safety (Management) Regulations 1996

[17] NationalPolicy Statement: Natural Has Electricity Generating Infrastructure (EN2), UKGovernment, https://assets.publishing.service.gov.uk/media/65a787fc640602000d3cb7c0/nps-natural-gas-electricity-generating-infrastructure-en2.pdf last accessed1-May-2024

[18] HydrogenProjects Planning Barriers and Solutions Report, UK Government, https://assets.publishing.service.gov.uk/media/657a2a92095987000d95e086/hydrogen-projects-planning-barriers-and-solutions-report.pdflast accessed 1-May-2024

[19]  Hydrogen Projects Planning Barriers andSolutions Report, UK Government, https://assets.publishing.service.gov.uk/media/657a2a92095987000d95e086/hydrogen-projects-planning-barriers-and-solutions-report.pdf last accessed1-May-2024

[20] Chapter 4 ofSchedule 1 of The Environmental Permitting (England and Wales) Regulations 2016defines “producing” means the production on an industrial scale by chemical orbiological processing of substances or groups of substances listed in therelevant Sections.

[21] HydrogenProjects Planning Barriers and Solutions Report, UK Government, https://assets.publishing.service.gov.uk/media/657a2a92095987000d95e086/hydrogen-projects-planning-barriers-and-solutions-report.pdflast accessed 1-May-2024

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