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Pressure is growing for the world to move to a lower-carbon pathway. As demand for scalable alternatives to fossil fuels intensifies, hydrogen is gaining momentum as a means to decarbonise hard-to-electrify parts of the global economy.

Barclays Research highlights the opportunity ahead for hydrogen to help power the net-zero carbon economy, indicating an annual hydrogen market potentially worth over $1 trillion by 2050.

The International Energy Agency data suggests carbon dioxide (CO2) emissions could fall 8% in 2020 – the largest ever yearly drop – primarily due to the global pandemic shutdown. But emissions need to fall close to this amount every year this decade to limit global warming to 1.5 degrees above pre-industrial levels – the preferred level stipulated by the 2016 UN Paris Agreement. Hydrogen could be a potential solution to decarbonising the world at speed.

Hydrogen’s benefit over clean electricity

Hydrogen’s key benefit as a fuel is that – when burnt – it emits water vapour instead of CO2. Hydrogen has the ability to decarbonise sectors that are hard to electrify, such as trucking and heating. It can also act as a form of storage for renewable energy, providing an alternative to batteries.

Four roles for hydrogen in a low-carbon world 

Potential for a $1 trillion market by 2050

Barclays Research analysts see the expansion of hydrogen running in parallel with the electrification of the global economy, with growth ramping up sharply from 2030 to 2050.

But growth will depend on the level of political and industry impetus to cut global emissions. Our analysts have modelled three scenarios for how hydrogen supply and demand could develop:

The base-case ‘Development’ scenario indicates an annual hydrogen market worth over $1 trillion by 2050, potentially saving 5 gigatonnes in CO2 emissions a year – a massive reduction of 15% a year from current emission levels.

Barclays' base case suggests the hydrogen market is set to grow 8-fold by 2050...
Compared to 15 years ago…

Source: Barclays Research estimates.

…with 80+ gigatonnes of cumulative emissions saved
Compared to 15 years ago…

Source: Barclays Research estimates.

Outlook: Dynamism, Development, or Deadlock

1. Dynamism

The best-case scenario, characterised by aggressive policies and technology take-up to limit global warming to below 2⁰C. This assumes global support for the development of infrastructure and 40% of global energy needs being electrified.

In this scenario, hydrogen provides:
Solutions for sustainability

2. Development

The base-case scenario, which reflects ongoing tightening environmental policies, including a significant fall in costs and targeted policy support for hydrogen production, but not enough to keep global warming within 2⁰C of pre-industrial levels.

In this scenario, hydrogen provides:
Solutions for sustainability

3. Deadlock

The worst-case scenario, which sees a reversal of sustainability trends in favour of near-term, low-cost transportation solutions. Hydrogen demand still grows, but is driven by individual industries rather than substantial policy support.

In this scenario, hydrogen provides:
Solutions for sustainability

What’s needed to deliver the hydrogen economy

Facilitating this transition to a hydrogen-based global economy is going to require substantial investment and governmental policy support over the next 30 years.

Solutions for sustainability

1. Carbon pricing

Pricing carbon pollution will help drive price parity between hydrogen and fossil fuels, and encourage use of renewable energy in hydrogen production.

Solutions for sustainability

2. Infrastructure support 

In the early stages, legislation will be needed to drive the increase in electrolyser capacity required to meet global hydrogen demand.

Solutions for sustainability

3. $500bn+ capex

Over the next 30 years, $500 billion in capex will be needed for hydrogen production equipment – and similar amounts for distribution infrastructure.

Still, as the need for countries cut their emissions becomes ever more urgent, our analysts believe hydrogen’s unique ability to decarbonise critical areas of the global economy will attract the support required.

Read the full report

Authorised clients of Barclays Investment Bank can log in to Barclays Live to read the full report.

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About the analyst

Lydia Rainforth is a Managing Director and equity analyst at Barclays, based in London. She is responsible for coverage of European Integrated Oil and Gas companies. Ms. Rainforth joined Barclays in January 2009 from Lehman Brothers where she was responsible for coverage of the oil and gas sector in Europe. Ms Rainforth graduated with an MA from the University of Cambridge and is also a CFA charterholder.

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