The high production costs of renewable hydrogen (RH2) limit its ability to compete with alternative non-renewable fuels and technologies. This is exacerbated by a number of market failures (including failure of carbon pricing mechanisms to impose adequate price signals on more emissions-intensive production processes and unwillingness of some offtakers to commit to long-term purchases of RH2 due to a perception that prices will fall). As a result, there is insufficient investment in European RH2 production to allow the EU to achieve the targets set out in the Fit for 55 package and REPowerEU.

This paper proposes a framework for a support model to be implemented by EU Member States though competitive auctions to give the private sector the revenue certainty required to ramp-up RH2 production at the speed and scale needed to meet these targets and which would be designed to comply with the EU's State aid rules for energy and climate under the recently adopted CEEAG. State support for RH2 production is an important (but by no means the only) public sector intervention required to scale-up the hydrogen economy.