Understanding hydrogen in the EU

Introduction

Green Hydrogen has been a central pillar of the EU’s energy and climate neutrality strategy since the adoption of the EU Hydrogen Strategy in 2020. This strategy set ambitious targets: by 2030, the EU aims to install at least 40 GW of renewable hydrogen electrolysers and produce up to 10 million tonnes of renewable hydrogen within the EU. 

The strategic importance of hydrogen was further reinforced by the REPowerEU Plan, introduced in 2022. It envisions that by 2050, renewable hydrogen will supply approximately 10 percent of the EU’s total energy demand, playing a vital role in decarbonising energy-intensive industries and the transport sector.

On 26 February 2025, the EU reaffirmed the importance of green hydrogen in its Clean Industry Deal. To accelerate hydrogen deployment across the EU, the European Commission (EC) announced several key measures:

a. A Delegated act on low-carbon hydrogen will be adopted to establish a clear regulatory framework, supporting investment and market development;

b. A third call under the European Hydrogen Bank is scheduled for Q3 2025, with a budget of up to EUR 1 billion;

c. The Hydrogen Mechanism, launched in Q2 2025, to connect hydrogen producers with industrial and transport offtakers, particularly in hard-to-abate sectors such as maritime and aviation.

In addition to these strategies and policies, the EC has developed a comprehensive legislative framework for hydrogen, first introduced in July 2021 as part of the Fit for 55’ package.¹ This legislative framework consists of:  

a. The Hydrogen and Decarbonised Gas Market Package (Gas Package): which supports the development of dedicated hydrogen infrastructure and the creation of an efficient, integrated hydrogen market across the EU;

b. Renewable Energy Directive (RED III):  introducing binding targets for the uptake of renewable hydrogen in industry and transport sector; and

c. Two delegated acts on the definition of renewable hydrogen: one sets criteria for renewable fuels of non-biological origin (RFNBOs); the other outlines how to calculate life-cycle emissions to meet EU greenhouse gas reduction thresholds.

The following sections will provide a more detailed explanation of this legislative framework, along with a brief overview of key financing instruments of the EC.

The EU Hydrogen and Decarbonization package

In the summer of 2024, the EU adopted the so-called Hydrogen and decarbonized package (Gas Package).² The package consists of EU Regulation 2024/1789 (Gas Regulation)³ and EU Directive 2024/1788 (Gas Directive).⁴

The Gas Package is aimed at reforming the existing EU regulatory framework to support the deployment of renewable and low-carbon gases, in particular hydrogen. The rules also enable parts of the current natural gas infrastructure to be converted for hydrogen use, helping to reduce costs while advancing decarbonisation goals.

Additionally, the revised Gas Directive introduces a standardized terminology and a certification system for low-carbon hydrogen and fuels. This complements the RED III, which will be described below.

The Gas Regulation was fully applicable as of 5 February 2025, while Member States have until August 2026 to adapt national legislation to implement the Gas Directive.

Market design rules: an overview on the unbundling and TPA rules

The Gas Package provides for two key sets of rules relating to market design, to guarantee a competitive and open hydrogen market: unbundling and third-party access (TPA).

a. As regards unbundling, the Directive sees ownership unbundling as the primary solution for production or supply and network infrastructure (unless a Member State implements an option to adopt of the Independent System Operators (ISO) model). Legal unbundling is required between hydrogen transmission operators and hydrogen distribution operators. Importantly, the Gas Directive unbundling rules extend to also cover the case of hydrogen transmission network operators active in transmission or distribution of natural gas or electricity. In such circumstances, the Gas Directive provides for a “soft solution”, only requiring a legal separation. The rules on unbundling are further complemented by the hydrogen operators’ requirements to keep separate accounts for each of their activities (so-called ‘account unbundling’).

b. The Gas Directive states that access to hydrogen networks and storage facilities is subject to a regulated TPA regime, while access to terminals is subject to negotiated TPA. There is an option for Member States to allow for a negotiated TPA to hydrogen networks until 31 December 2032. Nevertheless, access can be refused in case of lack of capacity or connection or in other limited circumstances, for example, planned decommissioning of the relevant infrastructure or major infrastructures such as hydrogen terminals or hydrogen interconnectors.

Hydrogen transportation and offtake

As outlined in the EC’s Hydrogen Strategy, the EC anticipated that existing natural gas infrastructure would play a key role in the transition. The Gas Package introduces several measures to support the integration of renewable and low-carbon gases into the natural gas network, including: 

a. An obligation on Member States to enable the access of renewable and low-carbon gases to the market and infrastructure.

b. Obligations imposed on liquefied natural gas and natural gas system operators to assess, at least every two years, the possibility of new investments to allow the use of renewable gas and low-carbon gas based on market demand.

c. The Gas Regulation allows Member States to adopt network tariff discounts of 100 percent for renewable gas and up 75 percent for low-carbon gas, starting from one year after the entry into force of the Gas Regulation. In order to benefit from the discount, network users will have to certify their production pursuant to the applicable rules.

d. The Gas Regulation allows for the adoption of a joint purchasing mechanism for hydrogen under the European Hydrogen Bank supervision.⁵  The mechanism should be designed reflecting the existing one for natural gas. It should then be voluntary and in compliance with antitrust rules.

e. In order to facilitate the harmonization and integration between national gas markets, the Gas Regulation also provides the EC with power to adopt network code or implementing acts providing common specifications for renewable and low-carbon gas.

f. To further support renewable gas, and consistent with the EU policy goal to reach climate neutrality by 2050, the Gas Directive provides for the prohibition of long-term contracts for the supply of unabated fossil gas concluded with a duration beyond 31 December 2049.

Renewable Energy Directive (REDIII)

Targets for renewable energy and hydrogen 

The RED III establishes binding renewable energy targets for all EU Member States, to be implemented at a national level. Member States were required to transpose these targets into national legislation by 21 May 2025.

RED III sets out the following key targets relevant in relation to green hydrogen:

a. At the EU level, a 42.5 percent share of renewable energy in the overall energy mix must be achieved by 2030.

b. In the industry sector, the share of RFNBOs must reach 42 percent by 2030 and 60 percent by 2035;

c. In the transport sector, the RED III sets out the following key requirements to be achieved by 2030:

i. Member States must either: increase the share of renewable energy in transport to at least 29 percent; or achieve a minimum 14.5 percent reduction in the greenhouse gas (GHG) intensity of transport fuels;

ii. The combined share of biofuels, biogas, and RFNBOs must reach at least 5.5 percent of transport energy consumption.

iii. Within this 5.5 percent target, a minimum of 1 percent must come specifically from RFNBOs.

Definition of green hydrogen

Furthermore, the RED provides for the definition of RFNBOs. RFNBOs are renewable liquids and gaseous fuels of non-biological origin other than biomass. Green hydrogen can be qualified as RFNBO. Green hydrogen can only be sold as RED compliant RFNBO if the strict set of conditions on the production of RFNBOs following from the RED and two delegated acts  are met. According to the RED III, whether hydrogen qualifies as RED compliant RFNBO depends on:

a. Criterion I: The electricity used for the hydrogen production;

b. Criterion II: The percentage of GHG emissions savings is generated with the hydrogen production;

c. Criterion III: The mass balance and traceability in the supply chain.

Criterion III is addressed within the RED III itself. This requirement stipulates that sustainability information for RED-compliant RFNBOs must remain physically linked to the respective RFNBO. The mass balance system governs the production, purchase, and sale of RFNBOs that meet RED criteria, enabling the issuance of Proofs of Sustainability (PoS).

The mass balance must:

a. Clearly differentiate between RFNBO hydrogen and non-RFNBO hydrogen.

b. Identify which RFNBOs comply with RED III and which do not.

c. Be supported by thoroughly documented data sources.

d. Include clearly explained formulae used in the calculations.

The EU Delegated Acts

Criterion I and II are addressed in two delegated acts: Delegated Act 2023/1184 (Delegated Act I) and Delegated Act 2023/1185 (Delegated Act II).

Delegated Act I (criteria for electricity use)

Delegated Act I provides the detailed elaboration of Criterion I mentioned above and defines which types of electricity may be used for hydrogen production. According to Delegated Act I, electricity can be sourced in three distinct ways:

Route 1: Through a direct line;

Route 2: Through a grid connection with a PPA; 

Route 3: Through a grid connection without a PPA.

Below, we provide a brief explanation of the requirements that apply to each of the three sourcing routes.

Route 1: Direct line

a. The renewable electricity production plant (for example a wind farm) must be connected to the hydrogen production plant through a direct line. A direct line is a: 

i. Direct link between an isolated producer with a single, separate consumer; or

ii. Direct link between a producer with one or more consumers where either the producer or the consumer has at most 1 grid connection.

b. The renewable electricity production plant was not commissioned earlier than 36 months before the hydrogen production plant; 

c. The renewable electricity production plant cannot be connected to the grid, or the renewable electricity production plant is connected to the grid, but no electricity has been taken from the grid to produce hydrogen with the hydrogen production plant.

Route 2: Grid connection with PPA

If the hydrogen production plant has a connection to the national public grid and has conducted a power purchase agreement (PPA) with a renewable electricity production plant, there are two possible ways of sourcing electricity:

Re 1 – Emission intensity grid is <18 gCO₂eq/MJ

If the emission intensity of the national public grid in a respective EU country is below 18 gCO₂eq/MJ, the following criteria must be met: 

a. A PPA has been conducted; 

b. There is temporal and geographical correlation (see below).

Re 2 – PPA sourcing (rest category)

If the emission intensity of the national public grid in a respective EU country is exceeding the threshold mentioned above, the following criteria must be met: 

a. There is additionality: 

i. A PPA has been conducted;

ii. The renewable electricity production plant was not commissioned earlier than 36 months before the hydrogen production plant;

iii. The renewable electricity production plant has not received operating aid or investment aid (including Contracts for Difference).

b. There is a geographical correlation:

i. The renewable electricity production plant and the hydrogen production plant are in the same EU bidding zone;

ii. The renewable electricity production plant and hydrogen production plant are in interconnected zones with equal or higher day-ahead prices;

iii. The renewable electricity production plant and the hydrogen production plant are in an interconnected offshore bidding zone.

c. There is a temporal correlation:

i. Until 31 December 2029: the hydrogen and the electricity are produced within the same calendar month;

ii. From 1 January 2030: the hydrogen and the electricity are produced within the same hour

iii. This condition is always met when renewables set the market price during the hour of hydrogen production.

Route 3: Grid connection without PPA

In certain cases, it is also possible to produce RED compliant RFNBOs without a PPA between the renewable electricity plant and the hydrogen production plant is in place. There are three possible options:

Re 1 –  Renewable electricity in grid is > 90 percent

a. 100 percent of the hydrogen is RFNBO if the average share of renewable electricity in the grid in the relevant country exceeded 90 percent previous calendar year.

Re 2 – Avoid curtailment 

a. 100 percent of the hydrogen is RFNBO if the used electricity reduces the need for re-dispatching of renewable electricity generation.

Re 3 – Grid mix 

a. A part of the hydrogen can qualify as RFNBO, namely the part that corresponds with the share of renewable electricity in the grid in the relevant country measured two years prior to the year in question.

The Delegated Act II (criteria in relation to emissions savings)

Furthermore, the requirements in relation to criterion II, as mentioned in paragraph 3.4 above, is laid down in Delegated Act II. According to Delegated Act II, in order to produce RFNBOs that comply with RED III, the total GHG emissions savings from the hydrogen produced must be at least 70 percent across the entire value chain. Delegated Act II provides the technical methodology for calculating these GHC emissions for RFNBOs. 

The calculation of these emissions is roughly carried out in two steps:

Step 1 – Calculate total emissions 

First, the total emissions from the produced hydrogen throughout the entire production chain must be calculated. In this calculation, at least the emissions of the following activities must be included: 

a. The electricity used for the hydrogen production:

i. If electricity is sourced through a direct line or through a grid connection with a PPA, the  electricity has an emission intensity of 0 g CO2,eq / MJ; 

ii. if electricity is sourced from the grid without a PPA, Delegated Act II specifies the emission intensity of grid electricity for each EU Member State. For instance, in the Netherlands, the emission intensity of grid electricity is 99.9 g CO₂-eq/MJ.

b. Use of deionised water, tap water and wastewater; 

c. Transportation of hydrogen to the end-consumer. 

Step 2 – Calculate the emission savings 

d. Secondly, the emissions savings of the produced hydrogen must be calculated by comparing the emissions calculated under step 1 to a fossil fuel benchmark by using the following formula: 

Emissions savings = (Ef – E)/Ef

Where: E = total emissions from the use of the renewable hydrogen produced; and

where Ef = total emissions from the fossil fuel comparator. This comparator always 94 g CO2,eq per MJ H2.

e. The outcome of this calculation must be at least 70 percent, in order for the hydrogen to qualify as RED compliant RFNBO.

Below is an example calculation of greenhouse gas (GHG) emissions savings:

Suppose a hydrogen producer determines that the total emissions for a specific batch of hydrogen produced during a given hour amount to 25 g CO2,eq per MJ of H2.
Given that the reference value for fossil-based hydrogen is 94 g CO2eq/MJ, the emissions savings can be calculated as follows:

This means the hydrogen batch achieves a 72 percent reduction in GHG emissions, making it compliant with the RED III threshold of at least 70 percent.

Delegated Act on low carbon hydrogen 

As noted in the introduction, as part of its broader strategy to decarbonise the energy sector, the EC is preparing to adopt a Delegated Act on low carbon Hydrogen by 5 August 2025.⁶ Under the Gas Directive, low carbon hydrogen is currently defined as hydrogen produced from non-renewable sources that achieves at least 70 percent GHG emissions savings. This definition may also extend to hydrogen generated via electrolysis using nuclear power.

Financing

It is expected that most of the financing of hydrogen production will come from national resources. However, in view to support the financial efforts of Member States, the EC has made available different supporting mechanisms for hydrogen.

Hydrogen bank

In 2022, the EC launched the so-called European Hydrogen Bank (EHB).⁷ It has a mandate to invest EUR 3 billion to kick start the European hydrogen market and work towards achieving the European Green Deal ambitions. The EHB will guarantee the purchase of hydrogen by using resources from the European Innovation Fund and allocating the cash via auction rounds.

In its first auction, it has awarded nearly EUR 720 million in financial support from the Innovation Fund’s pilot auction to six renewable hydrogen projects, due to be launched in 2024.⁸ The individual grants range from EUR 8 million to EUR 245 million for installations with a MWe capacity from 35 to 500 MWe.

On 20 May 2025, the EC announced the results of the second auction under the Hydrogen Bank.⁹ A total of 15 renewable hydrogen production projects across the European Economic Area (EEA) were selected for public funding. These projects, located in five different countries, are expected to produce nearly 2.2 million tonnes of renewable hydrogen over a ten-year period, helping to avoid more than 15 million tonnes of CO₂ emissions.

The hydrogen produced will be used in sectors such as transport, the chemical industry, and the production of methanol and ammonia. The selected projects will receive a combined total of EUR 992 million in EU funding, provided through the Innovation Fund, which is financed by revenues from the EU Emissions Trading System (ETS).¹⁰

As mentioned, in the Clean Industry Deal was announced that a third call under the Hydrogen Bank is scheduled for Q3 2025, with a budget of up to EUR 1 billion.

Innovation Fund

While the EHB is expected to play a key role in the promotion of hydrogen, the EC has put in place also other financing mechanisms, such as the Innovation Fund.¹¹ In summary, this fund aims at supporting commercial demonstration and bringing innovative technologies to the market. Funding can be used to finance electrolyser manufacturing projects and also technologies using hydrogen in other sectors, such as mobility. In terms of capacity, the fund supports up to 60% of relevant costs of projects. The remaining costs can be financed by private or public sources, e.g. state aids.¹²

IPCEIs

Furthermore, it is worth noting that a project qualified as an ‘Important Project of Common European Interest’¹³ (IPCEIs) will benefit from less strict requirements when supported by EU state aid. For instance, in February 2024, the EC approved a state aid scheme notified by France, Germany, Italy, the Netherlands, Poland, Portugal, and Slovakia that will move up to EUR 6.9 billion of public funding to support the hydrogen supply chain, including production, transmission and distribution, and storage.¹⁴