December 2022 - In recent years, there is rising interest in green hydrogen due to its capacity to reduce greenhouse gas (GHG) emissions in sectors of the economy where mitigation is particularly challenging. In the Chilean Government’s national energy and economic development policies, green hydrogen is a strategic market for high-carbon-emission industries. The main motivations for encouraging local production and use of this fuel are twofold: maintaining Chile’s carbon neutrality target, officially set out in its updated Nationally Determined Contribution and Chile's advantageous position in being able to produce hydrogen at competitive prices due to the low costs of electricity produced by renewable energy.
Against the backdrop of the large potential for green hydrogen in Chile, a new study prepared as part of the Global Carbon Market project analyzes available climate financing instrumentsfor promoting investments in the technological changes necessary to reduce GHG emissions in the cement and steel industries. The purpose of this study is to generate technical inputs for the future development of pilot initiatives under Article 6 of the Paris Agreement in the steel and cement industries.
The report finds that cooperative approaches under Article 6 offer a significant opportunity to incorporate additional income into the business model of hydrogen projects, where the sale of emission reduction certificates contributes to bridging the feasibility gap that these initiatives currently face. The study also analyzes the sources of uncertainty associated with the sale of emission reduction certificates. The main risks will be associated with crediting periods, the need to adjust the baseline and uncertainty in the prices that could be obtained for the sale of certificates, among others.
The study concludes with recommendations to help reduce these uncertainties and align the parties’ interests in such a way as to foster demand for green hydrogen in Chile for the applications studied.