Green Hydrogen In Latin America: More Than a “Third-World Breakthrough”

The Rise of Green Hydrogen

Hydrogen, the most abundant element in the universe, has been used for various applications, from rocket fuel to producing ammonia. However, the process of producing hydrogen—known as steam reforming—has traditionally relied on natural gas, making it a source of significant carbon emissions. In the race towards a sustainable future, 'green' hydrogen has emerged as a potentially game-changing renewable energy source. Unlike its ‘grey’ counterpart, green hydrogen is produced through electrolysis—using electricity to split water into hydrogen and oxygen. When this electricity is sourced from renewable energy like wind or solar power, the resultant hydrogen is referred to as green hydrogen with many industrial applications.

Further, green hydrogen can serve as a renewable alternative for industries that have proved difficult to decarbonize. These include heavy-duty transport, industrial processes like steelmaking and chemical manufacturing, and even power generation. However, we’d like to wonder if these solutions are apt for developing countries like Chile, Argentina and Peru. And we ask ourselves this question because green practices coming from the “First World” are not exempt from exploitive practices. Who’s to benefit; that’s the question to come for sustainability in contemporaneity.

With its abundant renewable resources, Latin America holds significant potential for green hydrogen production. According to the International Energy Agency, Latin America could become a key global supplier of green hydrogen, thanks to its plentiful sunshine and strong winds. Two examples are countries like Chile and Argentina, which are already leveraging their renewable energy resources to position themselves as leaders in the area.

Argentina, with its vast wind resources in Patagonia, is exploring the potential of green hydrogen production for domestic use and exports. The country's government has recognized the potential of hydrogen as a strategic energy resource and is working towards implementing a national hydrogen plan. That aligns with Argentina’s “economic for-export” market strategy, which has a long history, of at least fifty years with the Modelo Agroexportador, largely relevant today. It is safe to say this strategy has played a huge part in establishing international relations with China, the United States, and some–though fewer–European economies. Right now, however, Argentina’s farming and nature-sourcing practices are largely detrimental to the environment, with the use of controversial chemicals in rural areas, which affect those communities’ health and wellbeing.

This is to say: the development of the green hydrogen sector in Latin America is not without challenges. These include the need for significant capital investment, the development of appropriate regulatory frameworks, and the establishment of robust safety protocols. Let’s look at green hydrogen production in context. Specifically for LatAm, capital investment and regulatory frameworks that comply with international standards could be a challenge, given its historical, country-wide political instability (such as the big constitutional reform in Chile this past year, and the subsequent, frequent transitions from leftist to right-leaning governments and back).

The Global Hydrogen Landscape

Over the past few years, interest in green hydrogen has surged worldwide. Global investments in green hydrogen are projected to exceed USD 1 billion by 2023. Moreover, numerous countries have laid out ambitious plans to leverage green hydrogen's potential. Europe’s a whole nother story. For instance, Germany, a leader in the renewable energy sphere, announced a National Hydrogen Strategy in 2020, committing to invest EUR 9 billion in green hydrogen technology. Similarly, Australia unveiled a National Hydrogen Strategy in 2019, aiming to become a major global player in hydrogen production and exports.

Despite the soaring interest and significant investments, the production of green hydrogen currently makes up less than 1% of total hydrogen production. This is primarily due to high production costs, and this is key for developing countries that cannot simply adopt production as a strategy to foster internal economies. Electrolysis is an energy-intensive process, and when combined with the cost of renewable energy, green hydrogen is currently more expensive than grey hydrogen. However, as renewable energy costs continue to fall and electrolyzer efficiencies improve, green hydrogen costs are expected to become competitive with fossil fuel alternatives within the next decade.

Despite the immense potential of green hydrogen in Latin America, the path to widespread adoption is riddled with challenges. One of the key obstacles is the need for significant capital investment to build the infrastructure necessary for green hydrogen production, storage, and transport. This could be particularly difficult for countries in the region facing economic instability and other pressing social issues. Moreover, although the cost of producing green hydrogen is expected to decrease with advancements in renewable energy technologies and electrolyzers, it still remains higher than that of fossil fuels and grey hydrogen. Without a price on carbon or specific policies incentivizing green hydrogen, market forces alone may not drive a shift from grey to green hydrogen.

Unlocking Green Hydrogen's Potential

For green hydrogen to deliver on its promise, several key challenges need to be addressed. These include reducing production costs, building hydrogen transport and storage infrastructure, and establishing regulations and standards for a new hydrogen economy.

Renewable electricity prices are a key determinant of green hydrogen's competitiveness. Thankfully, wind and solar power costs have plummeted over the past decade and are expected to continue their downward trend. Similarly, advancements in electrolyzer technology are making the electrolysis process more efficient, further reducing the cost of green hydrogen production7. However, transitioning to a hydrogen economy is not solely about producing green hydrogen. It also involves developing infrastructure for transporting and storing hydrogen. While hydrogen pipelines are common in industrial complexes, building a nationwide, let alone global, hydrogen transport network is a colossal task, from what we’ve explained so far.

Despite these challenges, the adoption of green hydrogen could yield significant economic benefits for Latin America. First, green hydrogen could drive job creation across the region. From building solar and wind farms to constructing electrolyzers and hydrogen transport networks, the transition to a green hydrogen economy could create jobs in a wide range of sectors. Green hydrogen could also present an export opportunity for Latin American countries, given the region's renewable energy resources; it is well-positioned to become a key player in the global green hydrogen market, supplying countries that lack the renewable energy potential to produce green hydrogen domestically.

The Policy Push for Green Hydrogen

Nonetheless, government policies and regulations will play a crucial role in accelerating the shift towards green hydrogen. This includes policies that incentivize green hydrogen production, like carbon pricing or renewable hydrogen mandates, as well as regulations that ensure safety and standardize operations in a nascent hydrogen economy.Furthermore, international collaboration will be key to building a global green hydrogen economy. This includes harmonizing regulations and standards across borders, sharing research and technology, and potentially even establishing international hydrogen trade routes.

The path to a green hydrogen future is undoubtedly challenging, but the rewards are substantial. Green hydrogen has the potential to decarbonize key sectors of the economy, drive innovation, and create jobs. As the world races to limit global warming to 1.5 degrees Celsius, the promise of green hydrogen is an opportunity we cannot afford to miss. Both Argentina and Chile have taken significant steps to promote sustainability and the transition to a low-carbon economy. In Argentina, the government has recognized the strategic importance of hydrogen as a clean energy source. It is currently developing a national hydrogen plan, with the aim of setting clear guidelines and goals for the sector.

In Chile, the government has launched a National Green Hydrogen Strategy, which sets ambitious targets for the country to become the world's cheapest green hydrogen producer by 2030 and one of the top three exporters by 2040. The strategy also outlines measures to attract investment in the sector, promote research and development, and establish regulations and standards for green hydrogen production and use. Both countries' strategies highlight the role of international collaboration in their hydrogen plans. By partnering with other countries and international organizations, Argentina and Chile hope to access technology, expertise, and funding to accelerate the development of their green hydrogen sectors.