An Overview
The global energy landscape is at an inflection point. Hydrogen holds enormous potential as a clean, high-energy-density fuel and feedstock. Yet a persistent and growing mismatch threatens to derail its impact: demand lags supply. While hydrogen production—especially green and low-emissions varieties—is accelerating, demand from industry, transport, and energy sectors hasn’t followed suit.
This gap matters. It affects progress toward net-zero targets, energy security, and the feasibility of industrial transitions. In this article, we unpack the hydrogen economy’s current state—highlighting why supply growth isn’t matched by uptake—and explore policy, economic, and technical drivers behind the gap. We’ll also present actionable pathways to bridge the divide and an FAQ section tailored for voice-search queries.
Understanding the Hydrogen Production Landscape
What Is Hydrogen Production? (Beginner-Friendly Overview)
Hydrogen, the simplest and most abundant element, is produced via different routes. Traditional production—grey hydrogen—relies on fossil fuels like natural gas, emitting significant CO₂. Blue hydrogen uses similar methods but applies carbon capture, utilization, and storage (CCUS). Green hydrogen is generated through electrolysis powered by renewable energy, offering near-zero emissions.
Types of Hydrogen: Grey, Blue, Green, and Beyond
- Grey hydrogen: Produced using steam methane reforming (SMR) without CCUS; still makes up the bulk of global supply.
- Blue hydrogen: SMR plus CCUS; limited but growing in North America and Europe.
- Green hydrogen: Electrolysis using renewables; currently less than 1% of production but expected to scale rapidly.
Current Global Hydrogen Production Capacity in 2025
As of 2023, global hydrogen demand reached approximately 97 million tonnes (Mt)—a 2.5 % increase over 2022—with production largely from unabated fossil fuels; low-emissions hydrogen accounted for under 1 Mt. Electrolyser capacity under final investment decisions has recently jumped to about 20 GW, up from just over 1 GW in 2023.
Blue and green low-emissions hydrogen remains a small slice: less than 2 % of global hydrogen demand in 2024. This supply-side momentum is promising, but demand-side uptake remains limited in both volume and sectoral breadth.
The Demand Side: Why Hydrogen Uptake Remains Slow
Limited Industrial Adoption of Green Hydrogen
Most of today’s hydrogen consumption is still concentrated in refineries and the chemical industry, particularly in ammonia and methanol production. While these uses are well-established, they rely heavily on grey hydrogen, which undermines decarbonization efforts. Emerging applications—such as green steel, low-carbon shipping fuels, and hydrogen-fired power plants—have barely entered the market.
Currently, they account for less than 0.1% of global hydrogen demand. Yet, under net-zero roadmaps, these same sectors are expected to represent nearly 40% of demand by 2030, highlighting both the scale of opportunity and the sluggish pace of uptake.
Hydrogen in Transport: Hype vs. Reality
The transport sector is often portrayed as a cornerstone of the hydrogen economy, especially for long-haul trucking, shipping, and aviation, where batteries face limitations. However, real-world adoption remains limited. Fuel-cell trucks are still in pilot stages, hydrogen refueling stations are scarce, and shipping companies are only beginning to test hydrogen-derived fuels like ammonia and methanol. Aviation faces even bigger hurdles, with commercial hydrogen aircraft unlikely before the mid-2030s. The vision is compelling, but for now, hydrogen transport remains more hype than reality.
The Role of Hydrogen in Power Generation and Heating
Hydrogen also carries potential as a fuel for electricity generation and residential or industrial heating. Some countries have begun blending hydrogen into natural gas pipelines, while turbine manufacturers are testing hydrogen-compatible power plants. However, scaling these applications is expensive and technically complex. Renewable-powered electrolysis, the cleanest option, still costs several times more than natural gas.
Moreover, direct electrification through solar, wind, and heat pumps is often more efficient, leaving hydrogen as a niche solution rather than a mainstream option for heating and power in the near term.
Comparing Hydrogen Demand Across Regions
Geography plays a significant role in shaping hydrogen demand. Europe has some of the most ambitious hydrogen strategies, with strong incentives for both production and imports. Yet projections suggest that by 2030, the region could produce around 20 million tonnes (Mt) of green hydrogen while demand may only reach 8.5 Mt, creating the risk of a surplus. The United States, buoyed by tax credits and infrastructure programs, is also expanding hydrogen supply rapidly, but industrial demand remains limited outside traditional uses.
In East Asia, countries like Japan and South Korea are investing heavily in hydrogen imports for transport and power, though adoption still lags policy ambition. Across all regions, the recurring theme is clear: supply is scaling faster than end-use demand, leaving the market unbalanced.
The Supply Side: Rapid Expansion of Hydrogen Projects
Growth of Electrolyzer Capacity and Renewable Integration
Global electrolyser capacity designated via final investment decisions recently scaled fivefold, reaching 20 GW, a leap from roughly 1 GW in 2023.
In parallel, the pipeline for low-emissions hydrogen is expanding: by 2030, projects could produce up to 49 Mt annually, including both blue and green hydrogen (3.4 Mt FID-bound now).
Investments in Hydrogen Infrastructure and Export Markets
- NEOM Green Hydrogen Project (Saudi Arabia): USD 8.4 billion investment; 3.9 GW renewable-powered hydrogen, with 600 tonnes/day via electrolysis by 2026.
- Finnish commercial green hydrogen plant: 20 MW capacity, launched in 2025 with supportive funding.
- Electrolyser gigafactory in Italy: €100 million, 2 GW annual output by 2026; Europe may need over 100 GW electrolyser capacity by 2030.
Why Green Hydrogen Supply Outpaces Market Readiness
Despite the expanding pipeline—e.g., 422 GW announced vs. only 7% realized as of 2023—actual implementation lags due to financing, regulatory uncertainty, and policy gaps. For example, only 0.3 GW of the 4.3 GW announced was operational in 2023—a mere 7 % success rate.
Key Reasons Behind the Hydrogen Production Gap
High Costs of Green Hydrogen vs. Fossil Fuels
Green hydrogen costs currently average USD $3.74–11.70 per kg, while grey hydrogen ranges from $1.11–2.35 per kg. For viability, hydrogen costs must drop below $2/kg with electrolysis efficiencies exceeding 80 %.
Lack of Policy Alignment and Regulatory Uncertainty
Policy incentives favor supply-side development—not demand creation. The US’s 45V clean hydrogen tax credit (providing up to $3/kg) is under political scrutiny, putting a vast share of proposed projects at risk. Without stable demand-side mechanisms and regulations, uptake remains uncertain.
Infrastructure Bottlenecks: Pipelines, Storage, Refueling Stations
Transport and storage infrastructure is extremely limited. Hydrogen is mostly produced and consumed on-site today; scaling to meet demand will require massive logistics build-out.
Competition with Established Energy Carriers
Natural gas, oil, and coal are entrenched energy sources with lower prices and existing infrastructure. Industries and consumers hesitate to shift without direct economic incentives or mandates.
Consumer and Industrial Reluctance to Transition
Adoption hesitancy spans risk-averse industrial buyers, uncertain policy frameworks, and lack of proven long-term offtake contracts—especially in hard-to-electrify sectors.
Economic and Environmental Implications of the Gap
Impact on Global Net-Zero and Decarbonization Goals
Currently, unabated hydrogen production emits vast CO₂ volumes—around 920 million tonnes annually, with grey hydrogen producing 10–26 kg of CO₂ per kg of H₂. Without demand-side growth in green hydrogen, its decarbonization potential remains stalled.
Hydrogen Export Ambitions vs. Domestic Utilization
Countries like Saudi Arabia, Finland, and Italy aim to become hydrogen exporters—but without matching domestic demand, supply may exceed local take-up, complicating commercial viability.
Market Risks: Stranded Assets and Overcapacity
With a 7 % realization rate on announced projects, many may stall or become stranded. Overcapacity without demand visibility increases financial risk.
Bridging the Hydrogen Supply-Demand Divide
Policy Tools: Subsidies, Carbon Pricing, and Mandates
Closing the hydrogen gap requires strong policy intervention to make green hydrogen competitive with fossil-based alternatives. Governments are experimenting with a mix of regulatory and financial tools, including:
- Carbon pricing and emissions trading systems – leveling the cost playing field between clean and fossil fuels.
- Contracts for Difference (CfDs) and long-term procurement mandates – guaranteeing prices for hydrogen producers and reducing market risk.
- Carbon border adjustment mechanisms (CBAMs) – ensuring imported products face the same carbon costs as domestic production, which helps hydrogen-based industries compete globally.
Together, these tools create both supply-side certainty for investors and demand-side signals for industry.
Building Hydrogen Hubs and Industrial Clusters
Instead of isolated projects, many countries are focusing on hydrogen hubs—geographic clusters where production, infrastructure, and end users are co-located. By concentrating steel plants, cement factories, refineries, and shipping terminals in one region, hubs reduce transport costs and maximize economies of scale.
- Examples include Europe’s Hydrogen Valleys and the U.S. Regional Clean Hydrogen Hubs (H2Hubs) initiative.
- Hubs can act as early ecosystems, stimulating local demand while providing a foundation for future national and international trade.
Encouraging Demand in Hard-to-Abate Sectors
Hydrogen is particularly valuable in industries where direct electrification is not feasible. Priority should be placed on:
- Steelmaking (via direct reduced iron using hydrogen instead of coal).
- Cement and chemicals (where process emissions require alternative decarbonization routes).
- Aviation and shipping (where hydrogen-derived fuels like ammonia and synthetic kerosene are among the few scalable solutions).
Early deployment in these hard-to-abate sectors not only drives emissions reduction but also provides stable anchor demand for the broader hydrogen economy.
Scaling Up Hydrogen Mobility: Fuel Cell Vehicles and Aviation
While light-duty vehicles are likely to remain battery-dominated, hydrogen holds promise in heavy transport and aviation. Policy support and private investment are already driving momentum:
- Fuel cell trucks and buses are entering commercial fleets, especially in Asia and parts of Europe.
- Maritime shipping is testing hydrogen-derived fuels at scale, with pilot vessels already in operation.
- Aviation is the most long-term opportunity, but projects in Europe are targeting hydrogen-powered regional aircraft in the 2030s.
The sector is growing at an estimated 20% CAGR through 2030, showing how transport can become a key driver of demand if supported by infrastructure rollouts.
International Trade and Cross-Border Hydrogen Corridors
Hydrogen’s future is not only local—it is also global. Ambitious projects like Saudi Arabia’s NEOM green hydrogen plant and planned pipelines linking North Africa to Europe highlight the potential of cross-border hydrogen trade. To succeed, however, trade must be accompanied by:
- Synchronized demand growth in importing markets.
- Standardized certification schemes to verify carbon intensity.
- Shared infrastructure planning for pipelines, shipping, and storage.
This international dimension can help balance regional surpluses and deficits, but it hinges on aligning policy, investment, and infrastructure timelines across borders.
Future Outlook: When Will Demand Catch Up to Supply?
Timelines for Hydrogen Market Maturity (2030, 2040, 2050)
Projections suggest hydrogen demand could rise to ~150 Mt by 2030, with over one-third from new applications. In the US, hydrogen production may rise 80 % by 2050—but with electrolyser-derived hydrogen still under 1% of total supply unless policies shift.
Role of Innovation: Storage, Transport, and Efficiency Improvements
Improving electrolysis efficiency (above 80 %) and scaling up electrolyser and logistics infrastructure are critical. Manufacturing innovations and scale economies—like China’s dominance in electrolyser production—will drive cost improvements.
Can Green Hydrogen Compete with Renewables + Direct Electrification?
In many applications, direct electrification is cheaper and more efficient; hydrogen shines in hard-to-abate contexts. Its competitiveness depends on policy signals, technology advances, and infrastructure build-out.
Frequently Asked Questions (FAQs)
Why is hydrogen demand lagging behind supply?
Because cost, infrastructure, policy uncertainty, and a focus on supply-side incentives limit uptake; demand in new sectors remains nascent.
When will green hydrogen become cost-competitive?
Green hydrogen costs currently range from $3.74 to $11.70/kg, compared to $1.11–2.35/kg for grey hydrogen. Costs must drop below $2/kg with >80 % efficiency to compete.
Which countries are leading in hydrogen production and adoption?
Saudi Arabia (NEOM project), Finland (P2X plant), Italy (electrolyser gigafactory), and China (electrolyser manufacturing) are leaders in supply. Adoption remains strongest in refining and chemical industries globally.
What sectors will drive the most hydrogen demand in the future?
Emerging demand is expected in heavy industry (steel, cement), transport (aviation, shipping, trucking), and power generation—especially where electrification isn’t feasible.
Is hydrogen really a viable alternative to fossil fuels?
Yes, particularly in hard-to-electrify sectors. Its viability hinges on reducing costs, building infrastructure, and implementing supportive policies.
How does the hydrogen gap affect climate change goals?
Without demand growth in low-emissions hydrogen, decarbonization stalls and emissions reductions are delayed, undermining net-zero efforts.
Can hydrogen replace natural gas in heating and electricity?
In theory—but cost and infrastructure make electrification or direct renewables more practical in many cases. Hydrogen may play a complementary role in specific regions or sectors.
Conclusion
The hydrogen production gap—where supply is growing faster than demand—poses a significant challenge to the clean energy transition. While global hydrogen demand stood at around 97 Mt in 2023, it remains largely dominated by fossil-based production, with low-emissions hydrogen still only a small fraction of the total. At the same time, new projects are rapidly expanding supply capacity, risking imbalances if demand does not catch up.
To unlock hydrogen’s full potential, coordinated action is urgently needed. This means implementing robust demand-side policies and long-term contracts, developing localized hydrogen hubs and transport infrastructure, prioritizing deployment in sectors where hydrogen is uniquely valuable, and supporting innovation to reduce costs and scale production. If supply and demand evolve in tandem, hydrogen can become a cornerstone of the global clean energy transition. The time to act is now.
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