Benefits of an Optimal Policy-Induced Diffusion Pathway for Green Hydrogen Uptake in Refineries Globally

Abstract

Abstract Decarbonising the oil refining industry is becoming increasingly urgent in realising a sustainable future as this sector is responsible for 4% of global greenhouse gas emissions. Replacing grey hydrogen used as feedstock for hydrotreating and hydrocracking, by green hydrogen, could significantly reduce these emissions. The absence of market uptake for green hydrogen is associated with its low cost-competitiveness. There is also a lack of appropriate supporting policy instruments. This work develops a novel temporal market penetration optimisation model, which aims to synthesise a cost-effective policy-induced diffusion pathway to reach 100% green hydrogen uptake in 512 refineries globally by 2050. The model determines the optimal mix of market-based policies required to reduce cost and generate demand for green hydrogen in refineries leading to further cost reductions. The model is applied to show how to further reduce total mitigation cost for government and industry by exploring diffusion pathways: an optimisation-led pathway (scenario 1) and S-shaped diffusion curve based on Rogers’ innovation diffusion theory (scenario 2). Results indicate 100% uptake can happen cost-effectively in a shorter time and 16% reduction in mitigation cost is possible with the optimisation-led pathway. A mix of carbon tax (from 27.98 $/tCO2 to 102.50 $/tCO2), contracts for difference (subsidy intensity from 300 $/tCO2 to 307.5 $/tCO2) and renewable electricity tax credit (from 0.04 $/kWh to 0.043 $/kWh) are required to replace grey with green hydrogen. Asia and North America are early adopters while the other regions are spread between early majority, late majority, and laggards.