Green Hydrogen in Europe: Production, Trading, and the Swiss Opportunity
Green hydrogen — produced through the electrolysis of water using renewable electricity — has emerged as one of the most significant vectors for deep decarbonisation in sectors where direct electrification is technically or economically unfeasible. Europe has positioned itself at the forefront of the global hydrogen transition, with ambitious production targets, substantial public funding, and a rapidly developing regulatory framework. For Swiss energy trading firms, the emergence of hydrogen as a tradeable energy commodity represents a generational opportunity to apply existing trading expertise to an entirely new market.
The Hydrogen Colour Spectrum
Hydrogen is classified by its production method, commonly described through a colour taxonomy:
Grey hydrogen: Produced from natural gas through steam methane reforming (SMR), without carbon capture. Grey hydrogen accounts for the vast majority of current global production (approximately 95 million tonnes per annum) and generates significant CO2 emissions — approximately 9-12 kg of CO2 per kg of hydrogen.
Blue hydrogen: Produced from natural gas with carbon capture and storage (CCS). Blue hydrogen reduces but does not eliminate lifecycle emissions, depending on capture rates and methane leakage throughout the value chain.
Green hydrogen: Produced through water electrolysis powered by renewable electricity. When the electricity source is genuinely additional renewable generation, green hydrogen has near-zero lifecycle emissions, making it the preferred pathway for deep decarbonisation.
Pink/purple hydrogen: Produced through electrolysis powered by nuclear electricity. While low-carbon, this pathway faces acceptance challenges in some European countries with anti-nuclear policies.
The European regulatory framework — particularly the EU’s delegated acts on renewable hydrogen — defines specific criteria that hydrogen must meet to qualify as “renewable” under EU law, including requirements for additionality, temporal correlation, and geographic correlation of the renewable electricity used.
European Hydrogen Strategy
The EU Hydrogen Strategy, published in 2020 and reinforced through the REPowerEU plan, sets ambitious targets for green hydrogen production:
Phase 1 (to 2024): Installation of at least 6 GW of electrolyser capacity, producing up to 1 million tonnes of renewable hydrogen per annum.
Phase 2 (2025-2030): Scale-up to at least 40 GW of electrolyser capacity within the EU, with an additional 40 GW in neighbouring regions for export to Europe. Target production of 10 million tonnes of renewable hydrogen per annum, complemented by 10 million tonnes of imports.
Phase 3 (2030-2050): Full commercial scale deployment of hydrogen across all hard-to-abate sectors.
These targets are supported by substantial funding mechanisms:
- The Important Projects of Common European Interest (IPCEI) framework has allocated billions of euros to hydrogen projects across member states.
- The European Hydrogen Bank, launched in 2023, supports green hydrogen production through competitive auctions, providing a premium per kg of hydrogen produced.
- National hydrogen strategies in Germany, France, the Netherlands, Spain, and other EU members provide additional funding, tax incentives, and regulatory support.
Electrolysis Technologies and Economics
Three main electrolysis technologies are commercially available or in advanced development:
Alkaline electrolysis (AEL): The most mature technology, with decades of industrial deployment. AEL systems are characterised by lower capital costs but limited dynamic response capability and lower current densities. Capital costs typically range from EUR 800-1,200 per kW.
Proton Exchange Membrane (PEM) electrolysis: Offers superior dynamic response (important for coupling with variable renewable generation), higher purity hydrogen output, and a more compact footprint. PEM systems are typically more expensive than alkaline, with capital costs of EUR 1,000-1,500 per kW, but costs are declining rapidly with scale.
Solid Oxide Electrolysis (SOEC): Operates at high temperatures and can achieve higher electrical efficiency than low-temperature technologies. SOEC is at an earlier stage of commercialisation but is attracting significant investment from major industrial players.
The economics of green hydrogen production are dominated by three factors:
Electricity cost: Representing 50-70% of production cost, the cost of renewable electricity is the primary determinant of green hydrogen economics. At an electricity cost of EUR 30-40/MWh, green hydrogen production costs approximately EUR 3.50-5.00 per kg.
Electrolyser capital cost: Scale-up and manufacturing efficiency improvements are expected to reduce electrolyser costs by 50-70% by 2030.
Capacity utilisation: Higher operating hours reduce the per-unit contribution of capital costs, but green hydrogen production from variable renewables (wind and solar) typically achieves lower utilisation than grid-connected or fossil-based production.
Current green hydrogen costs of EUR 4-6 per kg are above the EUR 1.50-2.50 per kg range for grey hydrogen, but the gap is narrowing as renewable electricity costs decline, electrolyser costs fall, and carbon pricing increases the effective cost of grey hydrogen.
Hydrogen Trading and Infrastructure
The development of hydrogen as a tradeable commodity requires new infrastructure, market mechanisms, and trading frameworks:
Pipeline infrastructure: The European Hydrogen Backbone initiative, supported by major gas transmission system operators, proposes a network of approximately 40,000 km of hydrogen pipelines across Europe by 2040, largely based on repurposed natural gas pipelines. This network would enable cross-border hydrogen trade and connect production regions (North Sea, Iberian Peninsula, North Africa) with demand centres (Germany, Benelux, Northern Italy).
Import terminals: Several European countries are planning hydrogen import infrastructure, including terminals for liquid hydrogen, ammonia (as a hydrogen carrier), and liquid organic hydrogen carriers (LOHCs). Rotterdam, Wilhelmshaven, and Marseille are among the leading candidates for major hydrogen import hubs.
Storage: Underground hydrogen storage in salt caverns, depleted gas fields, and purpose-built facilities is being developed to manage seasonal supply-demand imbalances. The existing gas storage infrastructure in the Netherlands, Germany, and the UK offers potential for conversion to hydrogen service.
Market design: The development of a hydrogen spot market and benchmark pricing is at an early stage. Several initiatives are underway to establish reference prices for hydrogen, including assessments by price reporting agencies (Platts, Argus) and the development of exchange-traded hydrogen derivatives. The EU’s Hydrogen and Decarbonised Gas Market Package provides a regulatory framework for hydrogen market development.
Swiss Positioning
Switzerland’s role in the hydrogen economy is shaped by several factors:
Domestic hydrogen initiatives: Switzerland has been a first mover in hydrogen mobility, with a consortium of companies (H2 Energy, Hyundai, and fuel retailers) deploying hydrogen fuel cell trucks on Swiss roads since 2020. The project, which uses green hydrogen produced from Swiss hydropower, is one of the most advanced commercial hydrogen mobility deployments globally.
Trading hub potential: Swiss commodity trading firms are well-positioned to apply their expertise in physical commodity logistics, risk management, and market-making to the emerging hydrogen market. The transferability of skills from gas trading and power trading to hydrogen is substantial.
Research excellence: Swiss research institutions — including ETH Zurich, EPFL, and Empa — are at the forefront of hydrogen technology research, covering electrolysis, storage, fuel cells, and systems integration.
Financing: Swiss financial institutions are actively financing hydrogen projects across Europe, leveraging the country’s deep capital markets and expertise in infrastructure and project finance.
However, Switzerland faces challenges in hydrogen infrastructure development. The country’s mountainous terrain complicates pipeline routing, and its relatively small industrial base limits domestic hydrogen demand. Switzerland’s hydrogen strategy emphasises participation in the European hydrogen market through trading and technology rather than large-scale domestic production.
End-Use Applications
Green hydrogen is expected to find application across several hard-to-abate sectors:
Industry: Steel production (using hydrogen-based direct reduction instead of coal-based blast furnaces), ammonia production (replacing grey hydrogen as feedstock), and refining (replacing grey hydrogen for hydrotreating and hydrocracking) represent the largest potential demand centres.
Transport: Heavy-duty road transport, shipping, and aviation (through hydrogen-derived synthetic fuels) are target applications where battery electrification faces limitations.
Power: Hydrogen-fuelled turbines and fuel cells can provide dispatchable power generation and grid balancing services, complementing variable renewable generation.
Heating: Hydrogen blending in gas networks and dedicated hydrogen heating systems are being explored as alternatives to heat pump electrification, particularly for industrial heat applications.
Outlook
The European green hydrogen market is at an inflection point. The regulatory framework is largely in place, technology is commercially available, and public funding is substantial. The key challenge is bridging the cost gap with grey hydrogen during the scale-up phase — a challenge that carbon pricing, production subsidies, and demand-side mandates are designed to address.
For Swiss energy trading firms, hydrogen represents a new commodity class with familiar characteristics — physical logistics, quality specifications, pricing benchmarks, and risk management requirements. The firms that invest early in hydrogen market expertise, infrastructure relationships, and customer development will be best positioned to capture value as the market matures.
Donovan Vanderbilt is a contributing editor at ZUG OIL, covering global energy commodity markets and Swiss trading hub dynamics for The Vanderbilt Portfolio AG, Zurich.