When Hydrogen Fails: Rising Costs And Hard Choices For Heavy Industry

More than 60 major green hydrogen projects have been cancelled or placed on hold this year, signalling the strongest reversal yet in industry sentiment. Two years ago, developers and offtakers appeared willing to pay a green premium to secure early positions in the hydrogen economy. That appetite has now evaporated. Cost pressures, policy uncertainty and weak demand signals have pushed both energy firms and industrial customers into a defensive posture, reshaping expectations for the pace of Europe’s green hydrogen rollout.

The fundamental issue is that green hydrogen remains in an early scale-up phase. Just as wind and solar went through periods of slow deployment and high capital costs before becoming competitive, hydrogen is experiencing the same growing pains. Electrolysers are not yet produced at the scale required for meaningful cost declines; supply chains remain fragmented; and project economics depend heavily on renewable generation that itself faces grid, permitting and financing constraints. Even in regions with abundant cheap renewables, green hydrogen typically costs at least twice as much as grey hydrogen, not only due to the cost of electricity, but because of the need for entirely new infrastructure, including storage, compression, distribution networks and dedicated pipelines.

These cost barriers have weakened industrial appetite for long-term offtake agreements, which in turn has slowed the entire project pipeline. Firms that were willing to pay a green premium a few years ago are now reluctant to lock in higher input costs, especially in energy-intensive sectors competing globally. But the consequence of holding back demand today is that large-scale green hydrogen supply will not be available when firms need it later.

So what are the implications for industrial firms if green hydrogen isn’t available in the coming years – and what should they do?

• Plan for structurally higher carbon costs, not a temporary delay.

  The most direct consequence is escalating carbon compliance costs. Many heavy industrial sectors – such as steel, chemicals, cement, glass and refining – built their decarbonization plans around the assumption that low-carbon hydrogen would become available during the late 2020s. With major projects now delayed or cancelled, firms must continue operating high-emission assets, as the EU ETS tightens. For hydrogen-intensive industries such as ammonia or certain chemicals, if carbon prices reach €120-150/tCO₂ by 2030, a mid-sized plant producing 100,000 tonnes of CO₂ annually from hydrogen use would face €12-15 million in annual compliance costs, while larger facilities could incur €50 million or more. These recurring charges progressively erode margins and reduce the capital available for facility upgrades or investment in low-carbon technologies.

• Diversify their decarbonization pathways, rather than waiting for hydrogen to arrive.
  If green hydrogen isn’t available, industrial firms face hard choices. Some may accelerate investment in partial electrification, efficiency upgrades, or carbon capture and storage (CCS) where feasible, while others could delay major decarbonization projects until viable hydrogen supply emerges. A few may even consider relocating production or scaling back operations to manage costs. Others may simply double down on grey hydrogen, accepting higher carbon costs and the risk of missing decarbonization targets in order to maintain output and competitiveness. In short, firms will be forced to adapt through a combination of technology shifts, operational adjustments and trade-offs, to survive in a high-carbon-cost environment.

To learn more about technologies helping commercial and industrial firms with their energy transition, keep your eyes peeled for the upcoming Verdantix Tech Roadmap: Commercial and Industrial Energy Transition Technologies.