IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v141y2025ics0140988324007515.html
   My bibliography  Save this article

Interactions and distortions of different support policies for green hydrogen

Author

Listed:
  • Hoogsteyn, Alexander
  • Meus, Jelle
  • Bruninx, Kenneth
  • Delarue, Erik

Abstract

This paper explores various policies to support climate-neutral hydrogen production, focusing on their interaction with energy markets and cap-and-trade systems such as the EU emission trading scheme. We develop and deploy a state-of-the-art equilibrium model to examine the effect of hydrogen support policies on the interactions between hydrogen, electricity and emission markets. Our analysis shows that mechanisms remunerating hydrogen production can distort spot prices of electricity and hydrogen more strongly than mechanisms that remunerate hydrogen production capacity. Hydrogen support mechanisms furthermore promote renewable electricity production and deter investment in conventional generation assets. The associated decrease in emissions in the power sector leads to an increase of emissions in the industrial and hydrogen sector due to the waterbed effect in the EU emission trading scheme. Our case study on an emission-capped area inspired by the EU shows that the operational distortions that production-based mechanisms exhibit, typically increase costs more than the investment distortions that capacity-based mechanisms entail.

Suggested Citation

  • Hoogsteyn, Alexander & Meus, Jelle & Bruninx, Kenneth & Delarue, Erik, 2025. "Interactions and distortions of different support policies for green hydrogen," Energy Economics, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007515
    DOI: 10.1016/j.eneco.2024.108042
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988324007515
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2024.108042?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. de Maere d’Aertrycke, Gauthier & Ehrenmann, Andreas & Smeers, Yves, 2017. "Investment with incomplete markets for risk: The need for long-term contracts," Energy Policy, Elsevier, vol. 105(C), pages 571-583.
    2. Winkler, Jenny & Gaio, Alberto & Pfluger, Benjamin & Ragwitz, Mario, 2016. "Impact of renewables on electricity markets – Do support schemes matter?," Energy Policy, Elsevier, vol. 93(C), pages 157-167.
    3. Michael Pahle, Wolf-Peter Schill, Christian Gambardella, and Oliver Tietjen, 2016. "Renewable Energy Support, Negative Prices, and Real-time Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Sustainab).
    4. Özdemir, Özge & Hobbs, Benjamin F. & van Hout, Marit & Koutstaal, Paul R., 2020. "Capacity vs energy subsidies for promoting renewable investment: Benefits and costs for the EU power market," Energy Policy, Elsevier, vol. 137(C).
    5. May, Nils, 2017. "The impact of wind power support schemes on technology choices," Energy Economics, Elsevier, vol. 65(C), pages 343-354.
    6. Schlund, David & Schönfisch, Max, 2021. "Analysing the Impact of a Renewable Hydrogen Quota on the European Electricity and Natural Gas Markets," EWI Working Papers 2021-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    7. Schmidt, J. & Lehecka, G. & Gass, V. & Schmid, E., 2013. "Where the wind blows: Assessing the effect of fixed and premium based feed-in tariffs on the spatial diversification of wind turbines," Energy Economics, Elsevier, vol. 40(C), pages 269-276.
    8. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
    9. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    10. Schlecht, Ingmar & Maurer, Christoph & Hirth, Lion, 2024. "Financial contracts for differences: The problems with conventional CfDs in electricity markets and how forward contracts can help solve them," Energy Policy, Elsevier, vol. 186(C).
    11. Tietjen, Oliver & Lessmann, Kai & Pahle, Michael, 2021. "Hedging and temporal permit issuances in cap-and-trade programs: The Market Stability Reserve under risk aversion," Resource and Energy Economics, Elsevier, vol. 63(C).
    12. Sarah Armitage & Noël Bakhtian & Adam Jaffe, 2024. "Innovation Market Failures and the Design of New Climate Policy Instruments," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 5(1), pages 4-48.
    13. Schlund, David & Schönfisch, Max, 2021. "Analysing the impact of a renewable hydrogen quota on the European electricity and natural gas markets," Applied Energy, Elsevier, vol. 304(C).
    14. Bruninx, Kenneth & Ovaere, Marten & Delarue, Erik, 2020. "The long-term impact of the market stability reserve on the EU emission trading system," Energy Economics, Elsevier, vol. 89(C).
    15. Roach, Martin & Meeus, Leonardo, 2023. "An energy system model to study the impact of combining carbon pricing with direct support for renewable gases," Ecological Economics, Elsevier, vol. 210(C).
    16. Hanspeter Höschle & Hélène le Cadre, & Yves Smeers & Anthony Papavasiliou & Ronnie Belmans, 2018. "An ADMM-based method for computing risk-averse equilibrium in capacity markets," LIDAM Reprints CORE 3020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. Michael Pahle, Wolf-Peter Schill, Christian Gambardella, and Oliver Tietjen, 2016. "Renewable Energy Support, Negative Prices, and Real-time Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Sustainab).
    18. Gonzato, Sebastian & Bruninx, Kenneth & Delarue, Erik, 2021. "Long term storage in generation expansion planning models with a reduced temporal scope," Applied Energy, Elsevier, vol. 298(C).
    19. Gauthier DE MAERE D’AERTRYCKE & Andreas EHRENMANN & Yves SMEERS, 2017. "Investment with incomplete markets for risk: the need for long-term contracts," LIDAM Reprints CORE 2849, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Richard R. Nelson, 1959. "The Simple Economics of Basic Scientific Research," Journal of Political Economy, University of Chicago Press, vol. 67(3), pages 297-297.
    21. Meus, Jelle & De Vits, Sarah & S'heeren, Nele & Delarue, Erik & Proost, Stef, 2021. "Renewable electricity support in perfect markets: Economic incentives under diverse subsidy instruments," Energy Economics, Elsevier, vol. 94(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guillotin, Arnauld & Bergaentzlé, Claire & Dussartre, Virginie & Heggarty, Thomas & Massol, Olivier & Perez, Yannick, 2025. "Hydrogen subsidies under three pillar-frameworks: A Europe-United States multi-stakeholder comparison," Renewable and Sustainable Energy Reviews, Elsevier, vol. 211(C).
    2. Andrzej Graczyk & Paweł Brusiło & Alicja Małgorzata Graczyk, 2025. "Hydrogen as a Renewable Fuel of Non-Biological Origins in the European Union—The Emerging Market and Regulatory Framework," Energies, MDPI, vol. 18(3), pages 1-39, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meus, Jelle & De Vits, Sarah & S'heeren, Nele & Delarue, Erik & Proost, Stef, 2021. "Renewable electricity support in perfect markets: Economic incentives under diverse subsidy instruments," Energy Economics, Elsevier, vol. 94(C).
    2. Meus, Jelle & Van den Bergh, Kenneth & Delarue, Erik & Proost, Stef, 2019. "On international renewable cooperation mechanisms: The impact of national RES-E support schemes," Energy Economics, Elsevier, vol. 81(C), pages 859-873.
    3. Neuhoff, Karsten & May, Nils & Richstein, Jörn C., 2022. "Financing renewables in the age of falling technology costs," Resource and Energy Economics, Elsevier, vol. 70(C).
    4. Pahle, Michael & Quemin, Simon & Osorio, Sebastian & Günther, Claudia & Pietzcker, Robert, 2025. "The emerging endgame: The EU ETS on the road towards climate neutrality," Resource and Energy Economics, Elsevier, vol. 81(C).
    5. Veenstra, Arjen T. & Mulder, Machiel, 2024. "Impact of Contracts for Differences for non-carbon electricity generation on efficiency of electricity market," Energy Economics, Elsevier, vol. 136(C).
    6. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    7. Zhang, Jiekuan, 2023. "Emissions trading scheme and energy consumption and output structure: Evidence from China," Renewable Energy, Elsevier, vol. 219(P1).
    8. Johanndeiter, Silke & Bertsch, Valentin, 2024. "Bidding zero? An analysis of solar power plants’ price bids in the electricity day-ahead market," Applied Energy, Elsevier, vol. 371(C).
    9. Abada, I. & Ehrenmann, A., 2025. "Mitigating Market Incompleteness with Minor Market Distortions: The Case of Negative Spot Prices For Electricity," Cambridge Working Papers in Economics 2525, Faculty of Economics, University of Cambridge.
    10. Winkler, Jenny & Pudlik, Martin & Ragwitz, Mario & Pfluger, Benjamin, 2016. "The market value of renewable electricity – Which factors really matter?," Applied Energy, Elsevier, vol. 184(C), pages 464-481.
    11. Muñoz, Francisco D. & Suazo-Martínez, Carlos & Pereira, Eduardo & Moreno, Rodrigo, 2021. "Electricity market design for low-carbon and flexible systems: Room for improvement in Chile," Energy Policy, Elsevier, vol. 148(PB).
    12. Dimanchev, Emil & Gabriel, Steven A. & Reichenberg, Lina & Korpås, Magnus, 2024. "Consequences of the missing risk market problem for power system emissions," Energy Economics, Elsevier, vol. 136(C).
    13. Roach, Martin & Meeus, Leonardo, 2023. "An energy system model to study the impact of combining carbon pricing with direct support for renewable gases," Ecological Economics, Elsevier, vol. 210(C).
    14. Ulrich J. Frey & Martin Klein & Kristina Nienhaus & Christoph Schimeczek, 2020. "Self-Reinforcing Electricity Price Dynamics under the Variable Market Premium Scheme," Energies, MDPI, vol. 13(20), pages 1-19, October.
    15. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2016. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply," Discussion Papers of DIW Berlin 1621, DIW Berlin, German Institute for Economic Research.
    16. Soete, Luc & Weel, Bas ter, 1999. "Schumpeter and the Knowledge-Based Economy: On Technology and Competition Policy," Research Memorandum 004, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    17. Roper, Stephen & Hewitt-Dundas, Nola & Love, James H., 2004. "An ex ante evaluation framework for the regional benefits of publicly supported R&D projects," Research Policy, Elsevier, vol. 33(3), pages 487-509, April.
    18. Pottier, Antonin & Hourcade, Jean-Charles & Espagne, Etienne, 2014. "Modelling the redirection of technical change: The pitfalls of incorporeal visions of the economy," Energy Economics, Elsevier, vol. 42(C), pages 213-218.
    19. Quemin, Simon & Trotignon, Raphaël, 2021. "Emissions trading with rolling horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    20. Jean Charles Hourcade & Antonin Pottier & Etienne Espagne, 2011. "The environment and directed technical change : comment," CIRED Working Papers hal-00866435, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007515. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.