Coordination Failure or Overambitious Targets? Rethinking EU Hydrogen Policy

Europe’s green hydrogen investments stall behind political ambitions. Informed by a coordination model featuring network effects, this article studies whether the gap between political ambitions and actual investments is a consequence of low payoffs or coordination failure. This distinction matters because coordination failure can be addressed by appropriate policies, whereas low payoffs would require a modification of overambitious targets. The article finds evidence of coordination problems that are reflected in a mismatch between project announcements and final investment decisions. Whether hydrogen targets are overambitious depends decisively on sectoral differences at the demand side. Hydrogen is most promising where it replaces existing fossil-based hydrogen or serves applications that direct electrification cannot easily address. But its prospects are more modest where electrification offers an efficient alternative.