Pipeline Regulation for Hydrogen: Choosing Between Paths and Networks

The reliance on hydrogen as an energy carrier, as part of the transition towards a low-carbon economy, will require the development of a dedicated pipeline infrastructure. This deployment will be shaped by regulatory frameworks governing investment and access conditions, ultimately structuring how the commodity is traded. The paper assesses the market design for hydrogen infrastructure, assuming the application of unbundling requirements. For this purpose, it develops a general economic framework for regulating pipeline infrastructure, focusing on asset specificity, market power and access rules. The paper focuses on the scope of application of infrastructure regulation, which can be set to individual pipelines or to entire networks. When treated as entire networks, the infrastructure can provide flexibility to enhance market liquidity. The paper further compares the regulations applied to the US and EU natural gas transport markets. Based on the challenges the EU hydrogen sector faces, including the absence of wholesale concentration and the large infrastructure needs, the paper draws lessons for a regulatory framework establishing the main building blocks of a hydrogen target model. The paper recommends a review of the current EU regulatory framework in the Hydrogen and Decarbonised Gas Package to i) enable the application of regulation to individual pipelines rather than entire networks; ii) enable the use of negotiated third-party access, light-touch regulation and possibly market-based coordination mechanisms for the access to the infrastructure and, iii) allow for a more significant role for long-term capacity contracts to underpin investment.