The European Commission's antitrust chief Margrethe Vestager on Monday signed off on the German government's plan to subsidize chemical giant BASF's efforts to generate green hydrogen at its headquarters in Ludwigshafen starting in 2025. 

"This €134 million ($131.5 million) measure enables Germany to help BASF step up renewable hydrogen production capacities, thereby contributing to the greening of the chemical value chain and of the transport sector," Vestager said in a statement.

"The measure approved today will also help Germany replace fossil-based hydrogen in a hard-to-decarbonize industry, and reduce its dependence on imported fossil fuels, in line with the REPowerEU Plan," Vestager said, referring to the EU's new energy program launched in the aftermath of Russia's invasion of Ukraine seeking to save energy, diversify and reduce dependence of Russian fossil fuels and accelerate some areas of green research.

What does the project involve? 

The funding will support the construction and installation of a large electrolyzer at BASF's Ludwigshafen chemicals facility. 

This will separate out the constituent hydrogen and oxygen parts from water. In a bid to ensure the energy-intensive process' carbon footprint is lower, it will be powered exclusively by electricity generated by renewables. 

The facility aims to go online in 2025 and to produce around 5,000 metric tons of renewable hydrogen and 40,000 metric tons of oxygen per year from 2025. It aims to prevent the release of roughly half a million tons of carbon dioxide over an envisaged 15-year period in service. 

What will the hydrogen be used for? 

The main reason BASF is interested in producing green hydrogen is the chemical industry's reliance on the gas for various purposes such as ammonia production and in the refining industry.

Any excess hydrogen the facility in Ludwigshafen might generate would be used for projects such as hydrogen-powered buses and trains in Germany, the EU said. 

According to analysts at Deloitte, the chemicals industry in the EU uses 10 million tons of hydrogen a year. The vast majority of hydrogen currently generated relies on burning fossil fuels to extract it, making it carbon intensive and expensive to produce.

Storage and transportation is similarly difficult because of hydrogen's very low density, meaning it must be compressed and can easily escape.

"The increasing number of hydrogen projects being initiated or announced in the chemical industry is a good indicator of the interest in hydrogen, and stress the urge to act now," Deloitte wrote in a 2021 report titled The Potential of Hydrogen for the Chemical Industry. "Countries outside Europe are also catching up with formalizing hydrogen strategies and projects, and demand for hydrogen in China is expected to hit 60 million tons a year by 2050."

Much of the world is now pursuing similar projects and governments and industry insiders hope for major gains in economic and ecological efficiency in the coming years.

The US, for instance, in June launched a policy called the Hydrogen Energy Earthshot, aiming to reduce the cost of green hydrogen by 80% within a decade, exploring nascent methods like electrolysis. Germany and Canada signed a green hydrogen deal when Chancellor Olaf Scholz visited in August. 

What other reasons did the EU give for its approval?

The European Commission, which can veto or demand alteration to most state assistance in the commercial sector if it deems the activities contravene EU rules, including those on fair competition, listed a series of factors that contributed to its approval on Monday. 

It said the project in Ludwisghafen was "amongst the early adopters of an innovative technology in its sector."

Vestager's office also said the aid would have an "incentive effect," because "the beneficiary would not carry out the investments in renewable hydrogen to the same extent without the public support." 

It also said any impact on competition and trade would be limited, that the proposed figure matched the costs of the project, and noted that in the event of the endeavor being unexpectedly lucrative, mechanisms were in place whereby BASF would partially reimburse the German taxpayer. 

"The aid brings about positive effects that outweigh any potential distortion of competition and trade in the EU," the Commission concluded. 

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msh/sms (dpa, Reuters)