German development minister Svenja Schulze has announced that Germany will contribute €550 million ($572 million) towards a new global green hydrogen economy. Over time, the funding will rise to €2.5 billion as more money is provided by Germany's KfW Development Bank, according to Stefan Wenzel, state secretary in Germany's Federal Ministry of Economics and Climate Protection.

Touting green hydrogen as a vital part of a "just energy transition" away from fossil fuels in emerging economies, Schulze told a press conference at the UN climate conference in Sharm El-Sheikh, Egypt, that the funding will help to replace "natural gas in industrial production" along with fossil fuel-based fertilizers. 

Schulze said developing countries, whose energy needs are set to rise as much as 70% by 2050, according the German government, must be part of the clean energy transition to avoid being "excluded from the value chains of the future." 

With adequate green hydrogen resources, emerging economies can become "independent from fossil fertilizers based on natural gas," she added. This is where "climate action and food security merge," she said. 

Masopha Moshoeshoe, a green economy specialist in the South Africa presidency's investment and infrastructure office, said the access to the German funding would help "fasttrack our transition away from fossil fuels."

South Africa plans to produce 12 million tons of green hydrogen annually by 2050, with over half to be exported to help "decarbonize" neighboring countries, Moshoeshoe said at the press conference. 

What exactly is green hydrogen?

Green hydrogen (GH2) is touted as essential for a successful energy transition, because it can be used to produce climate-neutral fuel and could power hard-to-decarbonize sectors like steel manufacturing, aviation and shipping.

It's produced via electrolysis — splitting water into oxygen and hydrogen. As long as the hydrogen is extracted using renewable energy and not fossil fuels, it produces no CO2 emissions and is considered green.

By adding CO2 from the air, hydrogen can then be turned into a synthetic liquid fuel, which is called power-to-liquid, or fuel gas, known as power-to-gas. The fuel is climate neutral because it doesn't add new emissions to the atmosphere.

Would global green hydrogen trading make sense?

Green hydrogen is still in its infancy, says the International Renewable Energy Agency (IRENA), an intergovernmental agency that promotes renewables.

But production is expected to grow from almost zero today to about 400 million tons by 2050, as major economies like the USA and Germany try to reach net-zero emissions. That's more than four times the 2020 production of gray hydrogen, which is produced from fossil fuel sources like gas.

GH2 produced during times of excess renewable energy could be used to generate power when the sun isn't shining, and the wind isn't blowing, wrote IRENA in a report published in March 2022.

It could also be a boon for countries where renewable energy is abundant throughout the year, particularly in the Global South, because GH2 could be produced " all year long at a nearly constant rate without seasonal fluctuations."

For instance, hydrogen produced in sunny Egypt, which has lots of solar power potential, could be stored cheaply and traded internationally, even over very long distances, said the renewables agency in its report. Already existing natural gas networks could be repurposed to carry hydrogen.

IRENA expects hydrogen trade to be more regionalized and smaller than the big global fossil fuel market that exists today. Still, these prospects are leading to what the agency calls a "new hydrogen diplomacy," especially by countries with limited renewable potential, such as Germany and Japan.

What's at stake for Germany?

"Germany does not currently have enough renewable energy to produce all the climate-neutral liquid fuel and fuel gas it will need in future," Germany's ministry for economic cooperation and development (BMZ) said on its website.

The country will have to import GH2 products in the medium to long term, said the BMZ.

Germany recently created "hydrogen diplomacy" offices in countries like Saudi Arabia and Nigeria. And earlier in November, the country signed two declarations of intent with minsters from Egypt to strengthen cooperation on green hydrogen and liquefied natural gas (LNG).

"Together, we can help to progress the global energy transition and to build up cross-border, climate-neutral energy networks largely based on green hydrogen," Germany's Economy Minister Robert Habeck said at the time.

LNG has been controversially labeled as a bridge fuel to green energy. It's not as emissions heavy as coal but it still produces CO2.

Critics, like Canadian environmental think tank, the International Institute for Sustainable Development, say the use of gas hinders the transition to green energy rather than helping to propel it.

"In the short term, the more intensive trade in Egyptian LNG will help us further diversify our energy imports and to become more independent of Russian gas," Habeck added.

In October, Germany received a shipment of blue hydrogen, which is made using fossil fuels while storing its CO2 emissions, from the United Arab Emirates. 

The BMZ, however, stated that in all its cooperation projects, it will only support green hydrogen made with renewable power sources — and not fossil fuels. 

Edited by: Jennifer Collins and Tamsin Walker