Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331596 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12130
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
Whereas hydrogen is currently a marginal energy carrier, the aim of the EU is to trigger low-carbon hydrogen production that covers around 10 percent of EU's energy needs by 2050. If this comes true, it will be an energy revolution. We study competition between green and blue hydrogen by proposing a Salop model that encompasses the value chains for hydrogen and CCS. For blue hydrogen, we distinguish between central production—natural gas is transformed to hydrogen close to the extraction site and hydrogen is then transported over a long distance via terminals to the hydrogen consumers—and local production—natural gas is transformed to hydrogen at terminals located near the hydrogen consumers. We find that mark-ups are highest under central blue hydrogen production, which implies that total production of hydrogen, supply of blue hydrogen, and share of plants investing in carbon capture facilities are lower under central production than under local production of blue hydrogen. We provide numerical simulations of the alternative market outcomes and also the corresponding social outcomes, and calculate the magnitude of policy instruments that should be used in order to obtain the social outcomes under central and local blue hydrogen production.
Subjects: 
blue hydrogen
green hydrogen
carbon capture and storage
Salop circle
carbon tax
market imperfections
network externalities
JEL: 
H23
L13
Q35
Q38
Document Type: 
Working Paper
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